INTEREST ON LOANS

Tax planning 684 views 6 replies

A private limited company has given a corporate guarantee to a bank, for the prompt repayment of loan taken by another private limited company. The borrower company failed to repay the loan and hence the guarantor company inorder to save its assets and business raised  mortgage loan from a bank to repay the debt. In such circumstances the following points need to be analysed:

1. whether the entire borrowed money paid towards the repayment of guarantee's debt can be written of as expenditure in the year of payment as the entire money is paid to safeguard the assets of the guarantor company and the incomne generating source.

2.whether  the interest on borrowed loan of guanrantor company can be written of as expenditure

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Answers pls....

 Company can lodge the claim to the defaulting Company along with Intt.

 

He will not claim it as an expenditure as such intt belongs to defaulting Company for the application of funds used by them.

Paying Company treat it as a loan along with intt. paid for.

Was there any consideration like guarantee commission  paid to guarantor company for guarantee of repayment by the borrowing company?

If the borrowing company had offered any asset as mortgage, the Bank normally keeps the funds received from Guarantor in a suspense account and continues execution of mortgage under Securitisation Act so that guarantors rights to recovery from the defaulting company are not impaired. For the guarantor they have rights to recover from defaultor. Now if the amount after realisation of mortgaged assets and hypothecation is not sufficient to meet the loan, then the Bank will adjust the money received from Guarantor and return any excess to Guarantor. Guarantor can sue the company at the time he pays to the bank, but once all assets are appropriated of borrower, the guarantor will only have a paper company to sue in case there are other secured creditors.


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