Loan taken for payment of income tax

This query is : Resolved

Sumit Kumar (Querist)
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25 August 2011 Dear Sir,

I sold a property for12 crore on which capital gain tax was 2 crore @ 20% but failed to pay advance tax on time. Now at the time of payment i take a loan of rs.1.75 crore from my other group companies @ 8% to pay my income tax.

My Quetion to you is that weather the Interest on these loan would be eligible as business expenditure.

please resolved it with specific case laws and income tax section.

Note: I am a NBFC Company.

Thanking You,

CA SkMallawat

CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 Read the 5th para of the below link of Section 40

http://www.vakilno1.com/bareacts/incometaxact/s40.htm

As you will notice the words used in the para are,

"(ii) ANY SUM PAID---- ON ACCOUNT OF----- any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains"

i.e whether that be for interest on loan taken, interest u/s 234A/B/C or income tax expense itself, it will not be deductible.

Further reading the below link it will clarify all your doubts.

http://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2005ITAct/casesec40(a)(ii).htm

Hope this helps you...