Rent or interest

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 February 2013 Dear Sir,
There is a partnership firm, commenced on 01-02-2013, and firm has 3 partners. Firm will carry on the business of bricks manufacturing. One partner has provided his agriculture land for the formation of kiln and also invested around 12 lacs.
Now please advise on following points-

1.Whether firm should pay rent to that partner or give him interest @12% on the market value of land, by considering it his capital investment.

2. Suppose market value of that land is 15 lacs, then what should be opening balance of capital a/c of that partner-
A. 12 lacs + 15 lacs = 27 lacs.
B. Only 12 lacs that is invested in cash.

Please clarify.

CA.Sourabh Sethia

CA.Sourabh Sethia (Expert)
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17 February 2013 The Value of Land will depend in the hands of the firm.
but it would be better to record the amount at market value therefore the Agriculture Land will be shown as Fixed Asset at Rs.15 Lac and Rs.15 Lac will be added to Capital of that partner, if you treat the land as capital investment

if you pay Interest it would be Rs.30000/-
and you can pay the Rent as per the Rates prevailing and compare both Rent & Interest
so its your decision to decide

Querist : Anonymous

Querist : Anonymous (Querist)

17 February 2013 Which option is practically better?
Please advise me. It's urgent.

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CA.Sourabh Sethia

CA.Sourabh Sethia (Expert)
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18 February 2013 Option is to be decided by you
both are practical.

one Advantage in Interest is that you dont have the tension of TDS

but if you pay Rent you have to deduct TDS if its more than the Monetary limit (180000/-)