INTEREST

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

10 April 2011 A COMPANY LIKE SHARA OFFERS ITS CUSTOMERS TO GIVE LAND AND IF THE CUSTOMER IS NOT INTERESTED THAN THE COMPANY WILL PAY BACK THE MONEY WITH DECLARED INTEREST AFTER SPECIFIC TIME. FOR EXAMPLE A CUSTOMER PAYS RS 100 EVERY MONTH FOR 1 YEAR THEN HE WILL GET LAND WORTH RS 1200 OR RS 1200 WITH INTEREST OF RS 500. NOW THE QUESTION IS WHETHER WE WILL TAKE INTEREST FOR THAT FINACIAL YEAR AS EXPENSES OR NOT.

seshadri

seshadri (Expert)
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10 April 2011 We have see the agreement to find out whether the ownership is transferred is and if so when?
If the ownership is transferred (even as a lease hold right) then it is not interest otherwise it would be interest and we have to accrue interest each year.
Even if the ownership is transferred, there is a coninngent liability, if there is an obligtion of re-purchase by the company, we have to mention such sums in the notes to accounts.
We have to go through the agreement to be more clear.

Querist : Anonymous

Querist : Anonymous (Querist)

11 April 2011 SIR THANKS FOR YOUR VALUABLE SUGGESTION. IN THE AGGREMENT THE COMPANY ONLY WRITE THAT PAY FOR 12 MONTHS @RS 100 AND AT THE END THE CUSTOMER WILL GET A LAND WORTH RS 1200 OR RS 1200 PLUS RS 500 AS INTEREST. SO THERE IS NO MATTER OF TRANSFERING OF OWNERSHIP. AND IT IS CLEAR THAT ONE CAN NOT GET LAND WORTH RS 1200. SO ALL THE CUSTOMERS WILL CHOOSE FOR RS 1500. IN THIS CASE CAN WE TAKE INTEREST AS EXPENSE AND PAY LESS AMOUNT OF TAX?

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seshadri

seshadri (Expert)
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11 April 2011 The customer pays Rs. 100 each and gets land worth Rs. 1200 or Rs. 1200+ Rs. 500 as interest.
In my view only at the end of 12 months and only if the land is not given, the company can claim Rs. 500 as interest.
Thus the liability of payment of interest arises at the end of 12th month only.
And only if the company pays interest, they can claim the same as expenses.

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