Disallowance under sec 36 (iii)

yes u can claim interest.add principal amount to cost of assets and u can claim interest amount by debited in profit & loss according to explanation of section 32.

regards

tarun rustagi

If further construction is going to take palce on the land and the land has been grouped under capital work in progress then the interest should be capitalised.

If land ready for its intended use then charge interest to profit & loss a/c and the same is allowable.

Hi Jassi,

With due respect I would like to differ with above posts.

Land in itself is a separately identifiable asset from Building and hence the interest paid for its acquisition shall be traeted as "Revenue expenditure" even if the land is acquired for constructing a building.

Principal amount will be the cost of land..

Agreed with Aditya..

In the Section 36(iii) the meaning of the word put to use is very important. If loan is only for purchase of land , as mentioned by you that land is taken on hire purchase, in that case interest shall be allowed as the land will be ready to use for business or profession from the day it was purchased.

dear shudhanshu i think that loan and hire purchase are two different things.

and dear amir bhai on which point u are not agreed with me because ur post is same as mine.

regards

tarun rustagi

Dear Tarun,

My point of discussion is not loan or hire purchase but its the words which are mentioned there. Moreover Section 36(iii) does not talk about hire purchase but its about capital borrowed for assets.

dear sudhanshu plz don't take me wrong. i am discussing this point with you because where is the capital borrowed in the given case as u submit. infact i think there is no applicability of sec.36. make me correct if i am wrong

Dear Tarun,

I am taking you wrong. Yes you are correct. According to me also Section 36(iii) should not be applicable here.

Yes and the discussion is going on with the queriest not responding as to what is the nature of land out here. If the land is ready to use then interest is allowable.

 AS PER AS 16 "BORROWING COST" INTEREST EXPENDITURE NEED TO BE CAPITALIZED TILL THE ASSET IS READY TO USE I.E AN ASSET SHOULD BE A  QUALIFING ASSET SINCE LAND IS NOT A Q.A THEREFORE THE INTEREST AMOUNT WILL BE TREATED AS A NOMINAL EXPENDITURE AND IT WILL BE A ALLOWED EXPENDITURE.