jassi (ACA) (181 Points)
24 June 2010
A co. purchased land on hire purchase.
Installments comprise of Principal amount and interest.
The land is still plain and no construction has been started yet.
Please tell that whether this interest paid should be disallowed under Sec 36 (iii)
DT Fundas - Tarun rustagi
( Author)
(1150 Points)
Replied 24 June 2010
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
Aditya Maheshwari
(CA in Practice)
(35867 Points)
Replied 24 June 2010
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.
Amir
(Learner)
(4016 Points)
Replied 25 June 2010
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..
Shudhanshu Agrawal
(Business)
(2570 Points)
Replied 25 June 2010
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.
DT Fundas - Tarun rustagi
( Author)
(1150 Points)
Replied 25 June 2010
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
Shudhanshu Agrawal
(Business)
(2570 Points)
Replied 25 June 2010
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.
DT Fundas - Tarun rustagi
( Author)
(1150 Points)
Replied 25 June 2010
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
Shudhanshu Agrawal
(Business)
(2570 Points)
Replied 25 June 2010
Dear Tarun,
I am taking you wrong. Yes you are correct. According to me also Section 36(iii) should not be applicable here.
Aditya Maheshwari
(CA in Practice)
(35867 Points)
Replied 25 June 2010
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.
PRATEEK
(ACA)
(102 Points)
Replied 25 June 2010
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.
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