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Interest on Capital u/s 208 of Companies Act

10 May 2007

Sec 208 of Companies Act provides for Interest on Capital when the Company has not commenced business.

this interest is more in nature of dividend. is this also deductible as expense under Income Tax Act as business expense

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Jai Singh Negi (31 Points)
Replied 11 June 2007

The interest under section 208 is paid by company when company undertakes the project having long gestation period,during which company fails to generate enough profit. Hence section 208 allows company to pay interest to the shareholder out of its capital fund. The interest so paid are to be added to the cost of the project.therefore the allowability of such interest does not arise as it does not appear in profit and loss account of the company