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Section 37(1) and 36(1)(iii)

Tax queries 543 views 1 replies

Hi,

The facts of the case are as follows. A Co-operative Society covered under Co-operative Societies Act paid interest on share captial to the share holders, complying with the Societies Act. The Revenue disallowed such interest u/s 36(1)(iii) stating that the same is NOT paid on borrowed capital.

The querry is, whether the same interest can be claimed u/s 37(1) basing on the following arguments.

All the conditions of Section 37(1) are complied with, viz.

i) The expenditure is revenue in nature. (ii) The expenditure is wholly for the purposes of business. (iii) The same is NOT in the nature of personal and (iv) The is same is not covered u/s 30 to 36.

The fourth requirement u/s 37(1) is applicable on the following reasons.

a)The interest u/s 36 is applicable for BORROWED CAPITAL. But, the interest under discussion is on SHARE CAPITAL.

b)The Revenue disallowed the expenditure stating that the same is NOT covered u/s 36(1)(iii).

Further, the expenditure is not illegal or opposed to public policy.

Replies (1)

I guess... the expenditure for Interest on Share Capital is not for business purposes...

it in no way can be tied to a transaction with non owners.. again, it is not essential for the business.. its just an arrangement to compensate the owners for there contribution to the common fund in place of the normal dividend  that should have been paid...

But sorry to say that i dont know much about Soceities and so i can b wrong...wait for other posts please


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