Does proviso to section 36(1)(iii) apply on construction contract i.e. interest paid on capital borrowed for acquisition of an asset is not allowable as deduction if the same relates to a period beginning from the date of borrowing till the date on which such asset is first put to use.

Manual - ICDS III : Construction Contracts

Since the capital borrowed by a contractor for the purpose of executing a construction contract is not in the nature of capital borrowed for acquisition of an asset. A contractor does not acquire an asset under a construction contract. As a result, interest paid on capital borrowed
by a contractor attributable to a construction contract would not be hit by the embargo created under proviso to section 36(1)(iii) of the Act. As a result, interest paid on capital borrowed by a contractor attributable to a construction contract would be allowed as a deduction.

Dated: 25-8-2017