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Interest paid to partners on capital is not a statutory allowance u/s 40(b) but is an expenditure u/s 36(1) - Sec. 14A read with Rule 8D is applicable

Commentaries / Editorials - Dated:- 5-2-2016 - Relevant Extract of the decision of the Tribaunl in A.C.I.T. 19 (3) , Mumbai Versus M/s Pahilajrai Jaikishin and M/s Pahilajrai Jaikishin Versus D.C.I.T. 19 (3) , Mumbai - 2016 (2) TMI 170 - ITAT MUMBAI Thus, we hold that interest paid by the assessee firm to the partners on capital contribution is covered as an expenditure as envisaged u/s 36(1)(iii) of the Act and the assessee firm has to firstly establish its claim of deduction of interest on cap .....

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this Act as envisaged u/s 14A of the Act, the same shall only be allowed as deduction only against the exempt income u/s 14A of the Act or in other words , such interest expenditure on the partner capital shall be disallowed u/s 14A of the Act. Our above discussions will also take care of the contention of the assessee firm that under the presumptive scheme of taxation under Section 44AD and 44AE of the Act, the salary and the interest payable to partner is deducted from the income of the firm c .....

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he same is incurred in relation to the income which is not includible in the total income u/s Section 14A of the Act and in that circumstances this interest paid to partners are to be considered as allowable expenditure only against the exempt income u/s 14A of the Act provided other conditions are fulfilled. Thus, we hold that the interest on partner s capital to the tune of ₹ 12,66,679/- as computed by the AO u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 is an expend .....

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