Rent received from Bank Building, Income Tax

[satbir singh wahi]

A partnership firm has rented building to Bank.Now whether interest on Partners capital is deduductible as interest paid from rental income after deducting municipal taxes and 30 percent .

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[Mohit Jain]

As per Sec 24 (b), states also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

In my view, if the partnership deed does not contain any specific provision for Interest on capital and Funds (Capital by partners) have been specifically introduced to acquire, construct the building with a written interest payment clause mentioning the percentage and if the partners submit an interest certificate in this regard to the firm, the same may be claimed as an expense under Sec 24 (b),.

However, if the partnership deed contains a general clause of interest on capital, then it will be difficult for the assessee to show the nexus between fund utilized for business purpose and funds utilized for purchase of property and the amount outstanding thereon. And, A.O. will reject the deduction prima facie.