Business Expenditure U/s 36

[HIMANSHU JARIWALA]

Mr. X has received remuneration from partnership firm. Which he treated as his business income u/s 28(v). Against this income he claimed interest exps. which he paid on unsecured loan from from various parties. The A.O. wants to disallow this interest exps arguing that remuneration received is salary income and interest exps can not be allowed. Can Mr. X Claim Intrest paid on unsecured loan as exps against remunuration received from partnership firm which is treated as business income U/s 28(v). Pls. advise... Pls indicate case law if any?

[CA Rachit Agarwal]

Section 28(v) has following parts-

1. Interest- Earned from the Capital Contribution made to Partnership Firm

2. Salary- Earned from his efforts and managing business.

It is definite that to earn salary, no interest payments required. Hence interest payments not be allowed as deductions.

However as soon as salary and interest both comes under the perview of "Income from Business/Profession", hence both could be netted off (i.e Salary from firm and interest payments to firm) to compute the income from said head.

AI Summary

Dispute Over Classification of Mr. X's Remuneration as Business Income vs. Salary Under Section 28(v) of Income Tax Act Mr. X received remuneration from a partnership firm, which he classified as business income under Section 28(v) of the Income Tax Act. He claimed interest expenses on an unsecured loan against this income. The Assessing Officer (A.O.) intends to disallow the interest expenses, arguing that the remuneration is salary income, not business income. CA Rachit Agarwal clarified that while interest payments are not needed to earn salary, both salary and interest fall under 'Income from Business/Profession.' Therefore, they can be offset to compute income under this category.