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        Income Tax

        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.

        25 August, 2017

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        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.

         

        Proviso to section 36(1)(iii) inapplicable to construction contracts; interest on contract borrowings is deductible for execution purposes. Proviso to section 36(1)(iii) does not apply to borrowings by contractors for executing construction contracts because such borrowings are not for acquisition of an asset; therefore interest on capital borrowed attributable to a construction contract is not barred by the proviso and is allowable as a deduction under ICDS III.
                        Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
                          Provisions expressly mentioned in the judgment/order text.

                              Proviso to section 36(1)(iii) inapplicable to construction contracts; interest on contract borrowings is deductible for execution purposes.

                              Proviso to section 36(1)(iii) does not apply to borrowings by contractors for executing construction contracts because such borrowings are not for acquisition of an asset; therefore interest on capital borrowed attributable to a construction contract is not barred by the proviso and is allowable as a deduction under ICDS III.


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