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| Reader Comments on :: Treatment of Interest on borrowed Capital | |
| The conflict between Income Tax and Accounting Standard. As per Rule 2.4.12 of the Income tax Rules of the Kingdom of Bhutan, all the conditions from “a” to “e” are to be satisfied for charging interest on Term Loan as revenue expenditure. However, as regards to clause “d”, interest prior to commissioning of the project/plant (ie. Prior to the plant being “put to use”) has to be capitalized. Hence as per the IT Rules of Bhutan any amount of interest paid in respect of capital borrowed for acquisition of asset for extension of existing business or profession (whether capitalized in the books of accounts or not) is for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. So the plain reading of The Rule clearly establishes that interest on loan taken for acquisition of such assets which are acquired by an assessee for extension of its business are allowable when they are put to use. It may be further noted that The said Rule no where states the cut off date is Capitalisation of Assets, it clearly states “COMMISSIONING” ie. The date of “PUT TO USE”. The intention of the Legislator is very clear that Commissioning of plant should not depend on capitalization since capitalization of asset is purely dependent on the policy of the Company. As I understand in BAS recommendation is to charge interest in Profit & Loss Account. How this conflict shall be resolved? Posted By: Debasis Bhattacharya Posted on: 2018-05-15 11:57:13 |
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