e_dipn13a_Interest Expense_s16(2ABC)

35 035 03 065 note that the amount of interest paid

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Unformatted text preview: on of the loan that is not sub-participated ($3M/$10M x $1M) Total interest deduction 0.35 0.35 0.3 0.65 Note that the amount of interest paid on the sub-participated loan (the loan advanced by Company N to Bank M), even if of different amount, is not relevant in the computation. 16 Restriction under section 16(2C) [Interest flow-back test on debt instruments] 30. Like interest on ordinary loans, deduction of interest on debentures or debt instruments that satisfy the conditions under section 16(2)(f) will be restricted if there is an arrangement under which the interest payable will be paid, directly or through an interposed person, back to the borrower (the issuer) or to a person connected with the borrower who is not an “excepted person” within the meaning of section 16(2F)(c). The provision applies when the said arrangement exists at any time during the basis period of the borrower for the year of assessment in respect of which deduction is claimed for the interest on the respective loan. Any payment of interest to a trustee or a corporation controlled by the trustee is deemed to be a payment to each of the trustee, the corporation and the beneficiary under the trust [section 16(2F)(b)]. 31. Again, the term “arrangement” has a wide coverage as defined in section 2 (see paragraph 27 above). The provision for restricting interest deduction will be invoked whenever arrangements are in place, irrespective of whether the passing of interest has actually occurred. Peculiar to the nature of debentures and debt instruments, the term includes the holding of debentures or debt instruments either directly or beneficially (i.e. holding any interest in debentures or debt instruments). 32. In this section, the reference to “any sum payable by way of interest on the debentures or instruments concerned” is expanded by section 16(2F)(a) to cover the payment of interest or principal in respect of any other loan the repayment of which is secured by the payment of interest or repayment of p...
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