2014 (8) TMI 119 - HC - Income Tax

Share capital and reserves - Investment in tax free securities/ investments represented in assessee s own funds or not Held that - Following the decision in The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY - the Assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities - the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities - the investment made by the Assessee would be out of the interest-free funds available with the Assessee - the Tribunal had erred in dismissing the Appeal Decided against Revenue. Broken period interest Allowable as deduction or not Held that - There was no infirmity in the orders passed by the CIT (A) or the Tribunal Tribunal have merely followed the judgment of the Court in the case of American Express International Banking Corporation v/s Commissioner of Income Tax 2002 (9) TMI 96 - BOMBAY High Court no substantial question of law arises for consideration Decided against Revneue.

Summary

Issues involved:
- Appeal challenging ITAT order for Assessment Years 2001-02 to 2005-06
- Interpretation of investment in tax-free securities as represented by assessee's own funds
- Allowability of broken period interest as a deduction
- Entitlement for deduction on diminution in value of investment and amortization of premium on investment held to maturity

Analysis:

Issue 1: Interpretation of investment in tax-free securities
The appellant challenged the ITAT's order regarding the investment in tax-free securities, arguing that the investment was made from a common pool of funds, including borrowed funds. However, the ITAT found that the assessee's own funds and non-interest bearing funds exceeded the investment in tax-free securities. Citing the judgment in a similar case, the court held that if interest-free funds are available to meet investments, it can be presumed that the investments were made from such funds. The court found that the investment in this case was from the interest-free funds available with the assessee, thus dismissing the appellant's argument.

Issue 2: Allowability of broken period interest
The court found no infirmity in the orders passed by the CIT (Appeals) and ITAT regarding the allowability of broken period interest as a deduction. The decisions were in line with a previous judgment, and hence, the court did not find any substantial question of law in this regard.

Issue 3: Entitlement for deduction on diminution in value of investment
A similar question of law had been addressed in a previous judgment, and the court found that the issue raised in this case was covered by that judgment. Therefore, the court concluded that there was no substantial question of law requiring further consideration.

Conclusion:
The court dismissed the appeal, stating that it raised no substantial question of law. The appellant's contentions were not found to be valid in light of the existing judgments and legal principles. The court also mentioned that no costs were awarded in this matter.