2014 (3) TMI 110 - HC - Income Tax

Claim of deduction Disallowance of amortization of security premium computing the income of banks under the head Profit and Gains of Business & Profession - Held that - The Tribunal allowed the claim following the CBDT Circular dated November 26, 2008 - The assessee as a cooperative bank was bound by the RBI directives - As per the directives, the assessee had to invest certain amounts in Government securities and to hold the same till maturity - In the process of acquisition, if there was any premium paid on the face value of the security, the loss had to be amortised - The instructions clearly provide for amortisation of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value - Such amortisation would have to be for the remaining period of maturity - This precisely the Tribunal had directed in the order - no contrary instructions of CBDT are brought to notice - The instruction in question having been issued under section 119(2) of the Income Tax Act, 1961, would bind the Revenue thus, there was no question of law arises Decided against Revenue.

Summary

Issues:
- Whether the Appellate Tribunal was justified in disallowing the amortization of security premium?
- Whether the securities held under "Held to maturity (HTM) category" should be considered for profit or kept till maturity?

Analysis:
1. The main issue in this case was the deduction claim of Rs.40,30,000 made by the assessee, a cooperative bank, in relation to the premium paid for acquiring certain Government securities. The bank claimed this premium as a loss amortized over the security's entire period until maturity to maintain the Statutory Liquidity Ratio (SLR) as per RBI guidelines.

2. The Revenue opposed the claim, arguing that the investment was a capital asset and not stock-in-trade. Both the Assessing Officer and CIT(Appeals) rejected the claim, stating that the loss could only be considered upon maturity, treating the investment as a capital asset.

3. The Tribunal, however, allowed the assessee's claim based on a decision of the Bombay Bench of the Tribunal and a CBDT Circular from November 26, 2008. The Tribunal held that the premium paid on acquisition of securities should be amortized over the remaining period until maturity, as per RBI guidelines, which the cooperative bank was bound to follow.

4. The appellant's counsel contended that the investment was a capital asset, and the CBDT Circular should not apply, citing further instructions that should govern the situation. On the other hand, the respondent's counsel relied on the CBDT Circular and RBI guidelines, emphasizing the necessity of granting the benefit of amortization to the cooperative bank.

5. The CBDT Circular from November 26, 2008, clearly instructed for the amortization of premium paid on securities acquired at a rate higher than the face value, over the remaining period until maturity. The Tribunal's decision was in line with these instructions, and no contrary instructions were brought to light. The instruction issued under section 119(2) of the Income Tax Act, 1961, was deemed binding on the Revenue, leading to the dismissal of the Tax Appeal.

6. In conclusion, the Tribunal's decision was upheld, and the Tax Appeal was dismissed with no order as to costs, as no question of law arose from the case.