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TMI Blog2023 (1) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... ute. For successive assessment years, Revenue has accepted the fact that respondent had been holding the securities as stock-in-trade. Circular No.665 dated 05.10.1993 of the CBDT has clarified the decision of the Supreme Court in Vijaya Bank Ltd. ([ 1990 (9) TMI 5 - SUPREME COURT] . CBDT has clarified that where the banks are holding securities as stock-in-trade and not as investments, principles of law enunciated in Vijaya Bank Ltd. (supra 1) would not be applicable. Therefore, CBDT has clarified that assessing officer should determine on the facts and circumstances of each case as to whether any particular security constitute stock-in-trade or investment taking into account the guidelines issued by Reserve Bank of India from time to time. It is in the above back drop that Tribunal has held that the respondent had purchased securities to hold them as stock-in-trade. Therefore, interest paid on such securities would be an allowable deduction. We are in agreement with the finding returned by the Tribunal. That apart, this is a finding of fact rendered by the Tribunal and in an appeal under Section 260A of the Act, we are not inclined to disturb such a finding of fact, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein it was held that such an expenditure is required to be capitalized and cannot be allowed as a deduction. Explanation of the assessee that the securities be treated as stock-in-trade thereby treating the broken period interest as revenue expenditure was turned down. Consequently, the aforesaid amount was added back to the income of the assessee and assessed accordingly. 7. The aforesaid order of the assessing officer was assailed by the assessee before the first appellate authority i.e., Commissioner of Income-Tax (Appeals) IV, Hyderabad (for short, CIT(A) hereinafter). By the order dated 19.08.2002, CIT(A) upheld the order of the assessing officer by relying on the decision of the Supreme Court in Vijaya Bank Ltd. (supra 1) holding that expenditure claimed being broken period interest is not allowable as a revenue expenditure. 8. Aggrieved by the aforesaid order, assessee preferred further appeal before the Tribunal. 9. Tribunal framed the question for consideration as under: Whether broken period interest paid on purchase of securities is revenue expenditure since the securities constitute stock-in-trade? 10. After hearing rival submissions and on peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the questions framed may be answered in favour of the Revenue. 13. Per contra, Mr. Karthik Ramana Puttam Reddy, learned counsel for the respondent submits that decision of the Supreme Court in Vijaya Bank Ltd. (supra 1) is distinguishable in the facts of the present case. He submits that Bombay High Court in American Express International Banking Corporation v. Commissioner of Income Tax (2002) 258 ITR 601 (Bom) has distinguished the judgment of the Supreme Court in Vijaya Bank Ltd. (supra 1) and held in the facts of that case that the Income Tax Department ought to have allowed deduction for the broken period interest paid. According to him, after the decision of the Rajasthan High Court, Supreme Court has delivered a judgment in Civil Appeal No.1549 of 2006, Commissioner of Income Tax v. Citibank N.A. 2008 (8) TMI 766 where the question which fell for consideration was whether the interest paid for broken period should not be considered as part of the purchase price but should be allowed as revenue expenditure in the year of purchase of securities? He submits that in the said decision, Supreme Court accepted the distinction pointed out by the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evels, every bank subscribes to such loans. This is a part of banking business. However, after so subscribing, the banks are free to deal with such securities like any other trader. Therefore, there are two activities involved--one activity is that of subscribing to the loan and the other is trading. Now, if a bank purchased 4.75 per cent. GOI Loan, 1980, f. v. Rs. 5 lakhs on August 11, 1976, then, on purchase, the said bank was required to lodge the transfer form with the PDO. On such lodgement, the name of the bank was entered in the PDO ledger. Therefore, on the next due date for payment of interest, namely, November 12,1976, the bank was entitled to receive half yearly interest from the Reserve Bank of India for the period May 12, 1976, up to November 12, 1976, even though it had bought the said security on August 11, 1976. Therefore, it receives interest for the entire six months, though it bought the security on August 11, 1976. In the above example, since the security was sold/transferred on August 11, 1976 (i.e., after due date for payment of interest), interest had accrued to the transferor/seller from the last due date, i.e., May 12, 1976 up to August 11, 1976. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, Revenue ought to have taxed the broken period interest received but at the same time ought to have allowed deduction for the broken period interest paid. 21. As already noticed above, this decision of the Bombay High Court has found favour with the Supreme Court in Citibank N.A. (supra 5) where Supreme Court agreed with the views expressed by the Bombay High Court. Decision of the Supreme Court in Citibank N.A. (supra 5) is dated 12.08.2008 whereas decision of the Rajasthan High Court in Bank of Rajasthan Limited (supra 3) is dated 24.03.2008. 22. Before we advert to the facts of the present appeal, we may refer to the decision of the Kerala High Court in Nedungadi Bank Ltd. (supra 2). In that appeal, Kerala High Court also examined the effect of the decision of the Supreme Court in Vijaya Bank Ltd. (supra 1). Out of the four substantial questions of law which were considered by the Kerala High Court, question No.1 pertained to whether investments made by the assessee in the form of government securities acquired for the purpose of complying with the requirements of the provisions of the Banking Regulation Act i.e., to maintain SLR, could be treated as trading asset/stock- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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