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TMI Blog2024 (12) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, hold that no addition in case of the assessee under section 14-A is sustainable. Also see South Indian Bank Ltd. [ 2021 (9) TMI 566 - SUPREME COURT] Amortization of premium on securities held maturity (HTM) - HELD THAT:- The securities under HTM category are those that are held till its redemption /maturity. Clearly, if any premium is paid for acquiring the said securities over and above the face value or the redemption value of those securities, it would be apposite to amortize the same during the holding period. The market value of the fixed interest-bearing securities fluctuates on the basis of the market rate of interest. The differential amount between the coupon rate and the market rate is reflected by the premium or discount on which such securities are available. Illustratively, the securities being a coupon rate which is lower than the market rate of interest would be available on discount while securities with a higher coupon rate would be available at a premium. We find no infirmity with the Assessee amortizing the premium paid on such securities over the holding period. Loss claimed by the Assessee bank from shifting of securities from AFS (Available for Sale) / HF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate delay in filing the present appeal, however, the learned counsel appearing for the Assessee submits that the issues raised are covered in favour of the Assessee. Moreover, the learned counsel appearing for the Revenue does not seriously object to condonation of delay in filing the appeal. Accordingly, the application is allowed. ITA 193/2024 2. The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 (hereafter the Act), impugning an order dated 09.01.2019 (hereafter the impugned order) passed by the Income Tax Appellant Tribunal (hereafter the ITAT) in cross appeals for assessment year (AY) 2009-10 being ITA No. 2406/Del/2013 (by Assessee) and ITA No. 2966/Del/2013 (by Revenue). 3. The respondent (hereafter the Assessee) filed its return of income for AY 2009-10 declaring an income of Rs. 47,05,64,49,815/-. The same was picked up for scrutiny and the assessment proceedings culminated in an assessment order dated 19.12.2011 passed under Section 143(3) of the Act assessing the Assessee s income at Rs. 49,51,49,52,704/-. 4. A tabular statement setting out the additions made by the Assessing Officer (AO) is set out below: S. No. Particulars Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of Rs. 202.74 crores, which was exempt from tax. However, he had offered only a sum of Rs. 12.07 crores as disallowance under Section 14A of the Act. 9. It was the Assessee s contention that its exempt income was only Rs. 174.74 crores and was from investments held as stock in trade. The Assessee claimed that its exempt income was only incidental and it had not held investments for the purposes of earning exempt income. Nonetheless, the Assessee offered a sum equivalent to 0.5% as disallowance in respect of exempt income. However, the AO applied Rule 8D of the Rules and quantified the disallowance at Rs. 145.23 crores. After setting out an amount of Rs. 12.07 crores offered by the Assessee, the AO made an addition of Rs. 133.16 crores. 10. The learned CIT(A) allowed the Assessee s appeal, relying on the decision of this court in Maxopp Investments Ltd. v. Commissioner of Income Tax and Other Connected Appeals: (2012) 347 ITR 272. The learned ITAT confirmed the learned CIT(A) s finding, relying upon decision of the Supreme Court in Maxopp Investment Limited v. CIT, New Delhi: (2018) 402 ITR 640 (SC) as well as PCIT v. State Bank of Patiala: (2017) 78 taxmann.com 3 (SC). The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as income under the head profits and gains from business and profession . What happens is that, in the process, when the shares are held as stock-in-trade , certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case . Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. 40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the business activity of the assessee and it is only by a quirk of fate that when the investee company declared dividend, those shares were held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. 11. Hon ble Apex Court made clear distinction of this case from the case of Maxopp investment Ltd where the assessee knew that whenever dividend would be declared by the investee company such dividend would necessarily be earned by the assessee and assessee alone, and it would be in the common knowledge of the assessee that such shares would generate dividend income as well as and when such dividend income is generated that would be earned by the assessee only. Hon ble Apex Court in unequivocal terms held that in contrast, where the shares are held as stock in trade, this may not be necessarily a situation and the main purpose was to liquidate those shares whenever the share price goes up in order to earn profits. Hon ble Apex Court, therefore, while rejecting the theory of dominant purpose in making investment in shares-whether it was to acquire and retain controlling interest in the other company or to make profits out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the said issue in ITA No.960/2018 in respect of the AY 2006-07. 15. Apart from the fact that the Revenue has accepted the learned ITAT s decision in some of the AYs, we also find no merit in the Revenue s challenge to the amortisation of premium paid in respect of the Held to Maturity (HTM) securities. The securities under HTM category are those that are held till its redemption /maturity. Clearly, if any premium is paid for acquiring the said securities over and above the face value or the redemption value of those securities, it would be apposite to amortize the same during the holding period. The market value of the fixed interest-bearing securities fluctuates on the basis of the market rate of interest. The differential amount between the coupon rate and the market rate is reflected by the premium or discount on which such securities are available. 16. Illustratively, the securities being a coupon rate which is lower than the market rate of interest would be available on discount while securities with a higher coupon rate would be available at a premium. We find no infirmity with the Assessee amortizing the premium paid on such securities over the holding period. 17. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it was held that where the Assessee invested in securities for the purpose of complying with RBI instructions, such investments could not be termed as investment in the form of security ready for sale. 5. The Court is not persuaded to concur with the view expressed in ING VYSYA Bank Ltd. (supra) which appears to have been decided in the peculiar facts of that case. The Court prefers to adopt the reasoning in the decision the Karnataka High Court in Karnataka Bank Ltd. (supra) and the Bombay High Court in HDFC Bank Ltd. (supra). The Court accordingly declines to frame a question on this issue. 19. The fifth question relates to Section 45B of the Act qua contributions made by the Assessee to PNB Employees Pension Fund . The AO rejected the said claim as the same was made on the basis of actuarial valuation while the government notification permitted only annual contribution. Noting that the Banking Companies Undertaking Act, 1970 had enjoined entities such as the Assessee to create pension trusts and following the order passed in the Assessee s case for AY 2008-09, the learned CIT(A) deleted the addition. The learned ITAT confirmed the learned CIT(A) s decision holding that the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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