9911796707
TMI Blog2023 (1) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 too, when the legal position is very clear. Decided in favour of assessee. - The Hon ble The Chief Justice Ujjal Bhuyan And The Hon ble Sri Justice N. Tukaramji For the Petitioner : T. Bala Mohan Reddy. For the Respondent : N.R. Siva Swamy. JUDGMENT PER THE HON BLE THE CHIEF JUSTICE UJJAL BHUYAN Heard Mr. J.V. Prasad, learned Standing Counsel, Income Tax Department for the appellant and Mr. Karthik Ramana Puttam Reddy, learned counsel for the respondent. 2. This is an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (briefly referred to hereinafter as the Act ) against the order dated 28.10.2005 passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 perusal of the decision of the Supreme Court in Vijaya Bank Ltd. (supra 1), Tribunal noted that the decision of the Supreme Court in Vijaya Bank Ltd. (supra 1) was explained by the Central Board of Direct Taxes (for short, CBDT hereinafter). On the same lines, Kerala High Court in Commissioner of Income Tax v. Nedungadi Bank Ltd. [(2003) 264 ITR 545] distinguished the decision of the Supreme Court in Vijaya Bank Ltd. (supra 1), which held that if the securities were held by the banking company as stock-in-trade of the business, interest paid for the broken period would constitute an allowable deduction in the hands of the assessee. Tribunal held that admittedly assessee had purchased the securities to hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 High Court in American Express International Banking Corporation (supra 4) and agreed with the view expressed that judgment in Vijaya Bank Ltd. (supra 1) would have no application. He therefore submits that appeal by the Revenue has no merit and should be dismissed. 14. Submissions made by learned counsel for the parties have received the due consideration of the Court. 15. Issue before the Court is whether broken period interest paid on purchase of securities is revenue expenditure since the securities constitute stock-in-trade? 16. To appreciate the above question, it would be appropriate to first examine the meaning of the expression broken period interest . This has been explained by the Bombay High Court in American Express Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. 17. As explained by the Bombay High Court, every bank is required to maintain a Statutory Liquidity Ratio (SLR). For that purpose, every bank subscribes to government securities. One such security is known as Subsidiary General Ledger (SGL) which is maintained in the Public Debt Office in the Reserve Bank of India. Every bank is required as a part of its banking business to subscribe to this loan. Like any other security, such a loan/SGL is also transferable. Reserve Bank of India pays interest on due dates on such securities to the holders of the securities every six months. After subscribing to the said loans, banks are free to transfer such loans for consideration to other banks. Reserve Bank of India pays interest to the holder on the balances in a security i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/stockin-trade of the business of the assessee? The 4th question considered by the Kerala High Court was as to whether interest paid for the broken period in the purchase of securities is an allowable deduction? Referring to the Circular dated 24.04.1991 issued by the CBDT, Kerala High Court held that securities held by banks constitute their stock-in-trade or investment and consequently loss claimed by banks on the valuation of their securities should be allowed as a deduction in computing the taxable profits. Therefore, Kerala High Court confirmed the view taken by the Tribunal that securities held by the assessee bank were stock-in-trade of the business of the assessee bank and that the notional loss suffered on account of revaluation of the said securities at the close of the year was ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
