1997 (7) TMI 664 - AT - Income Tax

Interest for broken period on securities purchase not deductible as revenue expenditure; Tribunal rules against CIT(Appeals) decision

AMERICAN EXPRESS BANK LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX

The Tribunal held that interest paid for the broken period on the purchase of securities is not allowable as revenue expenditure, in accordance with the ... - Issues Involved:1. Allowability of interest paid by the assessee to the seller of securities for the broken period as a deduction.Detailed Analysis:Issue 1: Allowability of Interest for Broken PeriodGround No. 1:The Revenue challenged the CIT(Appeals) decision directing the Assessing Officer to allow a deduction of Rs. 5,94,41,072 for interest paid by the assessee to the seller of securities for the broken period, arguing that this was not allowable as revenue expenditure based on the Supreme Court decision in Vijaya Bank Ltd. v. CIT (1991) 187 ITR 541/57 Taxman 152.Arguments by Revenue:- The interest paid for the broken period should not be allowed as revenue expenditure.- The Supreme Court decision in Vijaya Bank Ltd. v. CIT is binding and overrides the Board's Circular No. 599, which was issued after the Supreme Court decision and subsequently withdrawn.Arguments by Assessee:- The assessee argued that the Board's Circular No. 599, dated 24-3-1991, allowed the deduction of interest as revenue expenditure and should be applied retrospectively.- The withdrawal of the circular should be prospective and not retrospective.- The assessee relied on Tribunal decisions in its own case for previous assessment years and the case of Bank of America.Tribunal's Consideration:- The Tribunal examined prior decisions in the assessee's case and noted that the issue had been decided in the assessee's favor in earlier years without considering the Supreme Court decision in Vijaya Bank Ltd.- The Tribunal emphasized the binding nature of the Supreme Court decision under Article 141 of the Constitution, which declares the law of the land and must be followed by all courts and tribunals.- The Tribunal noted that the Supreme Court decision in Vijaya Bank Ltd. was delivered on 19-9-1990, before the issuance of Circular No. 599, and thus, the circular did not have the benefit of the Supreme Court's ruling.- The Tribunal highlighted that the Board's Circular No. 599 was withdrawn on 31-7-1991 in light of the Supreme Court decision, indicating that the circular was contrary to the law as declared by the Supreme Court.Tribunal's Decision:- The Tribunal concluded that the decision of the Supreme Court in Vijaya Bank Ltd. must prevail over the Board's circular.- The Tribunal emphasized that circulars, although binding on income-tax authorities, do not override judicial decisions and are not binding on appellate authorities or courts.- The Tribunal noted that the Supreme Court decision rendered the Board's Circular No. 599 ineffective, and thus, the interest paid for the broken period could not be allowed as a deduction.- The Tribunal reversed the order of the CIT(Appeals) and allowed the Revenue's ground, holding that the interest paid for the broken period was not deductible as revenue expenditure.Conclusion:The Tribunal upheld the binding nature of the Supreme Court decision in Vijaya Bank Ltd. and ruled that the interest paid for the broken period on the purchase of securities is not allowable as revenue expenditure. The Board's Circular No. 599, which was contrary to the Supreme Court decision, was deemed ineffective and not applicable. The Tribunal reversed the CIT(Appeals) order and allowed the Revenue's appeal.