Banking investment deductions upheld for shifting securities to HTM and amortising premium under RBI norms.

Banking investments governed by RBI prudential norms and CBDT instructions permitted shifting securities from AFS/HFT to HTM and amortisation of premium on HTM securities. Because HTM securities are carried at acquisition cost and premium over face value is amortised to maturity under the prevailing regulatory framework, the bank's claim for depreciation on the shifted securities and deduction of amortised premium was allowable in computing taxable income. The Revenue's challenge therefore failed.

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Issues: Whether depreciation on investment in Government securities arising from shifting securities from AFS and HFT categories to HTM category and amortisation of premium paid on HTM securities were allowable deductions in computing the bank's income.

Analysis: The banking business is subject to Reserve Bank of India control, and the relevant RBI master circulars and directions required classification of investments into HTM, AFS and HFT categories. Securities in the HTM category are carried at acquisition cost, and where the cost exceeds face value, the premium is to be amortised over the period remaining to maturity. The RBI also permitted shifting of securities between categories and, by later circular, allowed amortisation of the provisioning requirement over five years. The CBDT instruction directed that the latest RBI guidelines should be followed while allowing such claims. In these circumstances, the claimed depreciation on shifting and the amortised premium were in accordance with the prevailing regulatory framework.

Conclusion: The claim for deduction of both amounts was allowable, and the Revenue's challenge failed.

Ratio Decidendi: Where banking investments are governed by binding RBI prudential norms and CBDT instructions, expenditure arising from permitted shifting of securities and amortisation of premium on HTM securities is allowable in computing taxable income.

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