Tribunal reclassifies interest on securities as revenue expense after High Court ruling

The Tribunal amended its decision to treat interest expenditure on the purchase of securities as revenue expenditure, following a High Court ruling. The High Court held that such interest should be considered revenue expenditure due to the nature of the securities as stock-in-trade. The decision was rectified in line with the Supreme Court's precedent, allowing all related matters in favor of the assessee.

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Issues involved: Allowability of interest expenditure on purchase of securities as revenue expenditure.

Summary:

Issue 1: Allowability of interest expenditure on purchase of securities as revenue expenditure
The M.P Nos. 205 to 209/Mds/2011 and M.P No. 210/Mds/2011 were disposed of by a consolidated order due to similar issues. The assessee contended that interest paid on purchase of securities should be allowed as revenue expenditure based on a High Court decision. The Tribunal initially decided the issue as capital expenditure but upon the assessee's submission, it was pointed out that the High Court had ruled in favor of treating such interest as revenue expenditure. The High Court held that interest paid on charge of investments should be treated as revenue expenditure, not capital expenditure, based on the nature of the securities as stock-in-trade. The Tribunal amended its order in favor of the assessee, following the High Court decision. The decision was rectified under section 254(2) of the Income-tax Act, 1961, in line with the Supreme Court's ruling in ACIT Vs. Saurashtra Kutch Stock Exchange Ltd [2008] 173 Taxmann 322 [SC].

In conclusion, all the M.Ps were allowed, and the Tribunal's decision was amended to treat interest expenditure on purchase of securities as revenue expenditure in accordance with the High Court's decision.

Order pronounced on 16th December, 2011.

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