TaxTMI 
TaxTMI 
2015 (11) TMI 581
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....the assessee on account of amortization of premium paid on purchase of securities, classified under the category 'Held to Maturity' ( in short 'HTM'). In this context, the relevant facts are that the respondent assessee is a Co-operative Society, which is inter-alia, engaged in the business of banking as defined under section-5 of the Banking Regulation Act, 1949. The Assessing Officer noticed that assessee had debited an amount of Rs. 6,37,20,000/- in its Profit & Loss Account under the head 'amortization of premium on investment'. On being asked to explain the aforesaid, the assessee explained that the impugned sum represented the amortized premium paid on purchase of Government securities, which have been classified under the category 'HTM'. Explaining further, assessee contended that as per Circular and directions of Reserve Bank of India issued from time to time, the banks have to classify their portfolio in three categories i.e. Available for Sale (AFS), Held to Maturity (HTM) and Held for Trading (HFT). Further, as per the 'Prudential norms for classification, valuation & operation of investment portfolio by bank, the RBI prescribed that the investment classified under the c....
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....s stock-in-trade because the same are purchased with a predominant motive of maintaining Statutory Liquidity Ratio (SLR) as prescribed from time to time by RBI, and that the deduction for amortisation of premium paid on such securities was allowable in terms of the mandate of the RBI guidelines. Against such a decision, Revenue is in appeal before us. 5. Before us, the Ld. Departmental Representative has primarily canvassed the arguments put forth by the Assessing Officer in the assessment order, which have already been adverted to in the earlier part of this order and are not being repeated for the sake of brevity. 6. On the other hand, Ld. Representative for the assessee pointed out that the CIT(A) made no mistake in allowing the claim of the assessee and submitted that subsequent to the impugned order, the issue now stands covered by the decision of the Hon'ble Kerala High Court in the case of CIT vs. Nedungadi Bank Ltd. 264 ITR 545(Ker), wherein it has been held that the securities held by Bank constituted their stock-in-trade. Apart therefrom, a reference has also been invited to the decision of the Pune Bench of the Tribunal in the case of Thane Janata Sahari Bank Ltd.,....
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....remium paid on acquisition of securities classified as HTM category on the ground of the mandate by RBI guidelines. In our considered opinion, the aforesaid judgment of the Hon'ble Bombay High Court clearly supports the inference reached by the CIT(A), which we hereby affirm. 7.1 Before parting, we may refer to the judgment of the Hon'ble Madras High Court in the case of T.N Finance & Infrastructure Development Corporation Ltd.,280 ITR 491(Mad), which has been relied upon by the Assessing Officer in support of his stand that the RBI guidelines do not over-ride the statutory provisions of the Act and, thus, amortization claimed by the assessee on the investment held in the HTM category cannot be allowed as a deduction. We have perused the said judgment of the Hon'ble Madras High Court and find that the same does not help the case of the Revenue. Firstly, the assessee before the Hon'ble Madras High Court was a non-banking financial corporation (i.e. NBFC), whereas the assessee before us is a Co-operative society engaged in the business of banking under licence from RBI, which is quite distinct from an entity enjoying status of NBFC. Moreover, in the case before Hon'ble Madras High....
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....a capital loss. 8.1 Before the CIT(A), assessee reiterated that the impugned investment was a part of its activity of the business of banking in accordance with Section 5 of the Banking Regulation Act,1949 and the purpose of such investment was to earn interest income by utilizing the funds as also to keep the liquidity available as and when required. The assessee also relied upon the CBDT Circular No.599 dated 24/4/1991 to say that the impugned investment also constituted its 'stock-in-trade'. The CIT(A) has considered the submissions put-forth by the assessee and held that the investment in the bonds of SSNNL was in the nature of stock-in-trade and, hence, any loss on sale thereof was allowable as a revenue loss. Against aforesaid decision of CIT(A), the Revenue is in appeal before us. 8.2 Before us, Ld. Departmental Representative contended that the CIT(A) erred in deleting the addition of Rs. 68.00 lacs in as much as it was a loss suffered on liquidating the capital investment. According to the Ld. Departmental Representative, investing in Bonds is not a predominant activity in the business of banking being carried out by the assessee and, therefore, it is a case of inves....
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.... and any loss suffered therefrom is a revenue loss. In our considered opinion, the business of banking includes in its fold making of investments for the purpose of generating incomes which would service bank's requirement of paying interest to its depositors. The assessee has consistently explained the rationale for making the impugned investment, and the same has been merely brushed aside by the lower authorities. The characterization of such investments as an activity carried out in the course of the banking business cannot be doubted and, therefore, it would constitute assessee's stock-in-trade of the business of banking. As a consequence, any loss suffered on sale of such stock-in-trade would be an allowable deduction while computing the business income. Accordingly, the order of the CIT(A) on this aspect is liable to be affirmed, which we do so. Thus, on this aspect also Revenue fails. 8.5 In the result, Revenue's appeal for Assessment Year 2009-10 is dismissed. 9. In so far as the appeal for Assessment Year 2008-09 is concerned, the only issue involved is the amortization of premium paid on purchase of securities under HTM category. This aspect has already been dealt w....