TaxTMI 
TaxTMI 
2023 (1) TMI 1438
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.... the following questions as substantial questions of law: i. Whether on the facts and in the circumstances of the case, Tribunal was justified in holding that interest paid by the assessee on purchase of securities constituting stock-in-trade but paid for the broken period is allowable as a deduction? ii. Whether on the facts and in the circumstances of the case, assessee is entitled to claim deduction of interest paid on purchase of securities constituting stock for the broken period till the date of acquisition in terms of Section 37 of the Act? 5. Respondent is an assessee under the Act having the status of a banking company. For the assessment year 1996-97, it filed return of income declaring taxable income at Rs. 61,69,60,370.00. In the course of the assessment proceedings, assessee claimed that it had paid an amount of Rs. 38,59,13,447.00 as broken period interest on purchase of securities during the previous year relevant to the assessment year 1996-97. 6. After hearing the assessee and considering its objection, assessing officer vide the assessment order dated 26.02.1999 passed under Section 143(3) of the Act held that claim of the assessee was required to ....
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....rities. It was contended that the price paid by the securities was determined with reference to their actual value as well as the interest which had accrued on them till the date of purchase. But Supreme Court noted that whatever was the consideration which prompted the assessee to purchase the securities, the price paid for them was in the nature of a capital outlay and no part of it can be set off as expenditure against income accruing on those securities. Relying on the said decision, he further submits that claim for deduction can be sustained only when an assessee is in a position to show that any reasonable expenditure had been incurred for the purpose of realizing the interest on securities. 12. Mr. Prasad has also placed reliance on a decision of the Rajasthan High Court in Commissioner of Income Tax v. Bank of Rajasthan Limited [2009 (316) ITR 291] wherein the question before the Court was whether taxability of interest on securities subject to transaction price on sale or security continues to be governed by the ratio of the decision in Vijaya Bank Ltd. (supra 1). In that case, Rajasthan High Court applied the decision of the Supreme Court and answered the above question....
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....pose, every bank subscribes to Government securities. One such security is known as SGL (Subsidiary General Ledger). This ledger is maintained in the Public Debt Office in the Reserve Bank of India. Every bank is required, as a part of banking business, to subscribe to this loan. This loan/SGL is also transferable like any other security. In this case, for example, we are concerned with 4.75 per cent. Government of India Loan, 1980, f. v. Rs. 5 lakhs. On the SGL, the Reserve Bank of India pays half yearly interest. In the case of the said 4.75 per cent. Government of India Loan, 1980, f. v. Rs. 5 lakhs, the Reserve Bank of India was required to pay half yearly interest on May 12, 1976, and November 12, 1976. The Reserve Bank of India pays interest on due dates on such securities to the holders of the securities, every six months. The Reserve Bank of India pays interest on the balance to the banks, whose names appear as holders in the PDO ledger. After subscribing to the said loans, the banks were free to transfer such loans for consideration to the other banks. Consequently, the Reserve Bank of India pays interest to the holder on the balances in a security if, in its boo....
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....are two activities involved - one of subscribing to the loan and the other is trading. 18. One of the questions before the Bombay High Court was whether broken period interest payment by the assessee was allowable as a revenue expenditure under the head 'income from business or profession'? While answering this question, Bombay High Court examined the decision of the Supreme Court in Vijaya Bank Ltd. (supra 1). 19. In Vijaya Bank Ltd. (supra 1), during the assessment year under consideration, Vijaya Bank had entered into an agreement with Jayalakshmi Bank Ltd. whereby Vijaya Bank took over the liabilities of Jayalakshmi Bank. It also took over the assets belonging to Jayalakshmi Bank. One of the two items taken over by Vijaya Bank represented interest which accrued on securities taken over by Vijaya Bank from Jayalakshmi Bank. Such amount was brought to tax by the assessing officer under Section 18 of the Act. However, assessee claimed that such amount was deductable under Sections 19 & 20 of the Act. It was in the light of such facts that the decision in Vijaya Bank Ltd. (supra 1) was rendered. 20. Therefore, Bombay High Court in American Express International Banking Corporati....