Bank of Rajasthan Ltd. vs Commissioner of Income Tax

Court

Supreme Court of India

Date

16 October 2024

Case No.

Civil Appeal Nos. 3291-3294 of 2009

Result

Allowed

Bench

Abhay S. Oka, Pankaj Mithal

Citation

[2024] 10 S.C.R. 860 : 2024 INSC 781

Acts & Sections

Banking Regulation Act, 1949 Income Tax Act, 1961 Finance Act, 1988

Issue for consideration

Issue arose as regards the treatment to be given to broken period interest, whether a deduction of the broken period interest can be claimed by the Bank, purchaser of the government Securities.

Headnote

Income Tax Act, 1961 – s.28 – Interest on securities – Interest on Held to Maturity (HTM) government securities – Interest for the broken period, if allowed as a deduction: Held: As the securities were treated as stock-in-trade, the interest on the broken period cannot be considered as capital expenditure and will have to be treated as revenue expenditure, which can be allowed as a deduction – Whether the Bank holds the HTM security as investment or stock-in-trade will depend on the facts of each case – If it is found that HTM Security is held as an investment, the benefit of broken period interest will not be available and if it is held as a trading asset, deduction for broken period interest can be claimed – If deduction on account of broken period interest is not allowed, the broken period interest as capital expense will have to be added to the acquisition cost of the securities, which will then be deducted from the sale proceeds when such securities are sold in the subsequent years – Profit earned from the sale would be reduced by the amount of broken period interest. [Paras 20, 21, 24-30]

Judgment Abhay S. Oka, J. 1. Leave granted in the Special Leave Petitions. FACTUAL ASPECTS 2. The main issue in this group of appeals is about the treatment to be given to broken period interest. The question is whether a deduction of the broken period interest can be claimed. We must provide a brief background of how the issue arises. 3. A Scheduled Bank is governed by the provisions of the Banking Regulation Act, 1949 (for short, “the 1949 Act”). The 1949 Act, read with the guidelines of the Reserve Bank of India (for short, ‘RBI’), requires Banks to purchase government securities to mai

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