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Informist, Wednesday, Oct. 16, 2024

 

NEW DELHI – The Supreme Court Wednesday allowed deduction for broken period interest paid on securities held in stock-in-trade and rejected the income tax department's appeals in this regard. The court noted that the petitioner Bank of Rajasthan and other parties had treated securities as stock-in-trade. Therefore, the interest on the broken period cannot be considered capital expenditure and will have to be treated as revenue expenditure, which can be allowed as deduction, the court ruled.

 

The top court said it agreed with the view taken by the Income Tax Appellate Tribunal, which ruled that securities in the category of held-to-maturity were also stock­-in-­trade, and income or loss arising out of such securities has to be treated as business income or loss. "We find no error in the view taken in this case," the court said.

 

The court took Bank of Rajasthan's petition as the lead case to decide the issue. Bank of Rajasthan was engaged in the purchase and sale of government securities. The amounts received by the bank on the sale of the securities were considered for computing its business income.

 

While the commissioner of income tax held that the bank was not entitled to a deduction of the interest paid by it for the broken period, the appellate tribunal favoured the bank. The tribunal held that as the bank was holding the securities as stock-­in-­trade, the entire amount paid by it for the purchase of such securities, which included interest for the broken period, was deductible. After another round of litigation in the high court, the case moved to the Supreme Court.

 

Different courts have considered the question whether in cases where the net broken period interest is considered an expenditure, such interest is deductible as a business expense. The Bombay High Court had held that such broken period interest can be allowed as a deduction. The Rajasthan High Court had taken the opposite view.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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