CIT Vs State Bank of Hyderabad (Telangana High Court)
Telangana High Court held that interest paid for broken period on securities held as stock-in-trade is allowable as deduction. Accordingly, petition filed by revenue dismissed and question answered in favour of respondent-assessee.
Facts- Respondent is an assessee under the Act having the status of a banking company. 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.
AO 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 be disallowed. CIT(A) upheld the order of the assessing officer by relying on the decision of the Supreme Court in Vijaya Bank Ltd. holding that expenditure claimed being broken period interest is not allowable as a revenue expenditure. Tribunal held that admittedly assessee had purchased the securities to hold them as stock-in-trade. Therefore, the interest paid for the broken period is allowable as a deduction. Being aggrieved, revenue has preferred the present appeal.
Conclusion- CBDT has clarified that where the banks are holding securities as stock-in-trade and not as investments, principles of law enunciated in Vijaya Bank Ltd. would not be applicable. Therefore, CBDT has clarified that assessing officer should determine on the facts and circumstances of each case as to whether any particular security constitute stock-in-trade or investment taking into account the guidelines issued by Reserve Bank of India from time to time.
