Gujarat High Court
Commissioner Of Income Tax Rajkot Ii vs Rajkot Dist. Co-Op Bank Ltd C/O. A D Vyas ... on 10 February, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/56/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 56 of 2013
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COMMISSIONER OF INCOME TAX RAJKOT II....Appellant(s)
Versus
RAJKOT DIST. CO-OP BANK LTD C/O. A D VYAS AND CO....Opponent(s)
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Appearance:
MR PRANAV G DESAI, ADVOCATE for the Appellant(s) No. 1
MR TUSHAR P HEMANI, ADVOCATE for the Opponent(s) No. 1
MS VAIBHAVI K PARIKH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL
KURESHI
and
HONOURABLE MS JUSTICE SONIA
GOKANI
Date : 10/02/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue is in appeal against the judgment of the Incometax Appellate Tribunal, Rajkot Bench, Rajkot (hereinafter referred to as 'the Tribunal') dated August 31, 2012, raising the following questions for our consideration :
"(i) Whether in the facts and circumstances of the case and in law, the Page 1 of 6 O/TAXAP/56/2013 ORDER Appellate Tribunal is justified in holding that the A.O. and CIT(A) have erred in disallowing the amortization of security premium of Rs.40,30,000/ ?
(ii) Whether in the facts and circumstances of the case and in law, the Appellate Tribunal is justified in not considering that the securities held under "Held to maturity (HTM) category" as per RBI guidelines are not meant to earn profit but are required to be kept as they are till maturity?"
2. Though two questions are framed, the issue is single, namely, the claim of deduction of Rs.40,30,000/ made by the assessee in the following background :
2.1 The respondentassessee is a cooperative bank. As per the Reserve Bank of India guidelines, it is required to deposit certain amounts in Government securities and to hold the same till maturity in order to maintain Statutory Liquidity Ratio (SLR). In certain cases, the acquisition of such securities is at a value higher than the face value of the Page 2 of 6 O/TAXAP/56/2013 ORDER security itself. The respondentassessee claimed such premium so paid in acquiring the securities as a loss amortised over the entire period of security.
3. The Revenue stoutly opposed the claim. The Assessing Officer as well as CIT(Appeals) rejected the assessee's claim. In particular, the CIT (Appeals) gave detailed reasons. He was of the opinion that the investment was in the nature of capital asset and cannot be treated as stock intrade. He was also of the opinion that it was not possible to ascertain the loss suffered by the assessee during the year under consideration.
On such reasons, he opined that only upon maturity any claim of the assessee can be considered, that too, treating the investment as capital asset.
4. The assessee carried the matter in appeal. The Tribunal allowed the assessee's claim following the decision of the Bombay Bench of the Tribunal and also the CBDT Circular dated November 26, Page 3 of 6 O/TAXAP/56/2013 ORDER 2008.
5. The learned counsel Shri P.G. Desai for the appellant vehemently contended that the Tribunal committed serious error in overruling the decision of the CIT (Appeals), who had given detailed reasons. He submitted that the investment was in the nature of capital investment in the hands of the assessee as held by the CIT (Appeals). The CBDT Circular dated November 26, 2008 would not apply. There were further instructions which would govern the situation.
6. On the other hand, the learned counsel Shri Tushar Hemani for the respondent placed heavy reliance on the said CBDT Circular dated November 26, 2008 and contended that the benefit of amortisation had to be granted. The assessee as a cooperative bank was bound by the RBI directives. As per such directives, the assessee had to invest certain amounts in Government securities and to hold the same till maturity. In the Page 4 of 6 O/TAXAP/56/2013 ORDER process of acquisition, if there was any premium paid on the face value of the security, the loss had to be amortised. Paragraph (vii) of the CBDT Circular No.17 of 2008 dated November 26, 2008 would apply. Such instruction reads as under :
"(vii) As per RBI guidelines dated 16th October, 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFT securities forming stockintrade of the bank, the depreciation/ appreciation is to be aggregated scripwise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims."
7. The instructions clearly provide for amortisation of premium paid on acquisition of securities when Page 5 of 6 O/TAXAP/56/2013 ORDER the same are acquired at the rate higher than the face value. Such amortisation would have to be for the remaining period of maturity. This precisely the Tribunal had directed in the impugned order. Though contended, no contrary instructions of CBDT are brought to our notice. The instruction in question having been issued under section 119(2) of the Incometax Act, 1961, would bind the Revenue. No question of law, therefore, arises.
8. Resultantly, the Tax Appeal is dismissed. Notice is discharged with no order as to costs.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Aakar Page 6 of 6