S/s. 37, 43B – Premium paid in excess of the face value of investments, classified under HT M category, which has been amortised over a period till maturity is allowable as revenue expenditure since the claim is as per RBI guidelines and CBDT has also directed to allow the said premium.
Amount paid as contribution to the Education Fund of State Government, as per guidelines of Commission of Cooperative Department is allowable as deduction.
Facts I:
The assessee, a co-operative bank, had debited a sum of Rs. 3,73,600 to its Profit & Loss Account under the head Investment Premium Amortization Account. This amount represented premium on securities which were to be held to maturity (HTM). The assessee submitted that since these securities were to be HTM the premium is required to be amortised over the period remaining to maturity. The Assessing Officer (AO) rejected this contention and disallowed the sum of Rs. 3,73,600.
Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the appeal.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held I:
The Tribunal noted that the Master Circular on Investment by Primary (Urban) Co-operative Banks issued by RBI required the premium to be amortised over the period remaining to maturity. It also noted that CBDT has in instruction no. 17 of 2008 dated 26-11-2008 has made a reference to the RBI guidelines and has stated that the latest guidelines of the RBI may be referred to for allowing such claims. It also noted that the Mumbai Bench has in the case of ACIT vs. Bank of Rajasthan Ltd. (2011-TIOL-35-ITAT -MUM) following the said circular of CBDT held that the premium paid in excess of face value of investments is allowable as revenue expenditure.
Following the said circular, instruction and guidelines issued by the CBDT and the RBI the Tribunal held that amortisation of premium paid on government securities is allowable expenditure.
Facts II:
The assessee had debited to its P & L Account and claimed as deduction, a sum of Rs. 10,60,882 which was paid as contribution to Education Fund. This amount represented the contribution made by assessee as a multi-state co-operative society to central government. The AO disallowed this sum of Rs. 10,60,882.
Aggrieved, the assessee preferred an appeal to CIT(A) who allowed the appeal.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held II:
The Tribunal noted that the contribution was paid by the assessee as per the guidelines of the Commission of Co-operative Department. The contribution made is mandatory on the part of every co-operative bank in the state of Maharashtra. Since the bank had to work under the control of the Commissioner of Co-operation, Maharashtra, the order issued by the Commissioner was obligatory on the bank. The Tribunal held that the CIT(A) had rightly held the contribution paid by bank to be a business expenditure wholly exclusively incurred for the purpose of business and accordingly, allowable u/s. 37(1) of the Act. This ground of appeal of the revenue was dismissed by the Tribunal.
The appeal filed by revenue was dismissed
