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September 2023

Business expenditure — Broken period interest paid for purchase of securities held as stock-in-trade — Deductible expense.

By K B Bhujle | Ritu Punjabi
Advocates
Reading Time 3 mins
36. CIT vs. State Bank of Hyderabad
[2023] 455 ITR 122 (Telangana.)
A.Y. 1998–99: Date of order: 4th January, 2023
Sections 28 and 37 of ITA 1961

Business expenditure — Broken period interest paid for purchase of securities held as stock-in-trade — Deductible expense.

The assessee, a banking company, filed its return of income for A.Y. 1998–99 and claimed deduction of broken period interest paid by it on purchase of securities which were held by the assessee bank as stock-in-trade. The AO denied the claim of the assessee by relying upon the decision of the Supreme Court in the case of Vijaya Bank Limited vs. Addl.CIT (1991) 187 ITR 541(SC), wherein it was held that such expenditure was required to be capitalised and cannot be allowed as deduction. This view was confirmed by the CIT(A).

The Tribunal decided the issue in favour of the assessee and held that the assessee had purchased the securities to hold them as stock-in-trade, and therefore, the interest paid for broken period was allowable as deduction.

On appeal by the Department, the Telangana High Court upheld the view of the Tribunal and held as follows:

“i)    We find that it is the contention of the respondent that respondent had been holding its securities all along as stock-in-trade which is not in dispute. For successive assessment years, Revenue has accepted the fact that respondent had been holding
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