By Kishor Karia, Chartered Accountant | Atul Jasani, Advocate
13. Bank of Rajasthan Ltd. vs. Commissioner of Income Tax Civil Appeal Nos. 3291-3294 of 2009, decided on: 16th October, 2024
Broken period interest — Deduction — RBI categorise the government securities into the following three categories: (a) Held to Maturity (HTM); (b) Available for Sale (AFS); and (c) Held for Trading (HFT) — AFS and HFT are always held by Banks as stock-in-trade, therefore, the interest accrued on the said two categories of securities will have to be treated as income from the business of the Bank — if it is found that HMT Security is held as an investment, the benefit of broken period interest will not be available but the position will be otherwise if it is held as a trading asset.
The Appellant-Assessee, a Scheduled Bank, was engaged in the purchase and sale of government securities. The securities were treated as stock-in-trade in the hands of the Appellant. The amount received by the Appellant on the sale of the securities was considered for computing its business income. The Appellant consistently followed the method of setting off and netting the amount of interest paid by it on the purchase of securities (i.e., interest for the broken period) against the interest recovered by it on the sale of securities and offering the net interest income to tax. The result is that if the entire purchase price of th
