THE COMMISSIONER OF INCOME TAX, AURANGABAD vs. M/S. SHRI GAJANAN NAGARI SAHAKARI BEED

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ITA/39/2014HC BombayHCBM03017032201407 January 2015Bench: HON'BLE SHRI JUSTICE A.V. NIRGUDE,HON'BLE SHRI JUSTICE V.K. JADHAV3 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal upheld the concurrent findings of the lower authorities, holding that the securities held by the co-operative bank under the "HELD TO MATURITY" category are to be treated as stock-in-trade. Consequently, the diminution in the value of these securities is to be treated as a loss and not a disallowable expense. The Tribunal relied on the judgments of the Bombay High Court in Commissioner of Income Tax vs. Bank of Baroda, (2003) 262 ITR 334, and the Supreme Court in UCO Bank vs. the Commissioner of Income Tax, 240 ITR 355. The Supreme Court's decision in UCO Bank clarified that merely holding securities till maturity does not make them purely investment; they can still be considered stock-in-trade for a bank. The Tribunal found the revenue's reliance on the Vijaya Bank case to be misplaced. The appeal was dismissed as it did not raise any substantial question of law.

What were the facts?

The assessee, M/s. Gajanan Nagari Sahakari Bank Ltd., filed its Income Tax Return for assessment year 2009-10, declaring a total loss of Rs.27,51,096/-. The Assessing Officer disallowed a deduction of Rs.81,67,500/- claimed by the assessee towards depreciation on Government securities held under the category "HELD TO MATURITY" (HTM). The Assessing Officer opined that these securities were capital assets, available for sale, and held in trading, thus the diminution in value should be added to the total income. The Commissioner Income Tax (Appeals) and the Income Tax Appellate Tribunal both ruled in favour of the assessee.

What were the issues?

1. Whether the securities held by the co-operative bank under the "HELD TO MATURITY" category are stock-in-trade or capital assets, and consequently, whether the diminution in their value is allowable as a deduction. Assessee's contention: The securities held by the bank are stock-in-trade, and therefore, any depreciation in their value represents a loss, not a disallowable expense. The authorities below have correctly held this based on established precedents. Revenue's contention: The securities held under the "HTM" category are capital assets and not stock-in-trade. Therefore, any diminution in their value should not be allowed as a deduction and should be added back to the total income. The revenue relied on the judgment in the case of Vijaya Bank vs. Commissioner of Income Tax, reported in 187 ITR 541 SC.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

TA39.14 -1-

IN THE HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD INCOME TAX APPEAL NO. 39 OF 2014 The Commissioner of Income Tax, Aurangabad ...Appellant versus M/s. Gajanan Nagari Sahakari Bank Ltd. ...Respondent ….. Mr. Alok Sharma, Advocate for the appellant Mr. R.R. Chandak, Advocate for the respondent .....

CORAM : A. V. NIRGUDE AND

V. K. JADHAV, JJ.

DATED : 7th JANUARY, 2015 P.C. :- 1. This appeal challenges the concurrent findings recorded by the Commissioner Income Tax (Appeals) and the Income Tax Appellate Tribunal, holding that the respondent was entitled to the amount deducted on account of depreciation of security held as an investment in Government security. 2. The respondent is a Co-operative Bank. The respondent had filed Income Tax Returns for the assessment year 2009-10 declaring total loss of Rs.27,51,096/-. The Assessing Officer debited an amount of Rs.81,67,500/- towards depreciation on investment on the

TA39.14 -2- Government securities held under the category of “HELD TO MATURITY”. In the opinion of the Assessing Officer, the securities held under the “HTM” category are in the nature of capital assets and therefore, were available for sale. He also held that the securities were held in the trading. He therefore, disallowed the amount as diminution in value of security and added the same to the total income. 3. As said above, in the appeal as well as before the Appellate Tribunal, it was held that the securities were stock in trade and so depreciation would amount to loss and not income. The authorities below held that this aspect is well settled through the judgment of this Court in the case of Commissioner of Income Tax vs. Bank of Baroda, reported in (2003) 262 ITR 334 (Bombay) as well as in the judgment of the Supreme Court in the case of UCO Bank vs. the Commissioner of Income Tax, reported in 240 ITR 355 (SC). The Supreme Court in the said judgment held that merely because the securities are kept under the head by the bank till the maturity, the said security cannot be treated as a purely investment. The security held by the bank is in the nature of stock in trade. 4. In view of the above, reliance placed by the department on the judgment in the case of Vijaya Bank vs. Commissioner of Income

TA39.14 -3- Tax, reported in 187 ITR 541 SC is misplaced. Thus, the appeal does not raise any substantial question of law and the same is therefore, dismissed. ( V. K. JADHAV, J.) ( A. V. NIRGUDE, J. ) rlj/

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