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Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri S. S. Viswanethra Ravi]
A.C.I.T. Circle-40, Kolkata.………………..……….……………………………………….…….……...Appellant 2nd Floor 3, Govt. Place (W) Kolkata – 700 001 The West Bengal State Co-operative Bank Limited…………..……………………..…. Respondent 24A, Waterloo Street Kolkata – 700 069 [PAN : AAAAT 7072 N] Appearances by: Shri N.C. Mondal, appeared on behalf of the assessee. Shri Arindam Bhattacharjee, Addl. CIT, DR appearing on behalf of the Revenue. Date of concluding the hearing : December 20th, 2017 Date of pronouncing the order : January 19th, 2018
O R D E R Per J. Sudhakar Reddy :-
This appeal filed by the revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals)-12, Kolkata, (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 10/12/2015, for the Assessment Year 2010-11, on the following grounds:-
“1. That in fact and circumstances of the case, Ld. CIT(A) erred in allowing full relief by deleting the addition of Rs.5,55,41,532/- under the head “Interest on deposits borrowings etc.” being treated as capital expenditure by the AO in course of assessment proceedings keeping reliance on the decision of Hon’ble Supreme Court of India in the case Bijaya Bank Ltd. Vs. Addl. Commissioner of Income Tax [1991] 57 Taxman 152 (SC).
That the appellant craves the leaves to add, alter, modify, include or delete any ground of appeal.”
2 Assessment Year: 2010-11 The West Bengal State Co-operative Bank Limited 2. After hearing rival contentions, we find that the order of the ld. CIT(A) on this issue of treatment of broken period interest paid on purchases of securities is in line with the decision of the Kolkata ‘B’ Bench of the ITAT in I.T.A. No. 746/Kol/2013, for the Assessment Year 2009-10, order dt. 30th November, 2017, where at para 19, it is held as follows:-
“19. Ground no 9, 10 and 11 are on the disallowance of interest payable on deposits borrowings etc. amounting to Rs. 3,57,66,893/-.
The facts relating to this ground are as follows: The assessee had entered into transactions of borrowing in Govt. Securities. The Govt. securities are fixed interest securities and interest accrues on a day to day basis and is not subject to market fluctuation. The assessee submits that securities were purchased cum interest i.e. interest accrued during the period between the date of purchase and the last due date of the interest and securities were similarly sold cum interest i.e. broken period interest from the said due date of interest to the date of sale. The assessee claims that this broken period interest which had accrued was included in the total interest paid and debited the profit and loss account for the year. It was also submitted that this method of accounting was regularly followed by the assessee. The script-wise details of purchase and sale of Govt. Securities was filed before us. The Assessing Officer was of the view that purchase of Govt. Securities is not the business of this bank and that surplus fund are parked in Govt. Securities as investments. He was of the view that the interest in question should be capitalised and the purchase and sale of these securities would result in short term and long term capital gains. In other words, the pre acquisition interest as per the Ld. A.O. is cost effect position of the security and cannot be allowed as revenue expenditure.
The Assessing Officer took a contrary view on pre-acquisition interest received on sale of securities. He did not disturb the accounting of the assessee, wherein pre acquisition interest received on sale securities was disclosed as income being revenue in nature.
3 Assessment Year: 2010-11 The West Bengal State Co-operative Bank Limited 22. This action of the A.O. is contradictory and hence is not correct. If pre acquisition interest on purchase of a Govt. Security is the cost of purchase of such security, then pre acquisition interest on sale of the same security should be treated as sale price of security. Otherwise in both cases the pre acquisition interest should be treated as revenue transactions. The assessee is consistently follow the method of accounting wherein, pre-acquisition interest of security is treated as revenue expenditure and pre-acquisition interest on sale of a Govt. security is taken as income. The Central Board of direct taxes in circular no 559 dated 24.04.1999 189 ITR (ST) 126 has clarified that securities held by bank must be regarded as stock in trade and that interest payments and receipts from broken period on purchase of securities must be regarded as stock in trade and that only the net interest on securities should be brought to tax as business income. This circular was later withdrawn by CBDT and it was clarified that the issue whether a particular investment in security would constitute stock in trade or not is a question of fact. All these issues have not been property considered by the A.O. or the Ld. CIT(A). The addition under such circumstances cannot be sustained.”
The ld. CIT(A) applied the judgment of the Hon’ble Bombay High Court in the case of American Express International Banking Corporation v. Commissioner of Income-tax [2002] 125 Taxmann 488 (BOM.), wherein it is held as follows:- “Assessee used to pay interest for broken period to seller on purchase of dated Government securities while used to receive interest for broken period from purchaser on sale of such securities - Bank claimed difference of amount paid and amount received as revenue expenditure - Whether once an income falls under section 18, it cannot come under section 28, but if income from securities is treated as trading assets, it can come under section 28 - Held, yes - Whether having assessed assessee's income from securities under section 28, department ought to have taxed interest from broken period interest received and allow deduction for broken period interest paid - Held, yes”
4 Assessment Year: 2010-11 The West Bengal State Co-operative Bank Limited 3. Thus, we find no infirmity in the order of the ld. CIT(A) and uphold the same. 4. In the result, appeal of the revenue is dismissed.
Kolkata, the 19th day of January, 2018.