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2008 (8) TMI 766

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..... , ASG Ms. Arti Gupta, Adv. Mr. Naveen Prakash, Adv. Mr. Rahul Kaushik, Adv. Ms. Shilpa Singh, Adv. Mr. K.C. Pandey, Adv. Mr. Sunil Roy, Adv. for Mr. B.V.Balaram Das, Adv./ Mr. B. Krishna Prasad, Adv. For Respondent (s) Mr. J.D. Mistry, Adv. with Mr. B.D. Damodar, Adv. and Mr. Rustom B.Hathikhanawala, Adv. Mr. Samir Parekh, Adv. Mr. Sumil Goel, Adv. Miss Divya Sinha, Adv.for M/s. Parekh Co. ORDER The assessment year in question is 1978-79. Aggrieved against the judgment and order of the High Court of Bombay dated 16th April, 2003 passed in ITR No.278 of 1997, revenue has filed this appeal. The following question of law has been posed before us for consideration: "Whet .....

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..... sue is concluded against the revenue and in favour of the assessee. Learned ASG appearing for the revenue, relying upon a judgment of this Court in the case of Vijaya Bank Ltd. vs. Additional Commissioner of Income Tax, Bangalore reported in 1991 Supp. (2) SCC 147, wherein this Court in paras 4 5 observed as under: "4. In IRC v. Pilcher (1949) 2 All ER 1097, Lord Justice Jenkins stated: (All ER p.1103) "It is a well settled principle that outlay on the purchase of an income-bearing asset is in the nature of capital outlay, and no part of the capital so laid out can, for income tax purposes, be set off as expenditure against income accruing from the asset in question." 5. In the instant case, the assessee purchased securities .....

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..... curities". Having treated the difference under the head "Business", the Assessing Officer disallowed the broken period interest payment, which gave rise to the dispute. It was open to the Department to assess the above difference under the head "Interest on securities" under section 18. However, they chose to assess the interest under the head "Business" and, while doing so, the Department taxed broken period interest received, but disallowed broken period interest payment. It is in this light that one has to read the judgment of the Karnataka High Court and the Supreme Court in Vijaya Bank Ltd's case [1991] 187 ITR 541. In that case, the facts were as follows. During the assessment year under consideration, Vijaya Bank entered into an .....

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..... est received on sale, but at the same time, disallowed broken period interest payment at the time of purchase and this led to the dispute. Having assessed the amount received by the assessee under section 28, the only limited dispute was-whether the impugned adjustments in the method of accounting adopted by the assessee- bank should be discarded. Therefore, the judgment in Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) has no application to the facts of the present case. If the Department had brought to tax, the amounts received by the assessee-bank under section 18, then Vijaya Bank Ltd.'s case [1991] 187 ITR 541 (SC) was applicable. But, in the present case, the Department brought to tax such amounts under section 28 right from the .....

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..... ] 57 ITR 306, income from securities treated as trading assets can come under section 28. In the present case, the Department has treated income from securities under section 28. Lastly, the facts in the case of United Commercial Bank Ltd. [1957] 32 ITR 688 (SC), also support our view in the present case. In United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the assessee-bank claimed a set-off under section 24(2) of the Indian Income-tax Act, 1922 (section 71(1) of the present Act), against its income from interest on securities under section 8 of the 1922 Act (similar to section 18 of the present Act). It was held that United Commercial Bank was not entitled to such a set-off as the income from interest on securities came under sec .....

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..... loss of tax/revenue for the Department. That, there was no need to interfere with the method of accounting adopted by the assessee- bank. That, the judgment in the case of Vijaya Bank Ltd. [1991] 187 ITR 541 (SC), had no application to the facts of the case. That, having assessed income under section 28, the Department ought to have taxed interest for the broken period interest received and the Department ought to have allowed deduction for the broken period interest paid." The facts in the present case are similar to the facts in American Express (supra). Agreeing with this view and accepting the distinction pointed out by the Bombay High Court, this Court dismissed the two special leave petitions filed by the revenue, one of which was .....

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