Bank of Rajasthan Ltd.... Appellant versus Commissioner of Income Tax... Respondent

Parties Involved

Facts Summary

The main issue in this group of appeals is about the treatment to be given to broken period interest. The question is whether a deduction of the broken period interest can be claimed. The case involves a Scheduled Bank governed by the provisions of the Banking Regulation Act, 1949, which requires Banks to purchase government securities to maintain the Statutory Liquidity Ratio (SLR). The interest on the securities is paid by the Government or the authorities issuing securities on specific fixed dates called coupon dates. When a Bank purchases a security on a date which falls between the dates on which the interest is payable on the security, the purchaser Bank, in addition to the price of the security, has to pay an amount equivalent to the interest accrued for the period from the last interest payment till the date of purchase. This interest is termed as the interest for the broken period. The Bank in question 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.…

Legal Issues

• 1. Whether broken period interest can be claimed as a deduction under the Income Tax Act, 1961.

Judgment Outcome

Decided in favour of Revenue.

Precedents Relied Upon

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