BANK OF RAJASTHAN LTD. versus COMMISSIONER OF INCOME TAX

Citation: [2024] 10 S.C.R. 860 · Decided: 16-10-2024 · Supreme Court of India · Bench: ABHAY S. OKA · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2024] 10 S.C.R. 860 : 2024 INSC 781
Bank of Rajasthan Ltd.  
v. 
Commissioner of Income Tax 
(Civil Appeal Nos. 3291-3294 of 2009)
16 October 2024
[Abhay S. Oka* and Pankaj Mithal, JJ.]
Issue for Consideration
Issue arose as regards the treatment to be given to broken period 
interest, whether a deduction of the broken period interest can 
be claimed by the Bank, purchaser of the government Securities.
Headnotes†
Income Tax Act, 1961 – s.28 – Interest on securities – Interest 
on Held to Maturity (HTM) government securities – Interest 
for the broken period, if allowed as a deduction:
Held: As the securities were treated as stock-in-trade, the 
interest on the broken period cannot be considered as capital 
expenditure and will have to be treated as revenue expenditure, 
which can be allowed as a deduction – Whether the Bank holds 
the HTM security as investment or stock-in-trade will depend on 
the facts of each case – If it is found that HTM Security is held 
as an investment, the benefit of broken period interest will not 
be available and if it is held as a trading asset, deduction for 
broken period interest can be claimed – If deduction on account 
of broken period interest is not allowed, the broken period interest 
as capital expense will have to be added to the acquisition cost 
of the securities, which will then be deducted from the sale 
proceeds when such securities are sold in the subsequent years –  
Profit earned from the sale would be reduced by the amount of 
broken period interest. [Paras 20, 21, 24-30] 
Case Law Cited
Vijaya Bank Ltd. v. Additional Commissioner of IncomeTax, 
Bangalore (1991) Supp 2 SCC 147; American Express International 
Banking Corporation v. Commissioner of Income Tax & Anr 
(2002) 258 ITR 601 (Bombay) : 2002 SCC OnLine Bom 944; 
Commissioner of Income Tax, Bombay v. Citi Bank NA Civil Appeal 
* Author
[2024] 10 S.C.R. 
861
Bank of Rajasthan Ltd. v. Commissioner of Income Tax
No. 1549 of 2006; Commissioner of Income Tax, Andhra Pradesh, 
Hyderabad v. The Cocanada Radhaswami Bank Ltd., Kakinada 
(1965) 57 ITR 306 : 1965 SCC OnLine SC 186; United Commercial 
Bank Ltd., Calcutta v. Commissioner of Income Tax, West Bengal 
(1957) 32 ITR 688 : 1957 SCC OnLine SC 74; Commissioner of 
Income Tax, Jalandhar v. Nawanshahar Central Cooperative Bank 
Ltd (2007) 289 ITR 6 : (2007) 15 SCC 611; Bihar State Cooperative 
Bank Ltd. v. Commissioner of Income Tax (1960) 39 ITR 114 : 
1960 SCC OnLine SC 193; M/s. Radhasoami Satsang, Saomi 
Bagh, Agra v. Commissioner of Income Tax [1991] Supp. 2 SCR 
312 : (1992) 193 ITR 321: (1992) 1 SCC 659; Commissioner of 
Income Tax (Central), Calcutta v. Associated Industrial Development 
Company (P) Ltd., Calcutta (1972) 4 SCC 447; HDFC Bank Ltd. 
v. CIT (2014) 366 ITR 505 – referred to.
List of Acts
Banking Regulation Act, 1949; Income Tax Act, 1961; Finance 
Act, 1988.
List of Keywords
Broken period interest; Deduction of broken period interest; 
Purchaser of the government securities; Interest on securities; 
Interest on Held to Maturity (HTM) government securities;  
Stock-in-trade; Capital expenditure; Revenue expenditure; HTM 
Security; Investment.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3291-3294 
of 2009
From the Judgment and Order dated 24.03.2008 of the High Court 
of Rajasthan at Jodhpur in ITA Nos. 12, 117, 119 and 120 of 2005
With
Civil Appeal Nos. 11200-11201, 11202, 11203, 11204, 11205, 11196, 
11197, 11198 and 11199 of 2024 And Civil Appeal No. 4755 of 2023
Appearances for Parties
Balbir Singh, A.S.G., Sanjay Jhanwar, Jehangir Mistri, Sr. Advs., 
Ms. Kavita Jha, Anant Mann, Aditya Rathore, Naman Tandon, 
Samarvir Singh, Shyam Gopal, Raj Bahadur Yadav, H R Rao, 
862
[2024] 10 S.C.R.
Digital Supreme Court Reports
Prahlad Singh, Manoj Mishra, Ms. Kritgya Kait, Rupesh Kumar, 
Zoheb Hussain, Satya Prakash Gautam, Sridhar Potaraju, Aayush, 
Rajat Srivastava, Ms. Zeba Zoariah, Sanjay Kapur, Surya Prakash, 
Ms. Divya Singh Pundir, Tarun Gupta, Rajat Sharma, Aryan Singh 
Chaudhary, Gaurav Asati, Sanjiv M. Shah, Pranab Kumar Mullick, 
Mrs. Soma Mullick, Ms. Banani Sikdar, Sebat Kumar Deuria, Anil 
Rana, Advs. for the appearing parties.
Judgment / Order of the Supreme Court
Judgment
Abhay S. Oka, J.
1.	
Leave granted in the Special Leave Petitions.
FACTUAL ASPECTS
2.	
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

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