Law:

Section:

Section 28 of the Income-tax Act, 1961 - Business income - Chargeable as -Assessment years 1974-75 to 1977-78 - Whether where adopting either of assessee's method of accounting or that of department's same amount was brought to tax and, further, department could not show as to how assessee's method ought to be rejected, assessee's method of treating income was to be accepted - Held, yes - Assessee-bank, like several other banks, was consistently following practice of valuing securities/interest held by it at end of each year and offer for taxation appreciation in their value by way of profit/interest earned due to efflux of time - 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 FACTS The assessee-bank like all other banks had been subscribing to dated Government securities and they had also been buying and selling such securities in market for maintaining statutory liquidity ratio. The assessee used to pay broken period interest whenever the assessee bought securities and similarly, used to receive payment for broken period interest whenever they sold such securities to the counterparty bank. During relevant assessment years, under the adjustments, the difference of the amount paid and the amount received was claimed as revenue expenditure under section 37. The department took the view that outlay on purchase of income-bearing assets was in the nature of capital outlay and no part of such outlay could be set off for income-tax purposes as expenditure against income accru-ing from the asset in question. Consequently, it was held that the amount…

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