Premium paid by co-operative banks on securities falling in “Held to Maturity” categories must be amortized over the period remaining to maturity:

Assessee, a co-operative bank, is required to deposit certain amount in Government securities as per RBI’s guidelines and is to hold the same till maturity in order to maintain Statutory Liquidity Ratio (SLR). In certain cases, such securities are acquired at a value higher than face value of such securities. Premium so paid by the assessee in acquiring such securities was claimed by the assessee as loss amortised over entire period of security which came to be disallowed by AO. CIT(A) confirmed AO’s order whereas ITAT decided the issue in favour of the assessee. On Revenue’s appeal, Hon’ble High Court observed that the assessee, being a co-operative bank, was bound by RBI’s securities. As per such directives, assessee had to invest certain amount in Government Securities and hold the same till maturity. CBDT’s circular No.17 of 2008 clearly spells out that premium on acquisition of investments classified under HTM (i.e. Held to Maturity) category should be amortized over the period remaining to maturity. Such instructions, having been issued u/s 119(2) of the Act, are binding on the Revenue. Considering the above, Hon’ble High Court was of the view that ITAT had rightly decided the issue in favour of the assessee. Accordingly, Revenue’s appeal was dismissed.

[CIT vs. Rajkot Dist. Co. Op. Bank Ltd. – Tax Appeal No.56 of 2013]