Nipun Singhvi (student) 11 December 2009
premium paid on govt security is allowable in the year of acquisition or can it be amortised over its life till maturity in case of a cooperative bank which is required to hold the same as required by RBI directions?Is there any circular regarding the same for accounting treaatment accepted by IT deptt?
Vineet (Director) 11 December 2009
The query is not very clear but it appears that the co-op bank has invested in govt securities by paying a premium. It further appears that the securities are on investment account i.e. Held to Maturity. in such case the entire cost including premium paid is cost of acquisition for such securities and not to be amortised or claimed as revenue expenditure.
Even in the case securities purchased on trading account (HTM), the premium paid is part of cost. In such case stock is valued at market price or cost at the end of year whichever applicable. In such matter the issue of broken period interest arises which is currently settled by decisionj of Bombay High Court in the case of American Express Bank.
issue of amortisation of expenses arises in the matter of securities issued on discount. The issue stands settled by decision of Supreme Court in the case of MAdras Industrial Investment Corporation Ltd 226.
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