2015 (6) TMI 551 - HC - Income Tax

Entitlement for deduction on account of depreciation of security - whether held as an investment in Government security or stock in trade - Held that - The securities were stock in trade and so depreciation would amount to loss and not income. The authorities below held that this aspect is well settled through the judgment of this Court in the case of Commissioner of Income Tax vs. Bank of Baroda, reported in (2003 (3) TMI 80 - BOMBAY High Court) as well as in the case of UCO Bank vs. the Commissioner of Income Tax, (1999 (9) TMI 4 - SUPREME Court) wherein held that merely because the securities are kept under the head by the bank till the maturity, the said security cannot be treated as a purely investment. The security held by the bank is in the nature of stock in trade. - Decided in favour of assessee.

Summary

Issues:
1. Entitlement to deduction on account of depreciation of security held as an investment in Government security.

Analysis:
The judgment by the High Court of Bombay dealt with the issue of whether the respondent, a Co-operative Bank, was entitled to the amount deducted on account of depreciation of security held as an investment in Government security. The Assessing Officer had debited a significant amount towards depreciation on investment in Government securities held under the category of "HELD TO MATURITY," considering them as capital assets available for sale. Consequently, the Assessing Officer disallowed the amount as diminution in value of security, adding it to the total income of the respondent for the assessment year 2009-10.

During the appeal process, both the Commissioner Income Tax (Appeals) and the Income Tax Appellate Tribunal held that the securities in question were stock in trade, and therefore, the depreciation would amount to a loss and not income. This interpretation was supported by the judgment of the Bombay High Court in the case of Commissioner of Income Tax vs. Bank of Baroda and the Supreme Court judgment in UCO Bank vs. Commissioner of Income Tax. The Supreme Court specifically clarified that securities held by a bank until maturity cannot be purely considered as investments but rather as stock in trade.

The High Court, in its judgment, highlighted that the reliance placed by the department on the judgment in the case of Vijaya Bank vs. Commissioner of Income Tax was misplaced. Consequently, the appeal challenging the concurrent findings of the lower authorities was dismissed as it did not raise any substantial question of law. The decision reinforced the principle that securities held by banks until maturity are to be treated as stock in trade rather than mere investments, impacting the tax treatment of depreciation on such securities.