1984 (7) TMI 66 - HC - Income Tax

Summary

Issues Involved:
1. Whether investment in securities made by the assessee in pursuance of s. 24 of the Banking Regulation Act can be treated as a transaction in the course of carrying on of trade.
2. Whether the amount of Rs. 9,95,621 is allowable as a deduction towards gratuity.

Summary:

Issue 1: Investment in Securities u/s 24 of the Banking Regulation Act
The court examined whether the investment in securities by the assessee, a banking company, under the statutory obligation of s. 24 of the Banking Regulation Act, 1949, constitutes a transaction in the course of carrying on trade. The court noted that the main business of a banking company involves dealing with money and credit, and maintaining a portion of deposits in cash or easily realisable securities is a prudent banking practice. The court held that the statutory requirement under s. 24 does not convert the bank's stock-in-trade into a capital asset. The income arising from such securities is closely connected with the banking business and constitutes business income, not capital gains. The court relied on precedents such as Punjab Co-operative Bank Ltd. v. CIT and Sardar Indra Singh and Sons Ltd. v. CIT to support its conclusion. The court also referenced the Kerala High Court's decision in Malabar Co-operative Central Bank Ltd. v. CIT, which held that securities held by a banking institution as part of its business activity are stock-in-trade. The court rejected the contrary view taken by the Full Bench of the Madras High Court in CIT v. Madras Central Urban Bank. Therefore, the first question was answered in the affirmative, in favor of the Revenue and against the assessee.

Issue 2: Deduction Towards Gratuity
The court did not delve into the facts or legal discussion regarding the second question about the deduction towards gratuity. The standing counsel for the Revenue conceded that the issue was already settled in favor of the assessee by previous decisions, including CIT v. Warner Hindusthan Ltd., Tata Iron & Steel Co. Ltd. v. Bapat, ITO, and the Supreme Court's decision in Vazir Sultan Tobacco Co. Ltd. v. CIT. Consequently, the second question was answered in the affirmative, in favor of the assessee and against the Revenue.

Conclusion:
The court concluded by answering both questions in favor of the Revenue for the first issue and in favor of the assessee for the second issue, with no order as to costs.