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TMI Blog1984 (7) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3 of the State Financial Corporations Act, 1951. According to s. 25 of the State Financial Corporations Act, 1951, one of its objects is : " (g) Granting loans or advances to or subscribing to debentures of an industrial concern repayable within a period not exceeding 20 years from the date on which they are granted or subscribed to, as the case may be." The assessee held certain securities in the form of Andhra Pradesh State Development Loan in 1970 and 1980. These securities were purchased by the assessee for a sum of Rs. 30,51,784 in the year 1969. During the accounting year relevant to the assessment year 1974-75, the assessee required certain funds for meeting its obligations, viz., for advancing loans to industrial concerns. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial Corporation v. CIT [1967] 65 ITR 112, and held that, inasmuch as one of the main objects of the assessee was advancing loans to companies upon which it earns interest and also because the sale of securities was effected for the purpose of carrying on its business, it must be held that the sale of securities was closely linked with the business of the assessee-Corporation ; and if so, according to the principle enunciated by the Supreme Court in Sardar Indra Singh's case [1953] 24 ITR 415, the profit made must be treated as trading profit. On the above reasoning, it allowed the appeal whereupon the assessee applied for and obtained the present reference to this court. From the facts found in the orders of the Tribunal and the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce may be made in this context to the letter of the assessee dated January 7, 1975, stating that the securities were pledged with the Reserve Bank of India and that they were sold as the assessee was in need of funds for meeting its obligation. Can it be said, in such a situation, that the assessee wanted to create a capital asset ; or should it be said that the assessee merely invested its surplus funds in easily convertible securities as an interim measure until such time as it required funds for lending moneys to industries ? The fact to be remembered in this connection is that in the case of financing and lending institutions, like the assessee herein, money itself constitutes its stock-in-trade, and that even if its surplus funds are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected in the usual course of carrying on the business or, in the words used by the Privy Council in Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax [1940] 8 ITR 635, if the realisation of securities is a normal step in carrying on the assessee's business. Though that case arose out of the assessment of a banking business, the test is one of general application in determining whether the surplus arising out of such transactions is a capital receipt or a trading profit. The question is primarily one of fact and there are numerous cases falling on either side of the line but illustrating the same principle. On the facts found in regard to the nature and course of the company's business, there can be no doubt that the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, accordingly, the loss suffered on that count must be allowed as a trading loss. We are in complete agreement with the ratio of the judgment. It must, therefore, be held in this case as well that the profit made by the assessee by the sale of the securities was a trading receipt and constituted its revenue but not a capital receipt. Before concluding, it is necessary to deal with certain decisions cited by Mr. Y. Sivarama Sastry. The first decision cited is in M. P. Financial Corporation v. CIT [1981] 132 ITR 884 (MP). Though the said decision relates to the financial corporation of Madhya Pradesh, we find that the Department conceded there that the surplus realised by the sale of bonds was a capital receipt. In view of the said conce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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