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TMI Blog1978 (6) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 82,305 representing the interest on securities is taxable in the hands of the, assessee-bank ? " The Karnataka Bank Ltd., which is carrying on the business of banking, is the assessee in this case. During the accounting year corresponding to the assessment year 1969-70, the assessee had realised certain amount on the sale of its securities. Out of the sale proceeds of the said securities, a sum of Rs. 82,305 was treated by the assessee as interest realised by it in respect of the broken period up to the date of sale, although, in fact the interest in respect of these securities bad been realised by the vendees when they became due and payable. Before the Income-tax Officer, the assessee claimed that under section 18 of the Act, a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal also ended in dismissal. Hence, this reference. Before the Appellate Assistant Commissioner, after remand, the representative of the assessee stated that the sale of securities would not have been effected if the purchasers had refused to pay interest till the date of the sale to the assessee and the interest had been calculated and determined at the time of the sale. He also stated that the sale price of the securities had been fixed at the rate prevalent plus the interest. The Appellate Assistant Commissioner found : " In my opinion, although the nomenclature given is interest, it is not interest,but part of the sale consideration worked out and determined on the basis of the interest receivable up to the date of sale. " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Bank Ltd. [1940] 8 ITR 635 (PC) in which the assessee was carrying on business in banking, the question which arose for consideration before the Privy Council was, whether the income earned by the assessee on the sale of the securities held by it was income earned in the course of its business or not. Dealing with the said question, the Privy Council observed as follows : " In the ordinary case of a bank, the business consists in its essence of dealing with money and credit. Numerous depositors place their money with the bank often receiving a small rate of interest on it. A number of borrowers receive loans of a large part of these deposited funds at somewhat higher rates of interest. But the banker has always to keep enough cash or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulted from such a course of dealing of buying and sellling securities. It would be enough if such sales were 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. " In the case of Bihar State Co-operative Bank Ltd. [1960] 39 ITR 114 (SC), the Supreme Court has reaffirmed the above view as follows : " As we have pointed out above, it is a normal mode of carrying on banking business to invest moneys in a manner that they are readily available and that is just as much a part of the mode of conducting a bank's business as receivin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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