Law:

Section:

JUDGMENT Ismail, J.-Both these references raise the same question of law though they relate to two different assessees and the order of the Income-tax Appellate Tribunal, Madras Bench, in respect of these two assessees is a common order. In the first reference the question of law referred to this court for its opinion by the Income-tax Appellate Tribunal, Madras Bench, under section 256(1) of the Income-tax Act, 1961, is: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 1,69,996 and Rs. 62,563 in the assessment years 1964-65 and 1965-66, respectively, received as deposits in the first instance and forfeited at a later stage, was not the income of the assessee liable to tax but that the assessee was entitled to take them into account in arriving at the cost of securities acquired by the assessee when these sums were forfeited ?" In the latter reference, the question referred for the opinion of this court is: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 71,866 received as deposits in the first instance and forfeited at a later stage were not the income of the assessee liable to tax but that the assessee was entitled to take them into account in arriving at the cost of securities acquired by the assessee when these sums were forfeited ?" The assessees in both these references are banks, the assessee in the former reference being the Lakshmi Vilas Bank Ltd., Karur, and the assessee in the latter reference being the Karur Vysya Bank Ltd., Karur. These banks on behalf of their constituents purchased certain securities, namely, the Madras State Electricity Board Bonds, 1976. The procedure adopted by the assessees in purchasing the securities on behalf of their constituents was as follows: A certain percentage of the face value of the securities was required to be paid by the constituents and the same was called "margin money in deposit". On receipt of the said margin money, the banks purchased securities for their face value in their own name. Each of one of the constitutents gave a letter to the bank…

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