Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business income - Assessee, a banking company, invested various amounts in Government securities as required under section 24(1) of banking regulation act, 1949-Whether such statutory necessary investment was transaction in course of assessee's business and difference earned by it on maturing of said securities constituted its business income and not capital gains-Held, on facts, yes FACTS The assessee was a banking company governed by the Banking Regulation Act, 1949. As required under section 24 of the said Act, the assessee had been investing various amounts in Government securities and redeeming the same on their maturity. The difference so earned by it was being returned by it under the head 'Capital gains' and the revenue had accepted the said practice of the assessee over certain year in the past. For the assessment year 1971-72, however, the ITO held that the difference was liable to be taxed as income from the business of the assessee. The Tribunal confirmed the ITO's decision. On reference: HELD The main business of a banking company is to accept deposits and to advance loans to appropriate persons or institutions. Money constitutes its stock-in-trade. Every bank would and is expected to keep certain portion of deposits in cash with it to enable it to honour any possible demands of depositors at any given point of time. This normal prudent business principle has been given statutory recognition by section 24 of the Banking Regulation Act, 1949, in the interest of public and the larger interest of the banking industry itself, by requiring that every banking company shall maintain in India either in cash or in the shape of gold or unencumbered approved securities, 20 per cent of its total specified liabilities at any given point of time. The said amount is the stock-in-trade of the assessee. Section 24 does not require that the amount should necessarily be invested in approved securities; it can as well be in the shape of cash or gold. In the present case, the assessee chose voluntarily to put the money in securities. Therefore, the statutory requirement did not convert what was the assessee's stock-in-trade…

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