Law: Income Tax Act, 1922

Section: 10(1)

Section 28(1) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessee bank which showed 3 percent Government Conversion loans in its books at face value instead of at cost value, transferred difference in two amounts to reserve, and claimed same being capital gains as not assessable under Act - Whether since holding of securities and selling and reinvestment of same and final exchange were all done in due course of business, appreciation in value must be taken as profit, which was assessable to tax - Held, yes FACTS The assessee bank invested its surplus funds in Government securities. The bank sold securities and shares held by it and made new investments. In the course of these transactions, the assessee bank acquired from time to time certain 3½ percent Government Promissory Notes of the face value of Rs. 1,88,37,300 at a cost price of Rs. 1,82,27,887. In view of Government notification dated 24-5-1946 the bank surrendered the said 3½ per cent Government promissory notes of the face value of Rs. 1,88,37,300 and secured from the Government a fresh set of promissory notes of the same face value, bearing interest at 3 percent. In their account books, the bank showed 3 percent Conversion Loan of 1946 at its face value of Rs. 1,88,37,300 instead of the cost value of Rs. 1,82,27,887 and transferred the balance of Rs. 6,09,413 to reserve. In making income-tax assessment in respect of the year 1947-48, the ITO treated the said amount of Rs. 6,09,413 as the business income of the assessee, and rejected the assessee's contention that the amount being capital gains in its hands was not taxable under the Act. The view of the ITO was upheld by the AAC and also by the Appellate Tribunal. On reference: HELD The following propositions, as gathered from the decided cases, are that one must consider first, as to whether a particular transaction resulting in profit of loss, is a mere appreciation or depreciation of an investment by the assessee, or is connected with the assessee's business or trade. If the transaction can be said to have taken place in connection with such trade or business,…

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