Law: Income Tax Ordinance, 1979

Section: 922

Law: Banking Companies Ordinance, 1962

Section: 29

Income Tax Ordinance (XXXI of 1979)----Ss. 9 & 22---Banking Companies Ordinance (LVII of 1962), S.29---Revenue gain---Banking company---Profit earned on sale of securities and treasury bills purchased in pursuance of compulsory statutory obligation under S. 29, Banking Companies Ordinance, 1962 being a part of normal banking business, investment made therein remained part of the circulating capital of the Bank--¬Such investments were not excluded from the floating capital and would not become part of the fixed asset of the Bank and profits earned thereon amounted to revenue gain and was liable to be subjected to tax. The purpose of section 29 of the Banking Companies Ordinance, 1962 is to maintain the liquidity of funds from meeting the time and demand liabilities. It is, therefore, incorrect to contend that the investment in securities were not in the nature of stock-in-trade but long term investments. The profit earned on sale of securities and treasury bills purchased in pursuance of compulsory statutory obligation under section 29 of the Banking Companies Ordinance, 1962, is a part of normal banking business. The investment made in such securities and treasury bills remains part of the circulating capital of the bank. Such investments are not excluded from the floating capital and does not become part of the fixed assets of the bank. The profits earned-thereon therefore, amount to revenue gain and is liable to be subjected to tax. Malabar Cooperative Bank Limited v. CIT (1975) 101 ITR 87 fol. I TAs. Nos. 1036, 1037, 926, 927, 872, 873 and 895 to 898/KB of 1981¬82; Grindlays Bank Limited v. CIT 1985 PTD 329; Punjab Cooperative Bank Limited v. CIT (1938) 6 ITR 355; (1940) 8 ITR 635 and Bihar Cooperative Bank Ltd. v. CTT (1960) 39 ITR 114 ref. ORDER The appellant is a non-resident banking company having its registered head office in the U.K. and operating in Pakistan through its branches. The common objection pressed in all the appeals before us is that the learned two officers below have erred in holding that the profit on sale of investments (Government securities) amount to revenue gain instead of capital gain as claimed by the appellant and is thereby…

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