TMI Blog1996 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the profits and gains of the bank would arise only when the bank sold the securities or redeemed them at the time of maturity if it had become the owner of the securities and as the bank became the owner of the securities at the same time when it became the owner of the margin amount also, there was nothing unnatural or illegal in the bank taking into account this margin amount which had become its money at that time, in arriving at its cost of the securities. HELD THAT:- This is not a case of pre-deposit of money for acquisition of licence or business contract which had to be kept deposited with the principal for the entire duration of the period of contract. Each deposit was made for a specific transaction. The bank underto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount became the property of the bank. The money that was utilised for the purchase of the securities was the bank's money. No question of reduction of the cost of the securities by adjustment of the deposit amount can arise in the facts of this case. Decided in favour of revenue. - B. P. JEEVAN REDDY. and SUHAS C. SEN. JUDGMENT The judgment of the court was delivered by SUHAS C. SEN J. --- Lakshmi Vilas Bank, Karur, respondent herein in course of its usual business of banking, purchases and sells securities for and on behalf of its constituents in consideration of agreed commission/brokerage. During the accounting periods relevant for the assessment years 1964-65 and 1965-66, the bank purchased certain securities, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forfeited by the bank as income of the year in which the margin money was forfeited and brought the forfeited amount to tax. The Income-tax Officer was of the opinion that the bank had no right to adjust the margin money to reduce the purchase price of the bonds. The view taken by him was affirmed by the Appellate Assistant Commissioner. The Tribunal, however, upheld the contention of the bank that they were entitled to adjust the margin money forfeited by them against the cost of the bonds for arriving at the cost of the securities. At the instance of the Commissioner of Income-tax, the following question of law was referred to the High Court (page 974 of 107 ITR) : " Whether, on the facts and in the circumstances of the case, the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it became the owner of the margin amount also, there was nothing unnatural or illegal in the bank taking into account this margin amount which had become its money at that time, in arriving at its cost of the securities. For these reasons, the High Court answered the question referred to it in the affirmative and against the Department. The Department has now come up in appeal before this court. The facts of this case clearly go to show that when the bank forfeited the margin money deposited by the customers with it, the bank was doing something which was in the course of its usual banking business. After the deposits made by the constituents were forfeited by the bank, the forfeited amount became the bank's money. There is no reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the money became the bank's own money. The Income-tax Officer was right in treating this forfeited money as income of the assessee earned in the usual course of banking business. The securities purchased by the bank in its own name became the property of the bank. If the securities were ultimately sold, any profit made would be profit earned by the bank. The cost of acquisition of the security will be the price actually paid for it. In the instant case, the finding of fact is that the bank had purchased them at face value. There is no justification in law for reducing the price actually paid by the bank by reducing it by the amount of margin money forfeited by the bank. This is a straightforward case. The bank has purchased the securities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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