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TMI Blog1962 (8) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the case. Statement of Holding and Sale of Securities: Year Holding Sale Rs. Rs. 1933 2,62,375 84,668 1934 3,85,012 72,052 1935 6,45,951 95,213 1936 9,56,935 ... 1937 16,20,718 ... 1938 25,21,278 ... 1939 31,91,375 ... 1940 34,53,785 ... 1941 69,75,176 ... 1942 1,05,56,825 23,484-6-0 1943 2,01,75,130 2,46,732-4-8 1944 3,06,99,956 1,97,205-11-0 1945 5,04,55,271 1,43,517-11-4 1946 6,22,89,842 25,438-0-0 In the course of these transactions, the said bank acquired from time to time certain 3½% Government Promissory Notes of the face value of ₹ 1,88,37,300 at a cost price of ₹ 1,82,27,887. In the year 1946, the Government of India converted certain 3½% Government Promissory Notes, including those held by the said bank as aforesaid, into 3% Government Promissory Notes styled as "3% Government Conversion Loan of 1946". This was effected under notification No. D/4767/-B/46 dated the 24th May, 1946. The holders of the five kinds of 3½% loan mentioned therein were given the option of converting their holdings either into 3% Conversion Loan of 1946 redeemable at par on 16th September, 1986 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. I shall presently deal with the decision of Rowlatt J. in that case. The first case which is to be considered is a decision of the Privy Council in Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax[1940] 8 I.T.R. 635 (P.C.)]. The facts in that case were as follows: The Punjab Co-operative Bank invested large amounts, mainly in India Government securities. Up to 1933, there was no sale of these securities. From 1934, the securities began to be sold. During the year 1935, the company took advantage of the high prices prevailing and some 10 lakhs of Government securities were sold. The difference between the cost price of the investment and the price at which they were sold amounted to ₹ 1,42,588. The bank contended that this profit did not form a part of the profits of business because the securities were considered as a reserve for emergencies and in 1935, a portion of it was sold to meet heavy withdrawals of deposits and to deposit ₹ 2,66,000 with the Reserve Bank of India under the provisions of section 42(1) of the Reserve Bank of India Act, 1934. It was contended that the bank did not deal in shares and securities and that the profit was capital gains an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in the present case, some of the securities of the bank are realised in order to meet withdrawals by depositors, it seems to their Lordships to be quite clear that this is a normal step in carrying on the banking business, or, in other words that it is an act done in 'what is truly the carrying on' of the banking business." Mr. Mitra has argued that in the present case there has been no withdrawal for the purpose of paying the depositors or for any purpose linked with the carrying on of the business of the bank. For that purpose, several other cases will have to be decided which are nearer to the facts of the instant case. The decision of the Judicial Committee, however, establishes the proposition that it is not necessary for the assessee to carry on a separate business of buying and selling investments. I may at once come to the case of the Californian Copper Syndicate[1904] 5 Tax Cas. 159] cited by the Judicial Committee. In that case, a company was formed for the purpose of acquiring and reselling mining property. It resold a certain mining property to a second company, receiving payment in fully paid shares of the latter company. It was held that the differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany had not actually suffered any loss and that it was merely a claim to write down the book value of investments still held. Rowlatt J. said as follows: "It is said for the appellants that that is really nothing more nor less than a barter on a money basis or a barter for something which is money's worth of the old investments. That it is compulsory does not matter--numerous cases of the compulsory sales that arose in connection with the War were cited and I think that is so. That money's worth was given instead of cash is said to be immaterial on the authority of the Californian Copper Company's case[1904] 5 Tax Cas. 159]....Of course if there is a realisation, there is an end of the old suspense, if I may use that word, and a new starting point is set up so that there will be a new profit or loss when the substituted stocks are sold by comparison of what they are sold for or realised for with the figure at which the stocks have now been acquired, the figure at which the disappeared stocks were acquired having become immaterial." It was held that once there was an exchange of securities although compulsory, the old investments had come to an end and had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies. In the return for the assessment year 1938-39, the company showed a loss, as a result of such transactions, and this was allowed as a business loss. In the assessment year 1941-42, the company claimed that the surplus resulting from similar transactions was not taxable as it amounted to a mere change of investment and was therefore a capital gain. This contention was rejected by the income-tax authorities, which held this was assessable as profits and gains of the company's business in dealing in shares. This was upheld by the Appellate Tribunal, whereupon there was a reference and the Calcutta High Court also affirmed the same. There was an appeal to the Supreme Court. Patanjali Sastri C.J. said as follows: "The principle applicable in all such cases is well settled and the question always is whether the sales which produced the surplus were so connected with the carrying on of the assessee's business that it could fairly be said that the surplus is the profits and gains of such business. It is not necessary that the surplus should have resulted from such a course of dealing in securities as by itself would amount to the carrying on of a business of buying a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons between 1942-1946 when the market was high. The Tribunal held as a fact that the holding of securities by the assessee was incidental to the carrying on of its banking business. As stated by the Privy Council in Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax[1940] 8 I.T.R. 635 (P.C.)., the holding of securities is a normal step in carrying on the business of a bank. Banking concerns always hold easily realisable securities so as to meet probable demands of depositors. It is not at all necessary that this should be a separate business of dealing in securities. The securities were held in a manner consistent with the normal dealings of a bank and varied from year to year as will appear from the table set out above. The Tribunal has also pointed out that every bank was required to maintain a certain portion of its total assets in the form of Government securities (vide section 42 of the Reserve Bank of India Act, 1934). There is no reason why we should go behind those facts as found by the Tribunal. Upon these facts, we must come to the conclusion that the holding of the securities and the selling and reinvestment of the same and the final exchange were all done in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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