Bank securities as stock-in-trade: redemption profit taxed as business income and valuation change to market price permitted.

Securities held by a bank to meet statutory reserve requirements under section 24 of the Banking Regulation Act were treated as stock-in-trade, so profit on redemption of those securities was assessable as business income rather than capital gains. The text also states that the bank could adopt a recognised valuation method for its investments and change from cost to market value without contravening the Act. On that basis, the Revenue's contrary reference was rejected.

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Issues: Whether the investment held by a banking company to satisfy the reserve requirements under section 24 of the Banking Regulation Act constituted stock-in-trade, whether the profit on redemption of such securities was assessable as business profit, and whether the assessee could change the method of valuing its investments from cost to market price.

Analysis: The Court noted that the nature of the assessee-bank's investments had already been examined in earlier proceedings involving the same assessee and that, after considering the statutory obligation under section 24 of the Banking Regulation Act and the relevant judicial authorities, the investments were held to form part of the bank's stock-in-trade. On that basis, the profit arising on redemption of securities was treated as business income and not as capital gains. The Court also accepted that, in respect of valuation of investments, the assessee had the option to adopt either cost or market value, and a change from one recognised method to the other was not contrary to the Act.

Conclusion: The investment was stock-in-trade, the redemption profit was taxable as business profit, and the change in valuation method was permissible; the Revenue's contrary reference sought to be raised was therefore rejected.

Ratio Decidendi: Securities held by a bank to meet its statutory reserve obligations may constitute stock-in-trade, and a recognised change in valuation method from cost to market price is permissible where it accords with the Act.

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