Banking securities loss treated as revenue loss and deductible where sold in the ordinary course of banking business.

A loss arising from the sale of securities by a banking company to meet depositor withdrawals and other business liabilities was held to be a business loss of revenue character. Because buying and selling securities formed part of the ordinary course of banking operations, the disposal of those securities was treated as a normal business step, not a realisation of capital investment. The distinction applicable to securities held as capital assets did not apply on these facts, and the loss was therefore deductible in computing business income.

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Issues: Whether the loss suffered on sale of securities held by a banking company to meet its liabilities was a revenue loss deductible in computing income, profits and gains under section 10(1) of the Income-tax Act, 1922.

Analysis: The company was carrying on banking business and had sold securities to meet liabilities arising in the course of that business. The sale of securities for meeting depositor withdrawals and similar banking liabilities was treated as a normal step in carrying on banking business. Since buying and selling of securities formed part of banking operations, the loss occasioned by such sale was not a capital loss but a loss incurred in the course of business. The cited distinction regarding securities acquired by way of capital investment did not apply on the facts.

Conclusion: The loss was revenue in nature and was an admissible deduction. The question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: A loss arising from the realisation of banking securities in the ordinary course of banking business to meet banking liabilities is a business loss of revenue character and is deductible.

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