Bank-held securities as stock-in-trade support revenue deduction for diminution in value despite Held to Maturity classification.

Bank-held government securities are treated as stock-in-trade, so classification under the Held to Maturity category does not by itself convert them into pure investments. The legal character of the asset depends on the real nature of the banking business, not the book nomenclature adopted for accounting purposes. On that basis, loss arising from valuation or sale of such securities is revenue in nature and is allowable as a deduction. Accordingly, the claim for deduction for diminution in value of government securities was held allowable and the disallowance was unsustainable.

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Issues: Whether the assessee bank was entitled to claim deduction for diminution in value of government securities held under the Held to Maturity category as revenue expenditure.

Analysis: The securities held by a bank are to be treated as part of its stock-in-trade. Merely because the securities are classified under the Held to Maturity head, their character does not change into that of a pure investment. The decisive factor is the real nature of the banking business and not the nomenclature adopted in the books. On that basis, the loss arising from valuation or sale of such securities is revenue in nature and is allowable.

Conclusion: The claim for deduction was allowable and the disallowance was unsustainable.

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