Bank securities as stock-in-trade: premium amortisation on held-to-maturity investments was allowed where RBI guidelines required write-off.

Premium amortisation on a bank's held-to-maturity investments was allowable as a deduction because securities held by banks are treated as stock-in-trade for income-tax purposes. The RBI classification into held-to-maturity, available for sale and held for trading did not alter the true character of the investments, and the nomenclature of the category was not decisive. Where RBI guidelines required the premium to be written off, the CBDT instruction also recognised such allowance. The disallowance was therefore unsustainable and was deleted in favour of the assessee.

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Issues: Whether the amortization of premium on investments in the held-to-maturity category was allowable as a deduction in computing the bank's income.

Analysis: The investments held by banks were treated as part of their stock-in-trade, notwithstanding the RBI classification into held-to-maturity, available for sale and held for trading categories. The premium written off on securities in the held-to-maturity category was required to be amortized under the RBI guidelines. The CBDT instruction also recognized allowance of such amortization where the RBI guidelines so provided. The classification of securities under RBI norms did not change the true character of the investments for income-tax purposes, and the nomenclature of the category was not ative. Following the settled principle that bank securities are stock-in-trade and their consistent method of accounting cannot be disregarded, the disallowance was unsustainable.

Conclusion: The amortization of premium on investments was allowable, and the disallowance was deleted in favour of the assessee.

Ratio Decidendi: Securities held by a bank constitute stock-in-trade for income-tax purposes, and amortization of premium on held-to-maturity securities is allowable where RBI guidelines require such write-off.

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