Government securities treated as investments cannot yield business loss on sale; the actual loss was characterised as capital loss.

A co-operative bank's consistent treatment of Government securities as investments in its books and tax return was decisive: the securities were valued at cost, and the question whether they were stock-in-trade or capital assets was treated as one of fact. On those facts, the securities were held to be investment assets rather than trading stock, so the actual loss on sale was not allowable as a business loss and was correctly characterised as a capital loss. The Revenue therefore succeeded, and the disallowance of the claimed business loss was restored.

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Issues: Whether the loss on sale of Government securities held by a co-operative bank as investments was allowable as business loss, or whether it was to be treated as capital loss.

Analysis: The assessee consistently classified the Government securities as investments in its books and in its income-tax return and valued them at cost. The precedents relied on by the assessee and the CBDT circular dealing with banks were distinguished on the ground that they proceeded on securities being treated as stock-in-trade or on notional diminution in value, whereas the present dispute concerned actual loss on sale of securities that had been consistently shown as investments. The question whether a security is stock-in-trade or a capital asset was treated as one of fact, and on the facts of the case the securities were held to be investments and not trading assets.

Conclusion: The loss was not allowable as business loss and was correctly treated as capital loss.

Final Conclusion: The Revenue succeeded, and the assessment order was restored to the extent of disallowance of the claimed business loss on sale of Government securities.

Ratio Decidendi: Where a bank consistently treats Government securities as investments rather than stock-in-trade, an actual loss on their sale is to be characterised according to that investment character and not automatically allowed as business loss.

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