Co-op Bank securities as stock, not investments; depreciation disallowance overturned. Appeal dismissed.

The High Court of Bombay held that securities held by a Co-operative Bank until maturity should be treated as stock in trade, not mere investments. The Assessing Officer's disallowance of depreciation on government securities as diminution in value was overturned, following precedents from the Supreme Court and a similar case involving another bank. The appeal challenging this decision was dismissed as it did not raise a substantial question of law, affirming that such securities are considered stock in trade, affecting their tax treatment.

---

---

Issues:
1. Entitlement to deduction on account of depreciation of security held as an investment in Government security.

Analysis:
The judgment by the High Court of Bombay dealt with the issue of whether the respondent, a Co-operative Bank, was entitled to the amount deducted on account of depreciation of security held as an investment in Government security. The Assessing Officer had debited a significant amount towards depreciation on investment in Government securities held under the category of "HELD TO MATURITY," considering them as capital assets available for sale. Consequently, the Assessing Officer disallowed the amount as diminution in value of security, adding it to the total income of the respondent for the assessment year 2009-10.

During the appeal process, both the Commissioner Income Tax (Appeals) and the Income Tax Appellate Tribunal held that the securities in question were stock in trade, and therefore, the depreciation would amount to a loss and not income. This interpretation was supported by the judgment of the Bombay High Court in the case of Commissioner of Income Tax vs. Bank of Baroda and the Supreme Court judgment in UCO Bank vs. Commissioner of Income Tax. The Supreme Court specifically clarified that securities held by a bank until maturity cannot be purely considered as investments but rather as stock in trade.

The High Court, in its judgment, highlighted that the reliance placed by the department on the judgment in the case of Vijaya Bank vs. Commissioner of Income Tax was misplaced. Consequently, the appeal challenging the concurrent findings of the lower authorities was dismissed as it did not raise any substantial question of law. The decision reinforced the principle that securities held by banks until maturity are to be treated as stock in trade rather than mere investments, impacting the tax treatment of depreciation on such securities.

---