Banking income tax treatment: property held for own use is capital, while debt-recovery assets remain business stock.
In a banking context, property acquired for the bank's own use was treated as fixed capital, not as part of the money-lending business, so the profit on its sale was not taxable as business income. By contrast, properties taken over in realisation of debts and retained for several years remained part of the bank's circulating capital absent clear evidence of conversion into independent investments, so the profit on their sale was assessable as income from the money-lending business. The result was a partial exclusion from tax only for the property held for the bank's own use, with the balance treated as business income.
Issues: (i) whether the profit arising from sale of the property acquired for the bank's own use was assessable as income from the money-lending business; (ii) whether the profit arising from sale of the remaining properties taken over in realisation of debts and retained for several years was assessable to tax as business income.
Issue (i): Whether the profit arising from sale of the property acquired for the bank's own use was assessable as income from the money-lending business.
Analysis: The property was not purchased in discharge of any debt due to the bank. It was acquired because it adjoined the bank's premises and was intended for the bank's own use. Such acquisition was an investment of fixed capital and not a transaction in the course of the banking or money-lending business. There was no material to show that it was thereafter treated as stock-in-trade of that business.
Conclusion: The profit on sale of this property was not taxable as income from the money-lending business and was in favour of the assessee.
Issue (ii): Whether the profit arising from sale of the remaining properties taken over in realisation of debts and retained for several years was assessable to tax as business income.
Analysis: The remaining properties were acquired in realisation of dues from debtors and, in the case of a banking institution, such acquisitions ordinarily form part of the money-lending business. The properties were retained, improved, and the income from them was brought into the bank's accounts. Mere lapse of time did not alter their character, and there was no clear evidence that the bank intended to withdraw their value from the money-lending business or convert them into independent investments.
Conclusion: The profit on sale of the remaining properties was assessable as income from the money-lending business and was against the assessee.
Final Conclusion: Only the portion of the sale profit attributable to the property acquired for the bank's own use was excluded from tax, and the balance was held chargeable as business income.
Ratio Decidendi: In the case of a banking institution, properties acquired in realisation of debts normally remain part of the money-lending circulating capital unless there is clear evidence of conversion into a capital investment; however, property acquired for the bank's own use is a capital asset and any gain on its sale is not business income.
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AI Drafter ✕
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