Bank-held government securities treated as stock-in-trade; transfer loss under amalgamation scheme qualifies as deductible business loss.

Government securities held by a banking company are prima facie stock-in-trade because banking statutes require authorised dealings in securities as part of banking business. When such securities are separately realised in the ordinary course of banking activity, any gain or loss from their transfer is treated as a business profit or business loss. On the facts described, the transfer under an amalgamation scheme was not a slump sale of the entire undertaking for one composite consideration; the securities were separately valued and transferred to provide funds for discharge of liabilities. The loss on that transfer was therefore deductible in computing business income.

---

---

Issues: Whether Government securities held by a banking company are prima facie stock-in-trade and whether loss on their transfer under a banking amalgamation scheme is a deductible business loss.

Analysis: The banking statutes required banks to hold approved securities and authorised dealings in securities as part of banking business. On that footing, securities held by a bank are prima facie to be treated as stock-in-trade unless the contrary is shown. Where such securities are realised in the ordinary course of banking activity, the gain or loss resulting from their sale forms part of business profits or losses. The transfer here was not a slump sale of the whole undertaking for one composite consideration; the securities were separately valued and transferred under the amalgamation scheme to provide funds for discharge of liabilities. The cessation of business coinciding with the transfer did not alter the character of the transaction as one arising in the course of business.

Conclusion: The loss of Rs. 55,544.05 on the transfer of Government securities was a business loss deductible in computing the assessee's income.

Ratio Decidendi: Securities held by a bank are prima facie stock-in-trade, and loss arising from their separate realisation under an amalgamation arrangement made to meet banking liabilities is a loss arising in the course of business and is deductible.

---