INCOME TAX

Treatment of securities--Stock-in-trade or investment

Circular No. 599

Dated 24/4/1991

Clarifications on the following issues have been sought by banks from the Central Board of Direct Taxes:

(i) Whether the securities held by the banks constitute their stock-in-trade or investment, and consequently whether the loss claimed by the banks on the valuation of their securities should be allowed as a deduction in computing their taxable profits?

(ii) Whether deduction claimed in respect of interest paid for broken period on the purchase of securities should be allowed as a deduction from the taxable profits?

2. The matter has been considered by the Board and it has been decided that the securities must be regarded as stock- in-trade by the banks. Therefore, the claim of loss, if debited in the books of account, would be given the same treatment as is normally given to the stock-in-trade. As far as the second issue is concerned, both the interest payments and receipts must be regarded as revenue payments/receipts, and only the net interest on securities shall be brought to tax as business income.

(Sd.) Nishi Nair,

Under Secretary,

Central Board of Direct Taxes.