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Clarification regarding treatment of securities as stock-in-trade or investment

Consequent to the judgment of the Supreme Court in the case of Vijaya Bank Ltd. v. CIT [1991] 187 ITR 541, Circular No. 599, dated 24-4-1991 of the Central Board of Direct Taxes, New Delhi may be treated as withdrawn.

Circular : No. 610, dated 31-7-1991.

JUDICIAL ANALYSIS

EXPLAINED IN – American Express Bank Ltd. v. Dy. CIT [1998] 65 ITD 67 (Mum. – Trib.) with the following observations :

“Admittedly the Supreme Court decision in the case of Vijaya Bank Ltd. v. CIT [1991] 187 ITR 541/57 Taxman 152 was delivered on 19-9-1990 well before the issue of Circular No. 599 and secondly, though the decision was rendered after the order of the Assessing Officer but his action being in consonance with the law laid down by the Supreme Court, there was no reason for not following the decision of the Supreme Court. In view of these facts and circumstances of the case, the Tribunal was bound to follow the decision of the Supreme Court in the case of Vijaya Bank Ltd. (supra). The Circular No. 599 was issued without considering the Supreme Court decision cited supra. It was quite possible that the Board when issuing the Circular No. 599 might not be even aware of the Supreme Court decision cited supra . The language of the later Circular No. 610 made it clear that Circular No. 599 did not have the benefit of going through the Supreme Court decision in the matter. Circular No. 599 was neither existing at the time when the Assessing Officer framed the impugned assessments nor was allowed to remain in operation for a considerable period. The said circular was withdrawn as soon as the Board realised that such clarification issued by it was contrary to the principle laid down by the Supreme Court and the Board had rightly withdrawn the circular within about three months from the date of first issue of the circular. The circular issued by the Board was in the nature of clarification or, at best the departmental view on the subject, which was not binding on the Courts.”

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