CIT Vs Bharat Overseas Bank Ltd. (Madras High Court)
Held to Maturity, Yet Stock-in-Trade: Madras High Court Allows Bank’s Revaluation Loss
A bank’s decision to hold Government securities until maturity does not, by itself, turn them into capital investments. That distinction was central to the Madras High Court’s decision in CIT v. Bharat Overseas Bank Ltd., TCA No. 399 of 2013, dated 22 September 2026 (2026:MHC:3953). The Court also upheld the bank’s claim for bad debts written off on non-rural advances, answering all five questions raised by the Revenue in favour of the assessee.
The dispute before the Court
For assessment year 2006-07, the Revenue challenged the Tribunal’s decision on two issues. First, it argued that securities classified as “held to maturity” were long-term investments and could not be treated as stock-in-trade. On that basis, it disputed the allowance of ₹27,76,08,025 as loss on revaluation. Secondly, it objected to the deduction of bad debts relating to non-rural advances without setting off the credit balance in the provision for bad and doubtful debts under section 36(1)(viia).
The Revenue’s argument on bad debts was that the provision was composite and that the write-off under section 36(1)(vii) should be reduced by the available provision balance without separating rural and non-rural advances. The appeal therefore required the Court to consider both the character of a bank’s securities and the relationship between the two bad-debt deductions.
