D7.704 Computation of profits
Various cases have established the tax treatment of a bank's income.
The profit on realisation of securities by a bank to meet withdrawals was held to be taxable. It was not necessary to establish that the bank had been carrying on a separate business of buying and selling or realising investments for the profit on sale of the securities to be taxable1.
In cases where banks had admitted liability on realisation profits, the conversion of National War Bonds into other government securities was regarded as a realisation of the war bonds, and the profit from the conversion was held to be assessable2.
In computing the London branch profits of a non-resident bank no account had to be taken of interest on securities it held, which were issued by the Treasury with the condition attached that the interest should not be liable to tax while the securities were in the beneficial ownership of a person not ordinarily resident in the UK3. The decision extended to other classes of interest which were exempt in the hands of non-residents, although this decision is less relevant now4.
Interest on advances made in the ordinary course of a banking business can be assessed only as trading income (formerly under the Schedule D Case I), and there is no option whereby the Crown can assess it as non-trading income. In Smiles v Australasian Mortgage and Agency Co Ltd5, an English company carried on a wool-broking business, and made temporary advances abroad to farmers on the security