Government securities purchased by banks to meet the statutory liquidity ratio (SLR) requirements are held as stock-in-trade. The securities were treated as stock-in-trade in the hands of the bank, in compliance with RBI guidelines and CBDT circulars. The RBI Circular of 21.04.1998 clarified that Banks should not capitalise broken period interest paid to the seller as a part of the cost but treat it as an item of expenditure under the profit and loss account. The Court emphasized that whether a particular security is held as an investment or stock-in-trade is a factual determination within the knowledge of the assessee. If securities are held as investments, the benefit of broken period interest deduction would not apply. However, for securities held as trading assets, the deduction is permissible. Considering that the assessee held the securities as stock-in-trade, the broken period interest is treated as revenue expenditure and is deductible under Section 37(1). Further, Interest income on these securities was taxed as business income under Section 28(i) (AY. 1990-91 to 1992-93)