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December 2008

Shares in subsidiary company (ordered to be wound up) : Written off : Deductible business loss.

By K. B. Bhujle, Advocate
Reading Time 2 mins

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23 Business loss : Shares held in subsidiary
company : Subsidiary company ordered to be wound up : Shares became of
insignificant value and written off : Loss to be treated as business loss
eligible for deduction.


[CIT v. H. P. Mineral and Industrial Development
Corporation Ltd., 305 ITR 111 (HP)]

One of the assessee’s subsidiary companies was ordered to be
wound up. The assessee had held the shares as stock in trade. The assessee
decided to write off the value of the shares held by it in the said subsidiary
company and claimed deduction of the same as business loss. The Tribunal allowed
the deduction, holding that there was no question of selling off the shares as
the subsidiary company had gone into liquidation.

 

On reference by the Revenue, the Himachal Pradesh High Court
upheld the decision of the Tribunal and held as under :

“Once a company had been ordered to be wound up, there was
no question of any party dealing in the shares of that company. The Tribunal
had come to a finding that the shares were stock-in-trade and had therefore,
allowed the loss. The loss had to be treated as a trading loss. The mere fact
that the shares were not sold was of no significance, since in fact the shares
could not have been sold and had become worthless.”

 

 

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