Section 28 : Subsidiary Company Wound up: Trading Loss on shares held

1. Can the assessee treat shares held in subsidiary company, which is ordered to be wound up, as trading loss?

 CIT v. H. P. Mineral and Industrial Development Corporation Ltd. (2008) 305 ITR 111 (HP) Section – 28

• One of the assessee’s subsidiary companies was ordered to be wound up and the assessee decided to write off the value of the shares held by it in the subsidiary company.

• The lower authorities decided in favour of the assessee holding that there was no question of selling off the shares as the subsidiary company had gone into liquidation.

• The High Court held that 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.