A company is havng trading profit from sale of shares of rs.93 lakhs and investment profit from sale of shares Rs.2 crores. It is maintaining two types of profit protfolio i.e. trading and investment and shares at 31st march are shown as stock in trade (for trading) and closing stock (for investment). Now the company is buying shares of a company declaring bonus in the ratio 1:1. The original share price will fall approx 50% of its value on the ex-date. Suppose if the company wants to book losses it will sell the original shares at half price of the cost. So, in which portfolio shud the company purchase those shares and book losses, trading or investment and whther this type of loss booking is allowed?
2 Replies
Hitesh Kothari
(Chartered Accountant M.No. - 134239)
(326 Points)
Replied 08 March 2010
Hi Shweta,
It is a matter of intention of the company, whether company wants to show it in trading portfolio or investment portfolio. Since company already have bifurcation of trading portfolio and Investment potfolio.
During the assessment compny must be in a position to prove that the said purchase was made with the intention of trading and not investment.
Thanks
nikhil.r.gondhalekar
(articled assistant)
(64 Points)
Replied 08 March 2010
Hi Shweta,
If original shares are sold within 9 mths of bonus ,it will be clear case of S.94(8),Dividend stripping.where loss is ignored for taxation purpose.but COA of bonus shares increases.sale original shares & hold the bonus shares for 1year,if co does'nt want to hold the share
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