Real value of shares governs tax loss deduction where an exchange arrangement is illusory

For super-tax purposes, where Indian company shares were issued in exchange for Burma Corporation shares under an illusory arrangement, the relevant consideration was the real value of the fully paid shares at the date they were parted with, not their nominal value. On that basis, the claimed loss on realisation was not established because the transaction did not show that the Indian company had suffered a deductible loss. The cited authority in Wragg did not require a different result on these facts. The article therefore states that a deduction for loss depends on proof of an actual loss measured by real value, not nominal value.

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Issues: Whether, for the purpose of the super-tax assessment, the price paid for the Burma Corporation shares had to be taken at the nominal value of the Indian Company shares allotted in payment, or at their real value, and whether any loss on realisation was proved.

Analysis: The arrangement under which the Indian Company issued shares in consideration of the Burma shares was treated as an illusory transaction rather than a true purchase and sale. The value relevant to the tax question was the real value of the fully paid shares at the date when they were parted with, not their nominal value. On the facts, the alleged loss was not established because the English Companies remained fixed with the discount liability and the transaction, as worked out, did not show that the Indian Company had suffered a deductible loss. The authority in Wragg did not compel a different result on these facts.

Conclusion: The claimed loss was not proved, and the appeal failed in favour of the Revenue.

Ratio Decidendi: For tax purposes, where shares are issued under an illusory arrangement, the decisive figure is their real value at the date of issue, and a deduction for loss cannot be allowed unless an actual loss is proved on that basis.

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