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TREATMENT OF LOSSES

TREATMENT OF LOSSES. 9 th Day Session 1 & 2 Slide 9.1. Carry forward and set off of losses. Chapter VI of the Income Tax Act, 1961 Slide 9.1. Section 70. loss from one source can be set off against income from another source under the same head of income

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TREATMENT OF LOSSES

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  1. TREATMENT OF LOSSES 9th Day Session 1 & 2 Slide 9.1

  2. Carry forward and set off of losses Chapter VI of the Income Tax Act, 1961 Slide 9.1

  3. Section 70 • loss from one source can be set off against income from another source under the same head of income • long term capital loss cannot be set of against short term capital gain (wef A.Y 2003-04) Slide 9.1

  4. Section 70 (case laws) • Losses in illegal business must be taken into account for computation of real profits of the illegal business. However loss for illegal business cannot be set off against profits of legal business – CIT v/s Kurji Jinabhai Kotecha (1977) 107 ITR 101 (SC) Slide 9.1

  5. Section 70 (case laws) • Losses in one business can be set off from profits in another business – CIT v/s Muthuram Chettiar (1962) 44 ITR 710(SC) • Loss of dead business cannot be set off against the gains of a going concern B.C.G.A (Punjab) Ltd. v/s CIT (1937) 5 ITR 279 (Lahore) & South Indian Industrials Ltd. (1935) 3 ITR 11(Mad) (applicable upto A.Y.1999-2000) Slide 9.1

  6. Section 70 (case laws) • Loss from exempt source of income cannot be set off against income from a different source or income under a different head CIT v/s Thiagarajan (1981) 129 ITR 115 (Mad) Slide 9.1

  7. Section 71 • Loss under any head of income other than the head “capital gains” can be set off against income under any other head • Loss under the head “income from house property” for the assessment years 1995-96 and 1996-97 shall first be set off before allowing set off of any other loss Slide 9.1

  8. Section 71(case laws) • Partial set off and partial carry forward is not permissible G.Atherton & Company v/s CIT (1989) Tax LR 13 (Cal.) Slide 9.1

  9. Section 71A • Loss under the head “income from house property” comprising of interest on borrowed capital carried forward from A.Y.1994-95 shall be set off against income from any head in A.Ys. 1995-96 and 1996-97. Slide 9.1

  10. Section 71B • Unabsorbed Loss under the head “income from house property” shall be carried forward and set off against income from house property of the following assessment year upto eight immediately succeeding assessment years (wef A.Y 1999-2000) Slide 9.1

  11. Section 72 • Unabsorbed Loss under the head “profits and gains of business or profession” other than speculation loss shall be carried forward and set off against profits and gains of business or profession of the following assessment year upto eight immediately succeeding assessment years. Slide 9.1

  12. Section 72 • Any loss pertaining to business referred to in section 33B (rehabilitated business] which is revived, re-established or reconstructed within 3 years of discontinuance shall be carried forward and set off in the assessment year relevant to previous year of revival and seven immediately succeeding assessment years. Slide 9.1

  13. Section 72 • Set off of unabsorbed business loss to be given before set off of unabsorbed depreciation (under section 32(2)]and unabsorbed expenditure on scientific research [under section 35(4)].Unabsorbed loss can be set off in subsequent A.Ys even in the case of discontinued business (A.Y 2000-01 ) Slide 9.1

  14. Section 72 • Unabsorbed loss to be carried forward without interruption – Hiralal Jeramdas v/s CIT (1965) 58 ITR 1 (Bom.) • No option given to assessee to show profit as income from one source and carry forward the loss from another source of income to the next year - CIT v/s Milling Trading Company. (P) Ltd. (1994) 76 Taxman 389 (Guj.) Slide 9.1

  15. Section 72 • Loss from exempt source of income cannot be carried forward (CIT v/s Harprasad & Co. (P) Ltd. (1975) 99 ITR 118 (SC). • Loss can be set off against income from any business - Smt.Tara Devi Behl v/s CIT (1996) 218 ITR 541 (Pun. & Har.) Slide 9.1

  16. Section 72 • Current depreciation must be deducted first before deducting the unabsorbed carried forward business losses of earlier years – CIT v/s Mother India Refrigeration Industries (P) Ltd. 155 ITR 711 (SC) Slide 9.1

  17. Section 72 • Whether losses may be carried forward and set off in the following year u/s 72 to be determined by the assessing officer dealing with the assessment in the subsequent year (CIT v/s Manmohan Das (1966) 59 ITR 699 (SC) Slide 9.1

  18. Section 73 • Speculation losses can be set off against speculation profits/gains only • unabsorbed speculation loss shall be carried forward and set off against speculation profits/gains of following assessment years upto eight assessment years. Slide 9.1

  19. Section 73 • Provisions of section 73 not applicable to depreciation allowance and capital expenditure on scientific research in relation to speculation business. Slide 9.1

  20. Speculative transaction • Defined u/s 43(5) as transaction in which a contract for purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of the commodity or Scrips. Slide 9.1

  21. Applicability of section 73 to companies • Where business of a company other than banking company or investment company or company engaged in business of granting loans and advances consists in purchase and sale of shares of other companies such company to be deemed to be carrying on speculation business in respect of such purchase or sale of shares. Slide 9.1

  22. SECTION 73 (case laws) • Provisions of explanation to section 73 not applicable to dealings in units of UTICIT v/s Appollo Tyres Ltd. (1999) 237 ITR 706 (Ker) Slide 9.1

  23. SECTION 73 (case laws) • Explanation to s. 73 applies not only where a part of the business of a company consists of purchase and sale of shares but also where the entire business activity of a company consists of purchase and sale of shares Commissioner Of Income tax V. Arvind Investments Ltd.1991-(192)-ITR -0365 -CAL Slide 9.1

  24. Section 74 • Unabsorbed capital loss shall be carried forward and set off against any capital gain in following assessment years upto eight assessment years • wef assessment year 2003-04 unabsorbed long term loss cannot be set off against short term capital gain Slide 9.1

  25. Section 80 • Carry forward of losses (except loss from house property) not allowable if income tax return not filed within due date. • Carry forward of losses returns allowable even if return of losses is filed within extended period prescribed u/s 139(3) of the Act (I.e within one year from the end of the assessment year) [CIT v/s Glucose Products Ltd. (2001) 250 ITR 512(AP)] Slide 9.1

  26. Other issues • Loss cn be carried forward by the assessee who incurs the lossexceptionsaccumulated business loss of an amalgamating company/demerged (section 72A)accumulated loss of a proprietary concern or a firm when its business is taken over by a company by satisfying conditons of section 47(xiii)/(xiv) (section 72A)loss of business acquired by inheritance (section 78) Slide 9.1

  27. Other issues • Loss cannot be carried forward for more than eight assessment yearsexceptionsunabsorbed business loss in respect of rehabilitaed business referred to in section 33B(such loss can be carried forward for eight assessment years after the business is revived including the year of revival) Slide 9.1

  28. Other issues • Loss cannot be carried forward for more than eight assessment yearsexceptionsunabsorbed business loss in respect of non-speculation business discontinued and after discontinuation there is receipt deemed as business income u/s 41(1), (3),(4) or (4A) [(section 41(5)] Slide 9.1

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