CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses
Kaveri Pvt. Ltd. is an Indian company whose principal business is manufacturing auto parts. In the tax year it also purchased and sold shares of other companies and incurred a loss of Rs 3,00,000 on this activity. Its gross total income does not consist mainly of house property, capital gains or other sources income. It has manufacturing profit of Rs 20,00,000. How is the share loss treated?
The loss is a speculation loss. A company whose business partly consists of buying and selling shares of other companies is deemed to carry on speculation business to that extent, and no exception applies here. The loss can be set off only against speculation profits and is carried forward otherwise.
- ASet off against manufacturing profit, since shares trading is part of business
- BTreated as a speculation loss, set off only against speculation profits, and carried forward if not set offCorrect
- CTreated as a capital loss and carried forward for eight years
- DIgnored for tax purposes because share trading by a company is exempt
Explanation
Under section 113(5), where part of a company's business consists of purchase and sale of shares of other companies, it is deemed to carry on speculation business to that extent. The exceptions in section 113(6) do not apply, since principal business is manufacturing and the income is not mainly from property, gains or other sources. The loss therefore cannot be set off against manufacturing profit.
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