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CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses

Kiran Traders Ltd is a company with a speculation business. Its speculation loss of Rs 4,00,000 was first computed in tax year 1. In tax year 2 it had speculation profit of Rs 1,50,000 and in tax year 3 speculation profit of Rs 1,00,000. In tax year 6 it had speculation profit of Rs 2,00,000. Assuming no other speculation losses, what is the speculation loss that can be set off in tax year 6, and why?

Nothing can be set off in tax year 6. After set offs in years 2 and 3, Rs 1,50,000 remains, but a speculation loss can be carried forward only for four tax years immediately succeeding the year it was first computed, which ends with year 5.

  1. ARs 1,50,000, as the balance remains after earlier set offs and carry forward is allowed for four succeeding years, which include year 5 only
  2. BRs 1,50,000, because carry forward is unlimited for speculation loss
  3. CRs 2,00,000, because the loss is available up to the profit of that year
  4. DNil, because the balance Rs 1,50,000 could be carried forward only for tax years 2 to 5 and year 6 is beyond four yearsCorrect

Explanation

Loss of Rs 4,00,000 is set off Rs 1,50,000 in year 2 and Rs 1,00,000 in year 3, leaving Rs 1,50,000. Under section 113(3) no loss is carried forward for more than four tax years immediately succeeding the year first computed, i.e. years 2 to 5. Year 6 is outside the period, so the balance lapses and nothing is set off against the year 6 profit.

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