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

Meenakshi Textiles Ltd., an Indian company, carried on two speculation businesses in the tax year. Business A made a loss of Rs 4,00,000 and Business B made a profit of Rs 6,50,000. It also has a normal business profit of Rs 10,00,000. What is the speculation loss set off and the resulting income from speculation business and normal business?

The Rs 4,00,000 speculation loss is set off only against the Rs 6,50,000 profit of the other speculation business, leaving Rs 2,50,000 of speculation income. Normal business income stays at Rs 10,00,000, because speculation losses cannot be set off against non-speculation income.

  1. ARs 4,00,000 set off against Business B; speculation income Rs 2,50,000; normal business income Rs 10,00,000Correct
  2. BRs 4,00,000 set off against normal business profit; speculation income Rs 6,50,000; normal business income Rs 6,00,000
  3. CNo set off is allowed in the same year; the loss is carried forward in full
  4. DRs 4,00,000 set off against Business B; speculation income Rs 2,50,000; normal business income Rs 6,00,000

Explanation

Under section 113(1), a speculation loss can be set off only against profits of another speculation business. Business A's loss of Rs 4,00,000 is set off against Business B's profit of Rs 6,50,000, leaving Rs 2,50,000. Normal business profit of Rs 10,00,000 remains untouched. Setting it off against normal profit is wrong because speculation losses cannot go against non-speculation income.

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