CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses
Meera Textiles Pvt Ltd, an Indian company whose principal business is manufacturing garments, also buys and sells shares of other companies as a side activity. In the tax year, its manufacturing business earned a profit of Rs 20,00,000, while the share trading side activity produced a loss of Rs 3,00,000. Its gross total income does not consist mainly of house property, capital gains or other sources income. Under the Income-tax Act, 2025, how is the share trading loss treated?
The Rs 3,00,000 share trading loss is treated as a speculation loss because the company is deemed to carry on speculation business to the extent it buys and sells shares of other companies. It can be set off only against another speculation business profit, not the manufacturing profit.
- AIt is deemed a speculation loss and can be set off only against profits of another speculation businessCorrect
- BIt is set off against the manufacturing profit, since all loss is business loss
- CIt is set off against manufacturing profit but only up to 50% of that profit
- DIt is ignored for the year and cannot be carried forward at all
Explanation
Under section 113(5), where a company's business includes purchase and sale of shares of other companies, it is deemed to carry on speculation business to that extent. The exceptions in 113(6) do not apply here, because the principal business is manufacturing and income is not mainly from house property, capital gains or other sources. So the loss is a speculation loss, set off only against speculation profits and carried forward under 113(2). Setting it off against manufacturing profit is wrong.
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