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CMA Intermediate · Direct and Indirect Taxation · Set off and Carry Forward of Losses

Mr. Arun owns and maintains race horses. In a tax year he received stake money of Rs 2,00,000 and incurred Rs 3,50,000 of revenue expenditure wholly and exclusively for maintaining the horses. He also has profit of Rs 5,00,000 from a textile business. Which statement is correct for that year?

The loss of Rs 1,50,000 (expenses of Rs 3,50,000 less stake money of Rs 2,00,000) cannot be set off against the textile profit, because a race-horse loss is set off only against income from owning and maintaining race horses. It is carried forward to following years.

  1. ARs 1,50,000 loss is set off against the textile profit
  2. BRs 1,50,000 loss cannot be set off against the textile profit and is carried forwardCorrect
  3. CRs 3,50,000 loss is set off against the textile profit
  4. DRs 2,00,000 of the loss is set off against the textile profit

Explanation

Loss in the specified activity = 3,50,000 - 2,00,000 = Rs 1,50,000. Under section 115(1) it can be set off only against income from the specified activity. There is none this year, so it is carried forward under section 115(2). Setting it off against the textile profit is wrong.

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