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

Raj Stables, a firm, owns and maintains race horses. In the tax year it received stake money of Rs 2,00,000 and incurred revenue expenditure wholly and exclusively for maintaining the horses of Rs 5,00,000. It also has business profit of Rs 8,00,000 from a textile unit. Under the Income-tax Act, 2025, what is the treatment of the loss from the activity?

The loss is Rs 3,00,000 (expenditure Rs 5,00,000 less stake money Rs 2,00,000). It cannot be set off against textile profit; it is carried forward for at most four succeeding tax years and set off only against income from owning and maintaining race horses.

  1. ARs 3,00,000 set off against textile profit, leaving Rs 5,00,000
  2. BRs 3,00,000 carried forward for up to four succeeding tax years, to be set off only against income from owning and maintaining race horses; textile profit stays Rs 8,00,000Correct
  3. CRs 3,00,000 carried forward indefinitely against income of that activity
  4. DRs 5,00,000 carried forward as the loss, since stake money is ignored

Explanation

Loss in the specified activity is expenditure exceeding stake money: 5,00,000 - 2,00,000 = 3,00,000. It can be set off only against income of that activity and carried forward for no more than four succeeding tax years (section 115). The textile profit is unaffected. Option C ignores the four-year limit.

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