CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses
Rajan Stables, a proprietorship, owns and maintains race horses. In the current tax year it received stake money of Rs 4,50,000 and incurred revenue expenditure of Rs 7,20,000 wholly and exclusively on maintaining the horses. It also has business profit of Rs 5,00,000 from a cloth shop. What is the loss from the specified activity and its treatment under the Income-tax Act, 2025?
The loss is Rs 2,70,000, being maintenance expenditure of Rs 7,20,000 less stake money of Rs 4,50,000. It cannot be set off against the cloth shop profit. It is carried forward and set off only against income from owning and maintaining race horses, for up to four years.
- ARs 2,70,000, set off against the cloth shop profit in the same year
- BRs 2,70,000, carried forward and set off only against income from owning and maintaining race horsesCorrect
- CRs 7,20,000, carried forward for any number of years
- DRs 4,50,000, carried forward for four tax years and set off against any business income
Explanation
Loss means the shortfall of stake money against revenue expenditure: 7,20,000 - 4,50,000 = Rs 2,70,000. Under section 115 it can be set off only against income from the specified activity, and carried forward for at most four succeeding tax years. It cannot reduce the cloth shop profit.
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