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

Rohan Stables, a partnership firm, owns and maintains race horses. In the tax year it received stake money of Rs 6,00,000 and incurred revenue expenditure of Rs 9,50,000 wholly and exclusively for maintaining the horses. It also incurred capital expenditure of Rs 2,00,000 on a stable building. The firm has business income of Rs 15,00,000 from a hotel. What is the loss from the specified activity for the year and its treatment under section 115 of the Income-tax Act, 2025?

The loss is Rs 3,50,000, being revenue maintenance expenditure of Rs 9,50,000 less stake money of Rs 6,00,000, excluding capital expenditure. It cannot be set off against hotel income. It is carried forward and set off only against income from owning and maintaining race horses.

  1. ARs 3,50,000; set off against hotel income, leaving Rs 11,50,000
  2. BRs 5,50,000; carried forward only, as it can never be set off in the same year
  3. CRs 3,50,000; not set off against hotel income, carried forward to be set off only against income from the specified activityCorrect
  4. DRs 1,50,000; carried forward without any time limit

Explanation

Loss means stake money shortfall against non-capital expenditure: 9,50,000 - 6,00,000 = 3,50,000. Capital expenditure is excluded. Under section 115(1) it can be set off only against income from the specified activity, and under section 115(2) the unabsorbed loss is carried forward, limited to four succeeding tax years by section 115(3). Adding capital expenditure (Rs 5,50,000) is a mistake.

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