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CMA Intermediate · Direct and Indirect Taxation · Taxation of Individuals (including AMT) and HUF

Sri Turf Stables, owned by Mr. Dev Malhotra, earned stake money of Rs 3,00,000 from race horses in a tax year and incurred Rs 4,10,000 of revenue expenditure wholly and exclusively for maintaining the horses. He also has Rs 5,00,000 of business profit from a textile shop. What loss in the specified activity arises, and against what can it be set off in that year?

The loss is Rs 1,10,000, being maintenance expenditure of Rs 4,10,000 less stake money of Rs 3,00,000. It can be set off only against income from owning and maintaining race horses, so it is carried forward and not adjusted against the textile profit.

  1. ARs 1,10,000; only against income from owning and maintaining race horses, so it is carried forwardCorrect
  2. BRs 1,10,000; against the textile business profit
  3. CRs 4,10,000; against the textile business profit
  4. DRs 1,10,000; against any head of income

Explanation

Loss = 4,10,000 - 3,00,000 = Rs 1,10,000 (expenditure exceeding stake money). Section 115(1) allows set off only against income from the specified activity, so it cannot reduce the textile profit and is carried forward under section 115(2).

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