CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses
Surya Finvest Ltd is a company whose principal business is trading in shares. In the tax year it incurred a loss of Rs 4,00,000 on purchase and sale of shares of other companies and earned profit of Rs 7,00,000 from granting of loans. Which statement is correct under section 113 of the Income-tax Act, 2025?
The deemed speculation rule does not apply, because the company's principal business is trading in shares, which is an exception in the section. The share loss is therefore not a speculation loss and can be set off against its other business profits, such as loan income.
- AThe deeming of speculation business does not apply, as its principal business is trading in sharesCorrect
- BThe loss is a speculation loss and is carried forward for eight years
- CThe loss is a speculation loss and cannot be set off against loan profits
- DThe loss lapses since the company is a financial company
Explanation
Section 113(6)(b) provides that the deeming rule in sub-section (5) does not apply to a company whose principal business is trading in shares or banking or granting loans and advances. So the share loss is not deemed speculation, and may be set off against other business income such as the Rs 7,00,000 loan profit, giving net Rs 3,00,000. The speculation options are wrong because the deeming is excluded.
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