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CS Executive · Tax Laws and Practice · Clubbing Provisions and Set Off and Carry Forward of Losses

Under the Income-tax Act, 2025, Sundar Stables Ltd owns and maintains race horses. In the current tax year, stake money received is Rs 3,00,000 and revenue expenditure wholly and exclusively for maintaining the horses is Rs 4,50,000. It also has Rs 2,00,000 profit from a trading business. What is the treatment of the loss from the specified activity?

The loss is Rs 1,50,000, being maintenance expenditure of Rs 4,50,000 less stake money of Rs 3,00,000. It cannot be set off against trading profit, only against income from owning and maintaining race horses, and it is carried forward for up to four tax years.

  1. ARs 1,50,000 loss set off against the trading profit this year
  2. BRs 1,50,000 loss carried forward, to be set off only against income from owning and maintaining race horsesCorrect
  3. CRs 4,50,000 loss carried forward
  4. DRs 1,50,000 loss ignored and not carried forward

Explanation

Loss in the specified activity is the shortfall of stake money over non-capital maintenance expenditure: 4,50,000 - 3,00,000 = Rs 1,50,000. Section 115(1) permits set off only against income from the specified activity, so it cannot reduce trading profit. Under section 115(2) it is carried forward, for up to four tax years.

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