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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, Zenith Investments Ltd is a company whose principal business is trading in shares. It buys and sells shares of other companies and incurs a loss on this activity. Which statement is correct?

The deeming rule does not apply to Zenith. Section 113(5) treats share purchase and sale by a company as speculation, but section 113(6)(b) excludes a company whose principal business is trading in shares, banking or granting loans and advances, so its loss is not deemed speculative by that provision.

  1. AThe company is deemed to carry on speculation business to the extent of share trading, so the loss is a speculation loss
  2. BThe deeming rule does not apply because its principal business is trading in shares, so it is not deemed speculation by that provisionCorrect
  3. CThe deeming rule applies only if gross total income consists mainly of house property income
  4. DThe loss is deemed speculative only if the company is a banking company

Explanation

Section 113(5) deems a company purchasing and selling shares of other companies to carry on speculation business. Section 113(6)(b) excludes a company whose principal business is trading in shares, banking or granting loans. Hence the deeming rule does not apply to Zenith. The first option ignores this exclusion.

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