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CMA Intermediate · Direct and Indirect Taxation · Set off and Carry Forward of Losses

Y Ltd, a trading company, has a speculation loss first computed in a tax year. It has no speculation profit in the following years until the fifth year after the loss year, when it has speculation profit of Rs 90,000. Under section 113, what is the position?

The loss cannot be set off. Section 113(3) allows a speculation loss to be carried forward only for four tax years immediately succeeding the year it was first computed, so in the fifth succeeding year it has lapsed.

  1. ALoss can be set off, because carry forward is unlimited
  2. BLoss can be set off, but only 50% of it
  3. CLoss cannot be set off, as it can be carried forward only for four tax years immediately succeeding the loss yearCorrect
  4. DLoss can be set off against any business profit of that year

Explanation

Section 113(3) bars carry forward for more than four tax years immediately succeeding the year the loss was first computed. The fifth succeeding year is beyond that limit, so the loss lapses. No percentage restriction or wider set off exists.

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