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

Zenith Holdings Ltd, a company, earns its gross total income mainly from share trading, but only as a small part of a manufacturing business whose principal business is making textiles. Its gross total income does not consist mainly of house property, capital gains or other sources income. It has a Rs 4,00,000 loss from purchase and sale of shares of other companies. Under section 113 of the Income-tax Act, 2025, how is this loss treated?

The loss is treated as a speculation loss to the extent of the share trading. Section 113 deems a company buying and selling shares of other companies to run speculation business, and neither exception applies to Zenith, so the loss can be set off only against speculation profits.

  1. ATreated as speculation loss, to that extent, and set off only against speculation business profitsCorrect
  2. BTreated as ordinary business loss, set off against any business profit
  3. CTreated as a capital loss, set off only against capital gains
  4. DNot allowed to be carried forward or set off

Explanation

Under section 113(5), a company is deemed to carry on speculation business to the extent its business consists of purchase and sale of shares of other companies. The exceptions in section 113(6) (income mainly from house property, capital gains or other sources, or principal business being share trading, banking or lending) do not apply to Zenith. So the loss is a speculation loss, usable only against speculation profit, with carry forward of up to four years.

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