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Unit 4: Set-off and Carry Forward of Losses

Unabsorbed depreciation means so much of the allowance for depreciation of the amalgamating Notes
co-operative bank or the demerged co-operative bank, as the case may be, which remains to be
allowed and which would have been allowed to such bank as if the business reorganisation had
not taken place.
Self Assessment

State which of the following are the true conditions to be fulfilled by the predecessor co-operative
bank:
15. It should have been engaged in the business of banking for three or more years.

16. It has held at least three-fourths of the book value of fixed assets as on the date of the business

reorganisation, continuously for two years prior to the date of business reorganisation.

17. It should hold at least three-fourths of the book value of fixed assets of the predecessor
co-operative bank acquired through business reorganisation, continuously for a minimum
period of five years immediately succeeding the date of business reorganisation.

4.7 Section 73 and Section 73A

The Section 73 and Section 73A of the Income Tax Act, 1961, deals with the treatment of setoff and
carry forward of losses in Speculation Business and Carry forward & set off of losses by specifi ed
businesses respectively. These are elaborate as under:

Did u know? A business is speculative to the extent that it takes risks and tries things
that outcome is uncertain. A speculation in essence says “Maybe this will happen...” as
compared to known quantities and established commercial patterns.

4.7.1 Losses in Speculation Business (Section 73)

The meaning of the expression ‘speculative transaction’ as defined in section 43(5) and the
treatment of income from speculation business has already been discussed under the head
“Profits and gains of business or profession”.

Since speculation is deemed to be a business distinct and separate from any other business
carried on by the assessee, the losses incurred in speculation can be neither set off in the same
year against any other non-speculation income nor be carried forward and set off against other
income in the subsequent years.
Therefore, if the losses sustained by an assessee in a speculation business cannot be set-off in the

same year against any other speculation profit, they can be carried forward to subsequent years
and set-off only against income from any speculation business carried on by the assessee.
The loss in speculation business can be carried forward only for a maximum period of 4 years
from the end of the relevant assessment year in respect of which the loss was computed. Loss
from the activity of trading in derivatives, however, is not to be treated as speculative loss.
The Explanation to this section discourages companies (other than banking and investment
companies) from indulging in speculation business or dealing in shares otherwise than in the
ordinary course of their business. It provides that where any part of the business of a company

(other than investment company or banking or financing company) consists of the purchase
and sale of the shares of other companies, such a company shall be deemed to be carrying on
speculation business to the extent to which the business consists of the purchase and sale of
such shares. Thus, companies engaged in the business of banking or the granting of loans and
advances as their principal business would be exempted from the operation of this Explanation.

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