Page 103 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 4.9 Section 74A(3)

According to provisions of section 74A(3), the losses incurred by an assessee from the activity of
owning and maintaining race horses cannot be set-off against the income from any other source
other than the activity of owning and maintaining race horses.

Example: A loss of 85,000 was sustained by Simran in the activity of owning and
maintaining camels for races. Therefore in this case according to Sec 74A(3), the losses incurred
by Simran from the activity of owning and maintaining race horses cannot be set-off against the
income from any other source other than the activity of owning and maintaining race horses.

Since the scope of this section is confined to the activity of owning and maintaining race horses
only, therefore, set-off and carry forward of loss from the activity of owning and maintaining
camels is not covered under section 74A(3).

It is possible to take a view that the loss from the activity of owning and maintaining camels for
races may be governed by section 72 provided such activity amounts to business. Accordingly,
the loss from the activity of owning and maintaining of camels for races can be set-off against any
income (other than income from salary) of current year and unadjusted amount shall be carried
forward for set off against any business income for a maximum period of 8 assessment years
immediately succeeding the assessment year in which the loss was incurred.
Such loss can be carried forward for a maximum period of 4 assessment years for being set-off
against the income from the activity of owning and maintaining race horses in the subsequent
years. For this purpose, the “amount of loss incurred by the assessee in the activity of owning
and maintaining race horses” means the amount by which such income by way of stake money
falls short of the amount of revenue expenditure incurred by the assessee for the purpose of
maintaining race horses. Therefore
Loss = Stake money – Revenue expenditure for the purpose of maintaining race horses.

Further, the expression ‘horse race’ means a horse race upon which wagering or betting may be
lawfully made.
“Income by way of stake money” means the gross amount of prize money received on a race
horse or race horses by the owner thereof on account of the horse or horses or any one or more of
the horses winning or being placed second or in any lower position in horse races.

Example: Mr. D has the following income for the P.Y. 2012-13
Income from the activity of owning and maintaining the race horses 75,000
Income from textile business 85,000
Brought forward textile business loss 50,000
Brought forward loss from the activity of owning and maintaining the race horses 96,000
(Relating to A.Y.2010-11)
The taxable income in the hands of Mr. D for the A.Y. 2013-14 will be:
Income from the activity of owning and maintaining race horses 75,000
Less: Brought forward loss from the activity of owning and maintaining race horses 96,000
Loss from the activity of owning and maintaining race horses to be
carried forward to A.Y.2014-15 (21,000)
Income from textile business 85,000
Less: Brought forward business loss from textile business. 50,000
Taxable business income 35,000

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