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Corporate Tax Planning

Notes Questions

1. Study and analyse the case.
2. Write down the case facts.
3. What inferences do you draw from the case about treatment of unabsorbed
depreciation while setting-off losses

Source: http://www.bcasonline.org/articles/artin.asp?581

4.12 Summary

When income from a particular head and a loss from another head or same head is adjusted,
it is called ‘set off of loss against income’. A loss when not set off due to legal bar or due to

insufﬁciency of income from other eligible source or head, it may be carried forward to a
subsequent year for set off against income of that year.
Under Section 70, the losses incurred by the assessee in respect of one source shall be
set-off against income from any other source under the same head of income, since the
income under each head is to be computed by grouping together the net result of the
activities of all the sources covered by that head.

In Inter head adjustment (Section 71) the loss under one head of income can be adjusted or
set off against income under another head.
A very important rule to remember is that losses that are carried forward have to be set
off against income from the same head in the subsequent years – they cannot be set off
against income from any other head of income. A carried forward loss can be set off against
income in subsequent years only if the loss has been declared in the income tax return ﬁ led
by you.
A loss for a particular year can be carried forward only if the income tax return for that year
is ﬁled by the due date. The only exception to this rule is loss from house property – this

loss can be carried forward even if the IT return is not ﬁled in time.
Loss from a source of income which is exempt from income tax (for example, an agricultural
loss) cannot be set off against income from a taxable source of income. Loss from none of
the heads of income can be set off against winnings from lotteries, horse races, gambling,
etc. The losses from these cannot be set off even against income from lotteries, horse races,
gambling, etc.
In any assessment year, if there is a loss under the head ‘Income from house property’, such

loss will ﬁrst be set-off against income from any other head during the same year. If such
loss cannot be so set-off, wholly or partly, the unabsorbed loss will be carried forward to the
following assessment year to be set-off against income under the head ‘Income from house
property’. The loss under this head is allowed to be carried forward up to 8 assessment
years immediately succeeding the assessment year in which the loss was ﬁ rst computed.
A business loss can be carried forward for a maximum period of 8 assessment years
immediately succeeding the assessment year in which the loss was incurred.

As per section 80, the assessee must have ﬁled a return of loss under section 139(3) in

order to carry forward and set off a loss. In other words, the non-ﬁling of a return of loss
disentitles the assessee from carrying forward the loss sustained by him. Such a return

should be ﬁled within the time allowed under section 139(1). However, this condition does
not apply to a loss from house property carried forward under section 71B and unabsorbed
depreciation carried forward under section 32(2).

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