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Unit 4: Set-off and Carry Forward of Losses

Section 72A deals with carry forward and set-off of accumulated business losses and Notes
unabsorbed depreciation in certain cases of amalgamation or demerger. It provides that
the accumulated loss and unabsorbed depreciation of the amalgamating company shall be
deemed to be the loss or depreciation, as the case may be, of the amalgamated company
for the previous year in which the amalgamation took place. Other provisions of the Act
relating to set off and carry forward shall also apply accordingly.

Where there has been a demerger of an undertaking, the accumulated loss and the
unabsorbed depreciation directly relatable to the undertaking transferred by the demerged
company to the resulting company shall be allowed to be carried forward and set off in the
hands of the resulting company.

Section 72 provides for carry forward and set off of accumulated loss and unabsorbed
depreciation allowance of a banking company against the profi ts of a banking institution
under a scheme of amalgamation sanctioned by the Central Government.

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 specified businesses respectively.

Capital losses are classified as long-term or short-term. If you hold the asset for more than
one year before you dispose of it, your capital loss is long-term. If you hold it one year or
less, your capital loss is short-term. To determine how long you held the asset, count from
the date after the day you acquired the asset up to and including the day you disposed of
the asset.
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.

Where there is a change in the constitution of a firm, so much of the loss proportionate
to the share of a retired or deceased partner remaining unabsorbed, shall not be allowed

to be carried forward by the firm. However, unabsorbed depreciation can be carried
forward. Where any person carrying on any business or profession has been succeeded
in such capacity by another person otherwise than by inheritance, such other person shall
not be allowed to carry forward and set off against his income, any loss incurred by the
predecessor.

4.13 Keywords

Amalgamation: It is an agreement (deal) between two or more companies to consolidate their
business activities by establishing a new company having a separate legal existence.

Carry forward of losses: The losses which cannot be set-off in the same year are carried to the
next year to set-off against income of next year.
Demerger: It is a form of corporate restructuring in which the entity’s business operations are
segregated into one or more components.
Inter head adjustment: Where in respect of any assessment year the net result of the computation
under any head of income is a loss. He shall be entitled to have the amount of such loss set-off
against his income, if any, under any other head of income.
Inter source Adjustment: When there is more than one source of income under the same head,
the loss from one or more sources is allowed to be set-off against income from the other source
under the same head.

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