The loss of a speculation business of any assessment year is allowed to be set off only against the profits and gains of another speculation business in the same assessment year.
But, if a speculation loss could not be set off from the income of another speculation business in the same assessment year, it is allowed to be carried forward to be claimed as a set off in the subsequent year, but only against the income of any speculation business. Such loss is allowed to be carried forward for 4 assessment years immediately succeeding the assessment year for which the loss was first computed. It may be observed that it is not necessary that the same speculation business must continue in the assessment year in which the loss is set off. As already discussed, filing of return before the due date is necessary for carry forward of such loss.
1. (Explanation to Section 73) : Companies carrying on Business of Buying and Selling Shares -
This provision is applicable if the following conditions are satisfied—
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Taxpayer is a company.
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It is not a company whose gross total income consists mainly of income which is chargeable under the heads “Interest on securities”, “Income from house property”, “Capital gains” and “Income from other sources”. Alternatively, it is a company whose principal business is other than that of trading in shares or banking or the granting of loans and advances.
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The business of the company consists of the purchase and sale of shares of other companies.
If the above conditions are satisfied, such company shall be deemed to be carrying on a speculation business to the extent to which the business consists of purchase/sale of such shares. This rule is applicable even if there is no avoidance of tax by the assessee.
This Explanation shall not apply to the following companies:
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Investment companies i.e. a company whose gross total income consists mainly of income chargeable under the heads 'Income from House Property', 'Capital Gains' and 'Income from Other Sources'.
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A company whose principal business is of banking or granting of loans/advances.
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A company the principal business of which is the business of trading in shares.
It may be noted that the above Explanation applies only to a company. It does not apply to an individual, HUF, Firm, AOP, etc. Further, this Explanation only covers transaction of sale and purchase of shares. Debentures, units of Unit Trust of India or units of Mutual Funds are not covered by this Explanation.
Thus Explanation to section 73 is not applicable if—
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shares are purchased by the company as investment and not as stock-in-trade; or
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a company the principal business of which is the business of trading in shares.
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2. Speculatative Loss can be Set Off only against Speculative Income (Section 73)
Loss in a speculation business can be carried forward to the subsequent year and set off only against the profits of a speculation business carried on in that year.
3. Speculative Loss can be carried forward for 4 years.
Such loss can be carried forward for 4 assessment years, immediately succeeding the assessment year for which the loss was first computed.
4. Continuity of Business Not necessary for Carry forward and Set Off of Speculation Loss
It is not necessary that the speculation business in which the loss was incurred should continue to be carried on in the subsequent year in which the assessee wants to set off of the loss but the assessee should be the same.
5. Return of Loss should be Submitted in Time (Section 80) for Carry Forward and Set Off of Speculation Loss
The following losses cannot be carried forward unless the return of income (for the year in which the loss is incurred) is submitted within the due date [of submission of return as given in section 139(1)].
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loss of a speculative or non-speculative business (not being unabsorbed depreciation etc.,;
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short or long-term capital loss; and
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loss (not being unabsorbed depreciation etc., from the activity of owning and maintaining race horses.
The delay in submission of return of loss may be condoned if a few conditions are satisfied. CBDT has power under section 119(2) to condone delay in case of a return which is filed late and where a claim for carry forward of losses is made.
6. Other Points towards Carry Forward and Set Off of Speculation Loss
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Loss incurred in speculative business in banned items cannot be carried forward to the next year.
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Loss in a speculative transaction entered into on behalf of principal, is non-speculative loss of agent.
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Income from forward transactions entered into on behalf of constituents is not income from speculative business carried on by the assessee.
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