479. Whether, where in respect of an assessment year, there is income under a head, the loss, if any, under any other head for that assessment year should first be set-off against it before the carried forward losses under the former head can be set-off against such income
1. The question whether the provisions of section 71 of the Income-tax Act, providing for set-off of loss from one head against income from another in an assessment year, take precedence over the provisions of section 72 (carry forward and set-off of business losses) and section 74 (carry forward and set-off of losses under the head ‘Capital gains’ has been considered in consultation with Ministry of Law.
2. The Board are advised that effect has first to be given to the provisions of section 71, i.e., where in respect of an assessment year, there is income under a head, the loss, if any, under any other head for that assessment year should first be set-off against it before the carried forward losses under the former head can be set-off against such income. This position is, however, subject to the exceptions provided in Chapter VI of the Income-tax Act which prohibit inter-head adjustments with regard to certain losses, such as speculation loss or the loss incurred in the activity of owning and maintaining race horses.
3. The view contained in paragraph 2 is reflected in the income-tax return Form No. 1 (for companies other than those claiming exemption under section 11 of the Income-tax Act) notified on 21st November, 1990. However, the format of the income-tax return Form No. 2 (for assessees, other than companies and those claiming exemption under section 11, whose total income includes “Profits and gains of business or profession”) and income-tax return Form No. 3 (for assessees, other than companies and those deriving income from property held for charitable and religious purposes claiming exemption under section 11, whose total income does not include “Profits and gains of business or profession”), notified on 26-4-1990, was based on the view that carry forward losses have to be set-off in the succeeding assessment years under the respective heads of income before giving effect to the provisions of section 71. In view of the opinion now given by the Ministry of Law, the method of computation of income incorporated in Form No. 1 would hold good for all the assessees.
Circular : No. 587, dated 11-12-1990.
