Section 70

Section 70 — the law in short

What the courts have decided on section 70, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Yokogawa India Ltd Supreme CourtHelps taxpayer
  Must my 10A unit's profits be reduced by other units' losses before the deduction?
  No. After the Finance Act 2000 the relief is a deduction rather than an exemption, but it is worked out while computing the profits of the eligible undertaking, before the setting off and aggregation that produces total income. Losses of other units and brought-forward losses therefore do not eat into it.
• Souvenir Developers (I) Pvt Ltd v Union of India High CourtHelps taxpayerHigh Courts differ
  My company is not a share dealer at all, but it lost money on exchange-traded F&O. The AO says the Explanation to s.73 makes it speculation loss. Can I set it off against my ordinary business income?
  In the Bombay High Court, yes. Once a derivative transaction falls inside clause (d) of the proviso to s.43(5) it is not a speculative transaction at all, and the Court held that neither s.73(1) nor the Explanation to s.73 applies to the loss, so it is an ordinary business loss set off under s.70 against any other business income. The Court expressly recorded that the Delhi High Court in DLF Commercial Developers has taken the contrary view.
• Kishorebhai Bhikhabhai Virani v ACIT High CourtHelps departmentValidity unconfirmed
  My client sold two lots of long-term shares in the same year — one at a loss on shares whose gain would have been exempt under s.10(38), the other at a taxable gain. Can the loss be set off against the gain?
  On this Gujarat High Court decision, no. Because s.10(38) keeps the income arising from such a capital asset out of the computation of total income altogether, the loss arising on the same class of asset is likewise not includable, and is therefore not available for set-off under s.70(3) or for carry forward under s.74. The Court rejected the argument that 'income' in s.10(38) does not include 'loss'.
• CIT v Darshan Securities Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The AO says my company's gross total income does not 'consist mainly' of the four excluded heads because he has left the share loss out of the business head. Is that the right computation?
  No. To decide whether the exception in the Explanation to s.73 applies you compute gross total income under the normal provisions of the Act, taking into account both the income and the loss under the head profits and gains of business or profession, and only then ask whether what results consists mainly of interest on securities, house property, capital gains and other sources. Section 73(1) is applied after the Explanation, not before it, because to apply the bar first in order to decide whether there is a speculation business at all would reverse the order of the statute.
• CIT v Chensing Ventures High CourtHelps taxpayerValidity unconfirmed
  I surrendered unexplained cash payments as income at a survey and I also have a business loss for the same year. Can the officer refuse to set the loss off against the surrendered income?
  Not on the law as it then stood. The Madras High Court dismissed the Revenue's appeal, holding that no substantial question of law arose. The Assessing Officer had added Rs 28,50,000 as undisclosed income under section 69 and had allowed no set-off of the determined business loss of Rs 8,20,384 against it, giving no reason for the refusal. Section 71 permits a loss remaining after set-off within a head to be set off against income of the same year under any other head, capital gains apart. Income tax is one tax on total income, so once the loss is determined it must be set off against income determined under any other head.
• M/s United Investments v ACIT ITATHelps taxpayerValidity unconfirmed
  The officer says my long-term capital loss on listed shares cannot even be determined, because gains on those shares would have been exempt under s.10(38). Is there authority the other way?
  Yes. The Kolkata Tribunal held that the judicial concept that 'income' includes 'loss' applies only where the entire source of income falls outside the charging provisions; where the source — capital gains — remains chargeable and s.10(38) exempts only one specie of income arising from it, the concept does not apply. It directed the Assessing Officer to assess the long-term capital loss on the sale of listed shares and to allow its carry forward.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.