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.
• M/s Sivasakthi Threads v Deputy Commissioner of Income-tax High CourtHelps taxpayerNo later treatment found
  A survey during a search on a connected group threw up excess stock, and it was added for AY 2007-08. The department says my unabsorbed depreciation cannot be set off against it, and now cites section 79A. Is that right?
  No, on both counts, for a year before AY 2022-23. The Madras High Court held that unabsorbed depreciation carried forward takes the character of current year depreciation under s.32(2) and, read with ss.71 and 72, can be set off against income of the current year other than capital gains — including an addition of unaccounted stock in business; and it recorded that s.79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not assist the Revenue for an earlier year.
• K2 Family Private Trust v DCIT — the return utility cannot block the set-off order the assessee is entitled to claim High CourtHelps taxpayerNo later treatment found
  The e-filing utility forces my client's STT-paid short-term loss against STT-paid gains first and will not let him claim the sequence he wants. Is his only option to file the return the utility's way and argue later?
  No. The Bombay High Court held that the procedure of filing a return cannot bar an assessee from making a claim under the Act which he feels he is entitled to, and directed the CBDT to modify the utility so that the petitioner could set off the STT-paid short-term capital loss against the non-STT short-term capital gains first, failing which the Assessing Officer was to accept a revised return for AY 2025-26 in paper mode.
• 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 departmentNo later treatment found
  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 taxpayer
  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 Rungamatee Trexim — the assessee chooses the order of set-off between STT-paid and non-STT short-term gains High CourtHelps taxpayer
  My client has a short-term capital loss on STT-paid shares and short-term gains of both kinds. The officer set the loss off against the concessionally taxed gains first. Can he insist on that order?
  No. Section 70 prescribes no chronology for set-off, and where the Act gives the assessee an option, the option that favours the assessee is the one to be exercised — so the assessee may set the short-term capital loss off against the gains taxed at the normal rate first and keep the concessionally taxed section 111A gains intact. The Calcutta High Court dismissed the Revenue's appeal against that view, finding no substantial question of law.
• CIT v Chensing Ventures High CourtHelps taxpayerSuperseded by amendment
  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.
• Tanisha Chaudhary v Income-tax Officer, Ward 5(2)(4), Noida ITATHelps departmentNo later treatment found
  My AY 2020-21 return was 72 days late because of Covid and the short-term capital loss was refused. Four years on I want to set that loss off against this year's gains. Can I argue the delay in the current year's appeal?
  No. The Delhi Tribunal dismissed the appeal, holding that s.80 makes it mandatory to file the return of loss in terms of s.139(3), and that where the carry forward was denied when the loss year's return was processed under s.143(1), the remedy against that denial does not lie in an appeal for the later set-off year. Kulu Valley Transport was distinguished on its facts.
• Fidelity Rutland Square Trust II — an FPI may choose the set-off order between its section 115AD and section 111A short-term gains ITATHelps taxpayerNo later treatment found
  My foreign portfolio investor client has non-STT short-term gains taxed under section 115AD and STT-paid short-term gains taxed at the section 111A rate, plus an STT-paid short-term loss. The officer re-sequenced the set-off. Can he?
  No. The Tribunal held that section 70 prescribes no chronology for set-off of losses and that the provisions do not compel an assessee to set the STT-paid short-term loss off against the STT-paid short-term gain first, so the assessee was entitled to exercise the option most beneficial to it. The Assessing Officer was directed to accept the net short-term capital gains as offered in the return and to delete the additional demand.
• M/s United Investments v ACIT ITATHelps taxpayer
  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.
• Statutory position — s.46A: buy-back in the shareholder's hands, and the proviso that deems the consideration NIL for any buy-back on or after 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  My client tendered shares in a buy-back. How is he taxed under section 46A, and does it make a difference that the buy-back closed after 1 October 2024?
  It makes all the difference, and the dividing line is the date the buy-back takes place: for a buy-back BEFORE 1 October 2024 the main limb of s.46A applies normally, and for a buy-back ON OR AFTER 1 October 2024 the proviso inserted by Act No. 15 of 2024 deems the consideration to be nil. The main limb says that where a shareholder receives any consideration from a company for purchase of its own shares or other specified securities, then, subject to s.48, the difference between the cost of acquisition and the value of consideration received is deemed to be the capital gains of the year in which the company purchased them. The proviso says that where the shareholder receives consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" in respect of a buy-back "that takes place on or after the 1st day of October, 2024", then "for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil".
• Statutory position — section 79A: no set-off against undisclosed income found in a search, requisition or survey, from AY 2022-23 CBDT Circulars & InstructionsCuts both ways
  A search threw up unaccounted stock and cash and the Assessing Officer has added it. I have a large brought-forward loss and unabsorbed depreciation sitting there. Can I set them off against the addition?
  For AY 2022-23 and every later year, no. Section 79A, inserted by the Finance Act 2022 (Act No. 6 of 2022) with effect from 1 April 2022, says that where, consequent to a search under s.132, a requisition under s.132A or a survey under s.133A other than s.133A(2A), the total income of any previous year includes undisclosed income, no set-off of any loss — brought forward or of the current year — and no set-off of unabsorbed depreciation under s.32(2) shall be allowed against that undisclosed income under any provision of the Act.
• Statutory position — the capital-loss asymmetry: sections 70(2), 70(3) and 74(1) from AY 2003-04 CBDT Circulars & InstructionsCuts both ways
  I have a long-term capital loss and short-term capital gains this year, and also a brought-forward long-term loss. Which loss can go against which gain, and for how long can I carry it?
  A short-term capital loss can be set off against any capital gain, short-term or long-term; a long-term capital loss can only be set off against a long-term capital gain. That asymmetry holds both within the year, under s.70(2) and s.70(3), and on carry forward, under s.74(1)(a) and s.74(1)(b); the carry forward is limited to eight assessment years by s.74(2). The present form of both sections was put in place by the Finance Act 2002 with effect from 1 April 2003, that is Assessment Year 2003-04.

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.