Section 71

Section 71 — the law in short

What the courts have decided on section 71, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Pride Foramer S.A. v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  A non-resident had no contract in India for several years but kept trying for one. Had its business ceased, so that expenditure and unabsorbed depreciation fall away?
  No. A business going through a lean period which could be revived if circumstances permitted is a lull in business, not a cessation. The test is the assessee's conduct judged as a prudent businessman would judge it, not whether a contract was actually obtained. Expenditure of the lull years remained deductible and could be set off, and unabsorbed depreciation carried forward.
• Sanjeev Goyal v Union of India High CourtHelps departmentValidity unconfirmed
  My client took his housing loan in 2014 and the interest has always been fully set off against salary. From AY 2018-19 the officer restricts the set-off to Rs 2,00,000. Can I argue the cap cannot apply to a loan taken before the amendment?
  No. The Delhi High Court upheld the constitutional validity of s.71(3A), inserted by s.31 of the Finance Act 2017, and rejected the alternative plea that it applies only to loans taken on or after 1 April 2017. The cap operates for assessment year 2018-19 and every later year on the loss of that year, whatever the vintage of the loan.
• PCIT (Central), Jaipur v Aacharan Enterprises Pvt Ltd High CourtHelps taxpayer
  The officer has added cash credits under s.68 and refuses to let me set my business loss against them. Can he do that for my year?
  It depends entirely on the assessment year. The Rajasthan High Court held that the bar in s.115BBE(2) on setting off any loss against income referred to in ss.68 to 69D was introduced by the Finance Act, 2016 with effect from 1 April 2017 and cannot be applied retrospectively, so for assessment year 2014-15 the set-off was allowed. From assessment year 2017-18 the statute forecloses the set-off and this decision is no help to you.
• Shankar Sales Promotion Pvt Ltd v CIT High CourtHelps taxpayerValidity unconfirmed
  My company lends money and also deals in shares. How is it decided which is the 'principal business' for the exclusion in the Explanation to s.73?
  There is no single test. The Calcutta High Court held that the memorandum of association, turnover, capital expenditure and the relation of profit to expenses are all relevant, that all of them must be judiciously analysed and assessed, and that what emerges is a tricky question of fact which the Tribunal must determine threadbare on the record. Because the Tribunal had not done that, the Court set its order aside and remitted the appeal with a direction to decide within six months.
• CIT v Dr M.A.M. Ramaswamy High CourtHelps departmentValidity unconfirmed
  My client's winnings from horse race betting are taxed at the special rate. Can his business loss be set off first, so that only the net is taxed under s.115BB?
  No, on this Madras High Court authority. Section 115BB is a standalone special provision under Chapter XII and the special rate applies to the entire income of winnings from horse racing, not to a figure arrived at after setting off losses from other sources. The Court expressly carved out income from the activity of owning and maintaining race horses, which is dealt with separately and carries its own set-off and carry forward regime in s.74A(3).
• 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.

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.