Section 74

Section 74 — the law in short

What the courts have decided on section 74, 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.
• Ayodhya Rami Reddy Alla v PCIT High CourtHelps departmentUnder appeal
  The AO invoked GAAR even though a specific anti-avoidance section covers my transaction. Can he do that?
  Yes, on this ruling. Chapter X-A is not shut out because a specific anti-avoidance rule occupies part of the field: s.95(1) opens with a non-obstante clause, which displaces the usual presumption that the special provision excludes the general one, so GAAR can supersede a SAAR. The Court also refused to interfere at the initiation stage because s.144BA gives the assessee a reference to the Principal Commissioner and the Approving Panel.
• PCIT v Burda Druck India Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The assessment order for the loss year ends with a line saying the brought forward losses will not be allowed to be carried forward because our shareholding changed. Am I stuck with that when I claim the set-off later?
  No. The assessing officer of the loss year has only to notify the amount of the loss he has computed; whether that loss can be carried forward and set off is for the officer who deals with the year in which the set-off is claimed. The Delhi High Court upheld the Tribunal's direction to expunge the remark, and added that unabsorbed depreciation and capital losses do not fall within s.79 at all.
• 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'.
• 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.