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From Assessment year 2005-06, Sec .71 of the Income-tax Act, 1961 (the Act) lay down that a loss computed under the head ‘Profits and Gains of Business or Profession’ shall not be allowed to be set off against the income assessable under the head ‘Salaries’.

Income tax is a tax on Total Income. It laterally mean the net of the sum total of all incomes as reduced by all losses, under all ‘heads’ of income.

In other words, the adjustment of losses against incomes, irrespective of the heads of income under which they arise, should be allowed without any restriction or barriers.

Let us examine Article 16 &  19 of  the Constitution of India

Article 16 states –

16. Equality of opportunity in matters of public employment.- 

(1) There shall be equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State. 

(2) No citizen shall, on grounds only of religion, race, caste, sex, descent, place of birth, residence or any of them, be ineligible for, or discriminated against in respect of, any employment or office under the State. 

(3) Nothing in this article shall prevent Parliament from making any law prescribing, in regard to a class or classes of employment or appointment to an office _11[under the Government of, or any local or other authority within, a State or Union territory, any requirement as to residence within that State or Union territory] prior to such employment or appointment. 

_12[(4A)  Nothing in this article shall prevent the State from making any provision for reservation in matters of promotion to any class or classes of posts in the services under the State in favour of the Scheduled Castes and the Scheduled Tribes which, in the opinion of the State, are not adequately represented in the services under the State.] 

_12A[(4B) Nothing in this article shall prevent the State from considering any unfilled vacancies of a year which are reserved for being filled up in that year in accordance with any provision for reservation made under clause (4) or clause (4A) as a separate class of vacancies to be filled up in any succeeding year or years and such class of vacancies shall not be considered together with the vacancies of the year in which they are being filled up for determining the ceiling of fifty per cent. reservation on total number of vacancies of that year.]

(5) Nothing in this article shall affect the operation of any law which provides that the incumbent of an office in connection with the affairs of any religious or denominational institution or any member of the governing body thereof shall be a person professing a particular religion or belonging to a particular denomination.

If one looks at the Article and also looks at the Sec 71 of the Income Tax Act, it is clear that, there should not be any barrier be created either directly or indirectly to peruse any profession or employment.

Let us also see the Article 19 of Indian Constitution

19. Protection of certain rights regarding freedom of speech etc

(1) All citizens shall have the right

(a) to freedom of speech and expression;

(b) to assemble peaceably and without arms;

(c) to form associations or unions;

(d) to move freely throughout the territory of India;

(e) to reside and settle in any part of the territory of India; and

(f) omitted

(g) to practise any profession, or to carry on any occupation, trade or business

This particular Sec.71 has completely ignored the reason for the origin and start of a business, i.e. need for the capital and it’s source.

As a starter entrepreneur bank loans are not coming easy, NPAs of banks growing and new and newer norms of the RBI making prohibitive terms for a business lender. The only alternative left to one new entrepreneur to start a business out of his internal accruals. For a salaried man to start with is his salary income, with a dream to start a business of his own. It is fact that not all business is out of brilliant ideas and outperforms from the very first year. If the new entrepreneurs are not being provided with setoff from his salary income with his new business loss, eventually no business will grow from the soil of India.

Every individual intending to start a business also has a duty to feed his family. If the provision does not allow him to set off his salary profit with business loss the person is left with two choices, either not to do business and see his family welfare, or start a business and if make loss, let his family be without food. 

The poor performance of micro and small-scale industry is partially responsible for this overacts of Sec 71 of I.T. Act.

It is quite surprising while the Constitution makes the path and the right, a subordinate law prohibits inception of a business.

It might happen, some abused the section, but it does not mean country should caste injustice to other fair nationals.   

At least government must re-think and provide once in lifetime chance to an individual for 5 years under this section to allow setoff.

To make the law fair at least Sec 71 should be amended or deleted suitably.

Thanking you

Swajan Kumar Sen

Mech Engg, FCMA, LL.B, LL.M


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Category Income Tax   Report

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