Set off & carrie forward of business loss

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Querist : Anonymous

Querist : Anonymous (Querist)

03 September 2012 SIR,

Whether legal heir can carried forward business loss after the death of assessee?

srinath

srinath (Expert)
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03 September 2012 yes, the elgal heir has the right to set off the losses of the predecessor upon death of the predecessor

Querist : Anonymous

Querist : Anonymous (Querist)

13 September 2012 Is it necessary to continue the same business?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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25 July 2025 Great question — and this is an important nuance under the Income Tax Act, 1961, relating to the set-off and carry forward of business loss in case of death of the assessee.

✅ Short Answer:

A legal heir cannot carry forward the business loss of the deceased unless the same business is continued.
✔️ Yes, continuation of the same business is mandatory for the legal heir to claim the benefit of set-off of the deceased’s business loss.
⚖️ Legal Provision & Rationale:

📘 Section 78(2) of the Income Tax Act, 1961:
“Where any person carrying on any business or profession has died, and the business is continued by any other person, being his legal representative, such person shall be entitled to set off and carry forward the loss sustained by the deceased...”
➡️ So, two conditions must be met:

The loss was incurred by the deceased in a business/profession.
The legal heir continues the same business.
If the business is not continued, then the benefit of carry forward of loss is lost.

🧾 Important Notes:

Condition Loss Can Be Carried Forward?
Legal heir continues the same business ✅ Yes
Legal heir starts a new/different business ❌ No
Legal heir earns income from other sources ❌ No
Also:

The unabsorbed depreciation under Section 32(2) is not lost — because it is not governed by Section 78(2). It can be claimed even if the business is not continued.
📚 Case Law Support:

✅ ITO v. Shri Ram Suresh Singh [(1982) 1 ITD 63 (Pat)]
Held: Business loss of deceased can be carried forward by legal heir only if the business is continued.

✅ CIT v. Madhukant M. Mehta [(2001) 247 ITR 805 (SC)]
Supreme Court confirmed that unabsorbed depreciation can be set off even if business is not continued — but business loss requires continuation.

✅ Conclusion:

Question Answer
Can legal heir carry forward business loss? ✅ Yes, if same business continues
Is continuation of same business required? ✅ Yes
Can legal heir set off loss against own income (new business)? ❌ No

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