THE Chennai income tax tribunal has held that business loss has to be setoff against capital gains (if there is any) and only the balance loss can be carried forward to the next year. In computing the total income, the assessee did not adjust the business loss against capital gains on the ground that section 71(2), which uses the word ‘may,’ provides an option to the assessee either to set-off or not to set-off capital gains against the business loss of the current year. The revenue authorities observed that business loss has to be first set-off against the income under the other head in the same year and only the balance loss should be carried forward. The tribunal agreed with the revenue authorities and observed that combined reading of section 72(1) and section 71(2) suggests that losses under one head must be adjusted against income under any head except ‘capital gains’. Further, if the assessee is having losses under any head and income under the head ‘capital gains’ also, then the assessee has the option of adjusting the losses against any of the heads of income or the capital gains. Thus, the word ‘may’ used in section 71(2) is meant to give flexibility to the assessee only for the relevant year.
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