Section 70 of the Income Tax Act
Income-tax Act, 2025: s.108
Section 70 of the Income-tax Act, 1961 corresponds to section 108 (Set off of losses under same head of income) of the Income-tax Act, 2025.
Read section 108 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 70 is PCIT v. Bhanuprasad D. Trivedi, HUF (87 Taxmann.com 137), cited in 29 of the 295 judgments on BharatTax that turn on this section.
Leading authorities on Section 70
Income from assets held by a Hindu Undivided Family (HUF) cannot be treated as business income if the primary purpose is investment, not business operations.
Expenditure incurred for the transfer of the use of licenses, without acquiring ownership rights or an enduring benefit, constitutes revenue expenditure. Such payments are allowable as a deduction if they are directly relatable to services in the revenue field.
Each transaction can be considered a separate source of income, allowing taxpayers to choose between the Income-tax Act and a Double Taxation Avoidance Agreement (DTAA) for each transaction. Section 70(2) of the Act does not prescribe an order for setting off specific short-term capital losses against specific short-term capital gains, favouring the taxpayer in interpretation.
Capital gains arising from the transfer of equity shares and equity-oriented mutual funds are exempt if the shares are long-term capital assets, transferred on the stock exchange, and the sale transaction is subject to levy. The case also relates to the application of beneficial provisions and the rejection of claims under Double Taxation Avoidance Agreements (DTAA).
Long-term capital loss on the sale of shares can be set off and carried forward under sections 70 and 71, as section 10(38) only exempts long-term capital gains and does not encompass capital losses.
Payments made under an agreement that are directly related to services in the revenue field are allowable as revenue expenditure, not capital expenditure.
Profits of other businesses cannot be notionally brought forward and set off against profits of an eligible business under Section 80-IA(5) as the Income-Tax Act does not provide for such a mandate.
Where an assessee claims treaty benefits under Article 13(4) of the India-Mauritius DTAA, exempting capital gains from Indian taxation, brought forward short-term and long-term capital losses cannot be set off against such exempt gains, nor can they be carried forward to subsequent years.
Capital losses can be carried forward to subsequent assessment years. The decision emphasizes that if a business conducted outside British India resulted in a loss, it could not be set off against profits from a business within British India, based on the interpretation of Section 5 of the Business Profits Tax Act, 1947.
Capital loss arising from the sale of shares can be carried forward to subsequent years. The accounting treatment of shares as a capital asset in the books of account confirms that their sale generates capital profit or loss.
