Section 71 of the Income Tax Act
Income-tax Act, 2025: s.109
Section 71 of the Income-tax Act, 1961 corresponds to section 109 (Set off of losses under any other head of income) of the Income-tax Act, 2025.
Read section 109 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 71 is Mazagaon Dock Ltd. v. CIT & Excess Profits Tax (34 ITR 368), cited in 57 of the 295 judgments on BharatTax that turn on this section.
Leading authorities on Section 71
Investments made by a holding company in its subsidiary can be considered a business activity, allowing related business expenditures to be deducted and not disallowed.
Expenditure incurred by a holding company for making investments in a subsidiary can be treated as business expenditure and is not disallowable, as such investment activity can itself constitute a business.
Interest earned on surplus funds deposited in short-term deposits is chargeable under section 56 as income from other sources. This interest cannot be treated as business income unless it is inextricably linked with the business operations.
The Assessing Officer (AO) has the power to disturb the valuation of shares provided by the assessee's chartered accountant, even if Rule 11UA(2) is followed. If the AO doubts the valuation report, they are not necessarily bound to refer the matter to the Valuation Officer and can adopt a different method to determine the fair market value.
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.
Expenditure incurred by a holding company in making investments in its subsidiaries can be treated as a business activity and thus, the expenditure is allowable as a business deduction.
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.
