Section 74 of the Income Tax Act
Income-tax Act, 2025: s.111
Section 74 of the Income-tax Act, 1961 corresponds to section 111 (Carry forward and set off of loss from Capital gains) of the Income-tax Act, 2025.
Read section 111 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 74 is CIT v. Hariprasad & Company Pvt. Ltd. (99 ITR 118), cited in 78 of the 199 judgments on BharatTax that turn on this section.
Leading authorities on Section 74
The terms 'income' or 'profits and gains' are inclusive of losses, signifying that losses are 'minus income' to be factored into the computation of taxable income. Therefore, set-off and carry forward provisions for losses apply exclusively to taxable income or gains and cannot be pressed into service against non-taxable gains, such as those exempt under a DTAA or other specific provisions.
The eligibility for an assessee to carry forward and set off losses, including capital losses, against future income is determined by the Assessing Officer in the year the set-off is claimed, not in the year the loss was incurred.
Additional depreciation under Section 32(1)(iia) can be claimed in the year an asset is acquired and installed, even if it is claimed in a subsequent year of acquisition and installation.
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.
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).
Payments made under an agreement that are directly related to services in the revenue field are allowable as revenue expenditure, not capital expenditure.
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 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.
Whether expenditure is capital or revenue in nature depends on the specific terms of the agreement, and royalty payments for the use of trademarks and know-how are not necessarily capital expenditure if they are not of an enduring nature.
Where an assessee claims exemption for capital gains under a DTAA, capital losses are also exempt and can be segregated from capital gains for the purpose of claiming benefits under the DTAA or the Act, whichever is more beneficial. Assessees are justified in carrying forward brought forward losses when claiming DTAA exemptions on capital gains.
