SET OF AND CARRY FORWARD OF LOSSES: ILLUSTRATION 3
The following data are in respect of an individual for tax year 2009: Rs. 30,000
Income from property A Income from property B
Total income of the individual will be Rs. 65,000 (Rs. 30,000+ 18,000 +26,000-9,000).
It must be noted that the loss from property C has been set off against income from other heads, whereas the loss from speculation business has not been set off because such a loss can only be set off against profits of a speculation business. During the tax year there was no such profit, so the speculation loss has not been set off
Set Off of Capital Loss
The treatment of capital loss is exactly in the same manner in which we treat the loss from speculation business Where a taxpayer sustains a capital loss it can only be set off against the capital gains received by him in the same year Capital loss also like speculation loss cannot be set off against income or profits under any other head.
Loss on Sale of Securities
Where a person sustains a loss on disposal of securities in a tax year, the loss shall be set off only against the gain of the person from any other securities chargeable to tax as profit on sale of securities.
Loss Sustained by an Association of Persons
If an association of persons sustains a loss during a tax year, it will be set off against any other income of the association according to the general principle mentioned in section 56.
Set Off of Losses of Certain Companies
If loss is sustained by a company and the company subsequently is merged with another company, the loss of the company being merged can be set off against the profits of amalgamated company. Moreover, if the amalgamated company has any accumulated loss it can set off such a loss with the amalgamating company. This is not in adherence with the general principle that the person who sustains a loss, only he himself can set off the loss. However, it is necessary that the scheme of amalgamation should be approved by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan. This concession has been provided to promote the culture of corporate consolidation.
CARRY FORWARD OF LOSSES
In the preceding pages, we have discussed the procedure for adjustment of losses in the same year against other heads of income. It is quite possible that a taxpayer sustains a loss and during that year, he does not have any other income, or loss is so heavy that it be adjusted fully during that year. In such cases, that loss not adjusted in the same year is to be adjusted against the income of future years. The procedure is known as ‘carry forward of losses’. The main features of the carry forward of losses are as under:
Carry Forward of Losses
If a taxpayer sustains a loss under the heads of income from property or income from other sources and such a loss cannot be set off against any other head in the same tax year due to the absence or inadequacy of other income of that year, such losses cannot be carried forward to the subsequent years under any circumstances. It becomes a dead loss.
Carry Forward of Loss from Business
If a business loss cannot be fully set off in the same year, it can be carried forward to the next year and adjusted against the person’s income chargeable under the head ‘income from business’ and not against any other head of income.
If, in this manner also, the loss cannot be fully Dfa Ho adjusted due to inadequacy of income, the amount of loss not so set off shall be to the next year and so on. But no loss shall be carried forward to more than six tax years immediately succeeding the assessment year for which the loss was first computed.
