loss under the head other sources

[manoj gupta]

An assessee has taken money on loan from various persons on which he pays interest. he has given money on loan to several other persons from whom he receives interest. can he show loss from this process under the head income from other sources. will the loss shown in income tax return be acceptable to the department.

[DEV KUMAR KOTHARI]

Why it is taken under head 'other sources' and not 'business'? Why there is loss? Whether, interest expenses are incurred to earn income , or wholly and exclusively for business, as the case may be? These are important questions which will have to be answered satisfactorily.

[Rama Krishana]

Technically, the answer is yes, intra head adjustment of losses and profit are allowed under section 71. Further section 57 allows deduction of expenses incurred for the purpose of earning income. But, the question raised by Mr. D K Kothari is highly relevant.

AI Summary

Intra-head loss adjustment may allow netting of interest expense against interest income, subject to purpose and characterization requirements.
Intra-head set-off permits netting of interest receipts and interest payments within Income From Other Sources where expenses are incurred for the purpose of earning that income; characterization of the activity (other sources versus business) and proof that outflows were wholly and exclusively for earning the receipts are decisive for whether a declared loss will be accepted.