1987 (4) TMI 39 - HC - Income Tax

Summary

Issues: Whether the sum realized on sale of calves was liable to capital gains tax.

The judgment pertains to a reference u/s 256(1) of the Income-tax Act, 1961, where the assessee sold 27 calves for Rs. 29,730 during the relevant period and claimed it as a capital receipt not subject to income tax. The Income-tax Officer treated it as a sale of a capital asset, resulting in a short-term capital gain. The appellate authority disagreed with the assessee's argument that there was no cost of acquisition, considering the expenditure on feeding and maintenance of the calves as part of the cost of acquisition. The Tribunal upheld this decision. The assessee relied on the Supreme Court case CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294, arguing that since there was no cost of acquisition for the calves, the sale proceeds did not result in a capital gain.

The Income-tax Officer initially estimated the capital gains at 75% of the price realized, but the appellate authority directed to determine the expenditure on rearing and maintenance of the calves as part of the actual cost of acquisition. The judgment highlighted the inconsistency between the two decisions and concluded that the sale price less the cost of rearing should be considered the cost of acquisition. The birth of calves was considered incidental to the business activity of running a dairy farm, and the judgment emphasized the need to exclude this amount from revenue or business expenditure to determine taxable income accurately.

The judgment referenced the Supreme Court decision in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294, which dealt with the transfer of goodwill, to support the assessee's argument that no capital gain arises when there is no cost of acquisition. It also mentioned a separate judgment by one of the judges, highlighting the need to address anomalies in excluding transfers of capital assets without any cost of acquisition from capital gains. Despite this observation, the judgment held that due to the absence of a cost of acquisition for the calves, there could be no capital gain from their sale as a capital asset. The question was answered in favor of the assessee, and no costs were awarded.