2019 (6) TMI 1262 - HC - Income Tax

Disallowance of Animal Breeding Expenses - nature of expenses - revenue or capital expenditure - HELD THAT - The question, as raised, is no longer res integra in view of the decision of this Court in the case of Principal Commissioner of Income Tax 2, Vadodara vs. Gujarat Cop, Op. Milk Marketing Federation Ltd. 2018 (10) TMI 1385 - GUJARAT HIGH COURT as held the activities carried under the said programme were all aimed at fertility improvement amongst milk animals. As part of the programme, the typical reasons for infertility such as improper practice in calf rearing, low body weight of animals, lack of nutrition/mineral, poor health condition, lack of awareness amongst farmers about improved breeding practices etc. In furtherance of such objectives, assessee would hold camps for village awareness, in select villages would carry out tagging and registration of animals, would hold fertility camps, would carry out mass deworming programmes, would distribute mineral mixture, carry out vaccination at mass scale, provide balanced cattle feed etc. The expenditure was general in nature and aimed at improving the practices for better fertility amongst milk animals by addressing the issues which caused infertility. The expenditure therefore was for the purpose of its business and would not be co-relatable to any tangible returns which can be expected out of such expenditure. - Decided against revenue

Summary

Issues:
Tax Appeal under Section 260-A of the Income Tax Act, 1961 challenging the order passed by the Appellate Tribunal regarding the deletion of disallowance of Animal Breeding Expenses as capital expenditure for the Assessment Year 2012-13.

Analysis:

1. The Tax Appeal was filed by the Revenue against the order passed by the Appellate Tribunal regarding the deletion of Animal Breeding Expenses as capital expenditure. The substantial question of law proposed by the Revenue was whether the ITAT erred in confirming the deletion of the disallowance of Animal Breeding Expenses. The question raised was considered in light of a previous judgment of the Court in a similar case.

2. The Court referred to a previous decision in the case of Principal Commissioner of Income Tax vs. Gujarat Cop, Op. Milk Marketing Federation Ltd., where it was observed that the expenditure in question was aimed at fertility improvement among milk animals. The Court noted that the expenditure was general in nature and aimed at improving practices for better fertility without any tangible returns expected. The Court highlighted that the expenditure was for the purpose of the business and not capital in nature.

3. The judgment of the Court mentioned above was appealed before the Supreme Court, and the Special Leave Petition filed by the Revenue was dismissed on 26th April 2019. As a result, the Court concluded that the appeal challenging the deletion of Animal Breeding Expenses as capital expenditure fails and is dismissed.

In conclusion, the Court upheld the decision of the Appellate Tribunal regarding the deletion of Animal Breeding Expenses as capital expenditure, based on the nature and purpose of the expenditure for fertility improvement among milk animals, as highlighted in the previous judgment and subsequent dismissal of the appeal by the Supreme Court.