1985 (5) TMI 79 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation on horses treated as fixed assets.
2. Deduction under Section 36(1)(vi) for a dead horse.
3. Apportionment of common expenses between agricultural and non-agricultural activities.

Detailed Analysis:

1. Depreciation on Horses Treated as Fixed Assets:
The assessee, engaged in live stock breeding, dairy farming, and agricultural activities, purchased horses for breeding purposes and not for resale. Initially, the horses were mistakenly treated as stock-in-trade in the balance sheet and P&L account. The assessee later corrected this by treating horses as fixed assets and claimed depreciation at 10%. The CIT(A) rejected this claim, but the Tribunal found that the horses, used as a base apparatus for breeding, should be treated as "plant" and depreciation should be allowed. The Tribunal referenced the case of Yarmouth vs. France (1889) 19 QBD 647, where horses were held to be plant, and supported its decision by citing the Supreme Court's approval in CIT vs. Taj Mahal Hotel (1971) 82 ITR 44 (SC). The Tribunal concluded that the mere fact that horses were initially listed under closing stock should not deprive the assessee of depreciation benefits if they were otherwise entitled to it.

2. Deduction under Section 36(1)(vi) for a Dead Horse:
The assessee claimed a deduction under Section 36(1)(vi) for a horse that died during the year. The ITO rejected the claim, but the CIT(A) directed verification of any amount realized from the disposal of the dead horse and allowed the claim to the extent of the difference between the actual cost and the amount realized. The Tribunal upheld this decision, allowing the deduction of Rs. 18,000 for the dead horse, subject to verification of any realized value from the corpse.

3. Apportionment of Common Expenses:
The assessee claimed common expenses for its agricultural and live stock breeding activities should be allocated based on turnover. The ITO allocated expenses based on gross profit, allowing only Rs. 4,326 out of the claimed Rs. 44,802 for live stock breeding. The CIT(A) accepted the assessee's claim for allocation based on turnover. The Tribunal agreed with the assessee, stating that apportioning expenses based on gross profit was incorrect due to several variables. The Tribunal found that the turnover-based allocation was more appropriate and accepted the assessee's claim.

Conclusion:
The Tribunal allowed the assessee's appeal, granting depreciation on horses treated as fixed assets, deduction for the dead horse under Section 36(1)(vi), and apportionment of common expenses based on turnover. The Department's appeal was dismissed.