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TMI Blog1988 (5) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... s engaged in hatchery business. One day old fowls are purchased and are maintained during the period of fertility. Eggs laid by the parent birds undergo an artificial process of incubation and the chicks that emerge are sold as one day old chicks. No egg is sold outside, though eggs are purchased from outside for hatching into one day old chicks. The parent birds or the fowls are not for resale. Their are destroyed upon extinction of their fertility. The assessee staked its claim for investment allowance on the plea that the parent birds constituted plant. The Income-tax Officer to note of clause (d) of the proviso to section 32A (1) which is as follows : Provided that no deduction shall be allowed under this section in respect of : ** ** ** (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profit and gains of business or profession" of any one previous year. He also relied on the decision of The Tribunal in the case Hy-way Farms [IT Appeal Nos. 174 (Hyd.) of 1980 and 1046 (Hyd.) of 1981, dated 20-1-1983], page 4, 16th line, where in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time of initial assessment itself though no details were furnished separately for investment allowance. 6. The Income-tax Officer disallowed the claims of the assessee and the assessee agitated the matter in appeal in vain before the CIT (Appeals). 7. Sri B. Satyanarayana Murty, learned chartered Accountant for the assessee, submitted that the assessee is an industrial undertaking in the ratio of the decision of the Tribunal in Sri Venkateswara Hatcheries (P.) Ltd. v. ITO [1983] 2 SOT 591 (Mad.). The parent birds are not meant for resale. They are purchased and brought to use for the purposes of the business. The parent birds constitute 'plant' because it is a tool with which the eggs are obtained which are put under artificial incubation for hatching into one day old chicks. Thus, they constitute 'plant'. He relied on the decision of the Gujarat High Court in CIT v. Elecon Engg, Co. Ltd. [1974] 96 ITR 672. He also relied on the decision of the Bombay Bench of the Tribunal in the case of Ruia Stud and Agriculture Farms (P.) Ltd. v. Sixth ITO [1985] 14 ITD 429. The authorities below, according to him, are in not appreciating the method of accounting of the assessee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant' because of the variety of birds involved and also the large number of birds that may be purchased and found alive. Even if the parent birds are treated as 'plant' he submitted that they are not brought to use for a period of 20 weeks during which period they do not produce any eggs and, therefore, the birds purchased within a period of 20 weeks prior to the end of the year should not be reckoned for the grant of the allowance. As for deduction under s. 35C, he relied on the orders of the Income-tax Officer. 9. We have heard rival submissions and perused the records. The point for consideration is whether the parent birds could be construed as 'plant' so as to be eligible for investment allowance under s. 32A of the Income-tax Act. `Plant' has not been defined in the Act. Lindley, LJ, in Yarmouth v. France [1887] 19 QBD 647 (QB) at 658, observed that there is no definition, of plant in the Act, but "in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business, -not his stock-in-trade which he buys or makes for sale; but all goods and chattels fixed or movable, live or dead, which he keeps for permanent employment in his busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hery is an industrial undertaking is concluded by the decision of the Tribunal in the case of Sri Venkateswara Hatcheries (P.) Ltd. and also in the assessee's own case in the decision cited supra. 11. The Income-tax Officer decline to grant the investment allowance on the ground that the whole of the cost of the parent bird was allowed as deduction in computing the income chargeable under the head "Profit and gains of business" of any one previous year and thus invoked clause (d) of the proviso to s. 32A (1). The only point to be seen in the case before us is whether the assessee had claimed the entire cost of the parent bird as a deduction in computing its profits. 12. This takes us to the method of accounting of the assessee which has also been discussed by the Income-tax Officer in his order. For the assessment years 1978-79 and 1979-80, the method of accounting for the parent birds adopted by the assessee has been set out in the order of the Tribunal dated 17-9-1983 in ITA Nos. 962, 963 and 964/Hyd. /1982 in the assessee's own case thus : "Broadly, it was considered that each he would lay 210 eggs in the period of utility and out of this 1/3rd, i.e., 70 eggs would be hatc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the cost and upkeep of the birds are revenue expenses and there was no question of either capitalisation or depreciation or terminal allowance. These observations of the Tribunal are in the case of poultry but not hatchery. In a poultry farm, the chicks are reared, eggs are laid by the grown up birds and grown up birds are sold out. Thus, both the birds and the eggs are stock-in-trade of a poultry business. However, in the case of the assessee, as has been admitted by the Income-tax Officer, the birds are never sold. Only the eggs laid by the birds and also the eggs purchased from outside are hatched into one day old chicks which alone are sold. The parent birds, being destroyed after the expiry of their period of fertility, do not form part of stock-in-trade of the assessee. This is the difference between a poultry farm such as Hy-Way Farms and the case of the assessee. If this difference is kept in view, the observations of the Tribunal in the case of Hy-Way Farms is quite understandable and the same is not applicable to the facts of the case before us though, for purposes of method of accounting, reliance was placed on poultry farm accounting. 15. Turning to the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created the requisite reserve in its books of account. 17. Sri Radhakrishna Murty vehemently argued that the birds are put to use not immediately but after an interval of 20 weeks and, at any rate, they are supposed to have been put to use only 20 weeks after their purchase during the previous years. In other words, if at all any investment allowance is to be granted, it should be restricted only to the birds that were purchased at least 20 weeks before the end of the previous year as during that period of 20 weeks, the birds to not lay eggs. This appears to be a valid objection and, therefore, the Income-tax Officer while working out the purchase value of the birds that are alive at the end of the year for purposes of granting investment allowance, will exclude the cost of the birds which were purchased within a period of 20 weeks prior to the end of the previous year. 18. Sri Radhakrishna Murty argued that s. 36(1)(vi) takes care of the animals and that being so, the same should not be treated as 'plant' as the whole of the cost less the sale value of the carcasses is allowed as deduction in the previous year in which the animal has died or has become permanently useless. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assessment. A general claim for investment allowance was made. In the course of the appellate proceedings also, no specific ground or argument was taken for the grant of investment allowance on parent birds. The Tribunal in its order dated 21-3-1983 in ITA Nos. 968 to 970/Hyd. /1982, while disposing of the appeals of the department, had upheld the view of the Commissioner (Appeals) that the assessee was entitled to investment allowance under s. 32A. The Income-tax Officer had allowed investment allowance on the hatchery equipments in pursuance of the order of the CIT (Appeals). Thereupon, the assessee had filed a rectification petition before the Income-tax Officer stating that the assessee was entitled for the investment allowance on the cost of parent birds also and prayed for the rectification of mistake emanating from the consequential order of the Income-tax Officer. This petition for rectification of mistake apparent from records is pending before the Income-tax Officer. However, in the consequential proceedings arising out of the directions of the Tribunal in ITA Nos. 962, 963 and 964/Hyd. /1982 on the question of allowability of depreciation or depletion in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia". He has also quota certain extracts of passages which are not found in the section and the origin and the source of which is not known. 22. Sri Satyanarayana Murty submitted that the assessee, an industrial undertaking engaged in the hatchery business, is purchasing eggs also from the poultry farms for purposes of hatching into one day old chicks in addition to the eggs laid by its known birds used in the process of hatching. He has also filed a statement from the materials furnished before the Income-tax Officer regarding the purchase of goods from the poultry farmers. These facts are not controverted. The eggs purchased from the poultry farmers may be considered as raw materials of the assessee from out of which the one day old chicks are produced by the artificial method of incubation. The poultry farmers supply these eggs and it is in the interest of the assessee to provide information on techniques or methods of poultry farming or advice on such techniques or methods. The Income-tax Officer has found that the assessee in particular had rendered services to the poultry farmers on the use of poultry feed mix and healthy breeding of commercial birds by engaging the services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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