9911796707
TMI Blog1992 (12) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... g purposes as plant. Accordingly, the assessee transferred value of two stallions and 41 mares amounting to Rs. 24,69,812 out of the opening stock, to " plants account ". The cost of one stallion purchased during the previous year Rs. 2,64,994 was also claimed as plant. The assessee claimed depreciation and investment allowance on the stock transferred to the plant account and investment allowance, depreciation allowance and additional depreciation allowance on new purchases made. For this purpose, the decision of the Income-tax Appellate Tribunal, A Bench, Bombay in the case of Ruia Stud Agrl. Farms (P.) Ltd. v. Sixth ITO [1985] 14 ITD 429 was relied upon by the assessee. 4. This claim was rejected by the Assessing Officer for five-fold reasons given in para 11 of his assessment order. Consequently, he computed the total income at Rs. 6,29,721 for the assessment year 1985-86 declining the claim of depreciation and investment allowance. 5. On appeal, the CIT(A) held that the horses and the stallion were used only as a medium for procreation of horses and livestock breeding and therefore, they could be very well be understood as plant. Consequently, the assessee was clearly en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. The stallions and mares used for the purpose of breeding cannot be said to be engaged for the purposes of business of manufacture or production of any article or thing. In this connection, he made a pointed reference to the articles or things specified in the 11th Schedule to draw home the fact that the article or thing has to be of an inanimate commercial article only. He further observed that the process or breeding could not be considered as an industrial undertaking in the sense in which it is understood for the purposes of allowance of investment allowance under section 32A. The foals which are born as a result of breeding by the stallions cannot be considered as an article or thing nor can breeding be considered as an industrial undertaking in the sense those words are used in the context of section 32A. For this view, he relied on the decision of the Supreme Court in the case of Reserve Bank of India v. Peerless General Finance Investment Co. Ltd. 1987 Judgments Today (1) SC 246. In view of the aforesaid reasons, he concluded that the assessee is not entitled to investment allowance under section 32A as the conditions laid down therein were not satisfied. 8. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for this purpose. Even the decision rendered by the Special Bench in the case of Ruia Stud Agrl. Farms (P.) Ltd. is not conclusive of the issue, whether the horse is plant for the purpose of claim of depreciation because the Special Bench considered the issue only with reference to section 32(1) read with section 36(1)(vi). In other words, he pointed out that the scope of the Special Bench was very much restricted with reference to allowance under section 36(1)(vi). Therefore, he, stated that the decision of the Special Bench has not considered the issue in larger perspective from the point of view of functional test of a plant and therefore, the decision is not correct, inasmuch as the Tribunal restricted the scope of plant to inanimate objects and excluded animals from the scope of the plant. Developing on this idea, he vehemently contended that even if the decision of the Special Bench in the case of Ruia Stud Agrl. Farms (P.) Ltd. negatives the claim of depreciation, still the assessee is entitled to claim investment allowance. In this connection, he relied on the decision of the Andhra Pradesh High Court in the case of CIT v. Sri Venkateswara Hatcheries (P.) Ltd. [1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis that sanitary and pipeline fittings fell under the head " furniture and fittings " in rule 8(2) of the Income-tax Rules, 1922, did not detract from this position. The Supreme Court highlighted the fact that the intention of the legislature was to give the word " plant " a wide meaning. Relying on this judgment, the learned counsel for the assessee submitted that though the claim for depreciation allowance conflicted with the claim of development rebate in the case of Taj Mahal Hotel, the Supreme Court ruled that the assessee was entitled to claim development rebate by acting on the legislative intention to give the word " plant " a wide meaning. On the same analogy, the learned counsel for the assessee argued with same fervour that notwithstanding the result of the claim for depreciation on horses treating them as plant, the claim for investment allowance was admissible to the assessee. He cited the decision of the Tribunal, Pune Bench, in the case of A. B. C. Farms (P.) Ltd. wherein the Tribunal held that in respect of cows used for the purpose of breeding, depreciation and investment allowance was to be granted in the same manner as depreciation has been granted for horse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect of production was discussed at great length. The article need not change itself, but chemistry of the article can be changed and commercially transformed good or different quality of article is produced. In this connection, he has referred to certain other decisions pertaining to processing of seeds and processing of Bidi patti etc. The learned counsel for the assessee summed up as follows. The breeding of stallions and mares in the stud farm are plants. Investment allowance under section 32A is incentive deduction for plant covered by section 43(3) items. Section 36(1)(vi) has no application for investment allowance, but it has application only to depreciation under section 32. The Special Bench decision in the case of Ruia Stud Agrl. Farms (P.) Ltd. is not applicable. The scheme laid down by the Andhra Pradesh High Court is to be adopted for deciding the issue involved in these appeals. Notwithstanding the decision of the Special Bench the claim under section 32A is not ousted. The ratio of the Supreme Court in the case of Taj Mahal Hotel is applicable. The stallion and breeding mares kept in the stud farm are tools with which the business was carried on by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples only. Referring to the judgment of the Bombay High Court in the case of CIT v. Bombay State Transport Corpn. [1979] 118 ITR 399 at page 405, he stated that true profits could be ascertained only after deducting wear and tear allowance. He also referred to the provisions of section 36(1)(vi) where depreciation is allowed once and for all for dead and useless animals. He referred to the commentary on Income-tax by Sampath Iyengar at page 2019 in para 69 for the proposition that no depreciation is, however, admissible on animals. He also stated that for the purpose of depreciation durability of the plant is contemplated by the Statute. The wear and tear of the plant starts after use. In the case of horse, it cannot be predicated whether the verility is maintainable after racing career is over. Referring to the decision of the Supreme Court in the case of P. K. Badiani v. CIT [1976] 105 ITR 642 at page 649, para 2, it was pointed out that " there is nothing at all imaginary about depreciation as a cost of business operation and at bottom it is just as much an out-of-pocket cost as any other. The depreciation charge is merely the periodic operating aspect of the fixed asset costs, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance for life and against lame conditions is made, Loss of profit policy is taken for that purpose. Even repairs is also applicable because artificial support to legs is given. All the ingenuity and human effort go to give different property to the natural produce in the case of the assessee. Even if depreciation question is against the assessee, investment allowance is admissible to the assessee. 12. After due consideration of the rival submissions and on consideration of the case laws cited on both sides, we are of the opinion that the orders passed by the CIT(A) are not justifled in law insofar as grant of depreciation on horses is concerned. As regards grant of investment allowance, we uphold the orders of the CIT(A) as they are justified in law. The Special Bench of the Tribunal in the case of Ruia Stud Agrl. Farms (P.) Ltd. is directly on this point, whether horse is a plant or not. The Special Bench of the Tribunal has duly considered the claim for depreciation in respect of stallions and mares used in stud farm, vide para 11 of the said order. In this connection, the various decisions cited on behalf of the assessee especially, the classic case of Yarmouth which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. On death of animals allowance under said provision is equal to the difference between the actual cost to the assessee of the animal and the price, if any, at which its carcass is sold while on becoming permanently useless for the purpose of the business, the allowance is equal to the difference between the actual cost and the price, if any, realised on sale. Section 32(1)(iii) provides a balancing allowance for plant while section 36(1)(vi) provides a write off allowance for animals thereby indicating that under the scheme of the Income-tax Act, 1961, animals would not come within the ambit of expression plant so as to be entitled to depreciation and balancing allowance under section 32 of the Act. We may mention here that similar view. viz., animals do not come within the ambit of plant in section 32 of the Act has been expressed in " Law and Practice of Income-tax " by Kanga Palkhivala at page 375 436 on the basis of certain English cases and we agree with that view. It is not necessary for us to discuss those English decisions relied on by the learned authors in support of the above view. " 13. Therefore, most of the decisions relied upon by the learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble High Court, the assessee fulfilled the conditions for the various allowances, whereas the eligiblity of depreciation as well as investment allowance is very much in dispute. Strong reliance has been placed by the learned counsel for the assessee on the decision of the Supreme Court in the case of Taj Mahal Hotel for the proposition that if depreciation is not eligible to the assessee, investment allowance is admissible for in that case the assessee claimed depreciation allowance under the head " furniture and fittings " on sanitary and pipeline fittings installed, but it was held by the Supreme Court that those fittings fell within the definition of " plant " and therefore, the assessee was entitled to development rebate. The Supreme Court observed that the fact that the assessee claimed depreciation under the head " furniture and fittings " did not detract from the position that they constituted plant. In this connection, it is relevant to refer to the question referred to the High Court for opinion in that case. The question referred to was, " Whether the sanitary fittings and pipelines installed in the King Kethi branch of the hotel constituted ' plant ' within the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitary fittings and pipelines is part of such amenities provided to the customers and constitute a plant with which the hotel business is carried on. Therefore, such sanitary fittings and pipelines satisfy the functional test required to be satisfied of plant. The nature of sanitary fittings and pipelines are such that the assessee had claimed depreciation allowance under the head furniture and fittings which is a standard heading prescribed under the Companies Act. Yet the nature of the individual plant and also the context in which the plant plays a part were required to be taken into account to decide the issue whether sanitary fittings and pipelines were really furniture and fittings or a plant. The Supreme Court has decided likewise in that case. Therefore, there is force in the contention of the learned departmental representative that the aforesaid judgment of the Supreme Court has been interpreted by the Bombay High Court in the case of Sandvik Asia Ltd. as not laying down any general proposition, but that decision must be restricted to the facts of that case, vide observations at page 595 of the judgment. In that case, the contention raised on behalf of the assessee that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is permitted the language is very specific to that effect. In the absence of any specification in section 36(1)(vi) or section 32A, the claim of the assessee under section 32A cannot be denied. In this connection, we would like to observe that only in cases where it is statutorily permissible to allow deduction, such specification is required to be made so as to not to grant double deduction for the same purpose. This is not the case in the assessee, because depreciation under section 32 per se is not admissible under section 32. Therefore, the whole edifice of the contentious arguments made by the learned counsel for the assessee crumbles to the ground. 16. There is also no force in the contention taken by the learned counsel for the assessee, relying on the aforesaid judgment of the Supreme Court in the case of Taj Mahal Hotel, that if the claim for depreciation is not permissible, the claim for investment allowance is admissible in the case of the assessee. It is only in the light of the aforesaid judgments, the decision of the Special Bench in the case of Ruia Stud Agrl. Farms (P.) Ltd., is to be appreciated. Even if the assessee had raised such contention as an intervenor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement is called for, it should be for specific purposes connected with the business and not otherwise. 19. On appeal, the assessee claimed that the stud farm is situated about 12 Kms. from the city. Doctors and staff of stud farm have to come to city very often and the expenditure incurred by the firm for maintenance of cars is essential for the business. In the absence of any contractual agreement with the assessee to pay any conveyance allowance to them and in the absence of details to show the basis on which reimbursement was made, the CIT(A) upheld the disallowance made by the Assessing Officer. Reliance was placed on the judgment of the Bombay High Court in the case of CIT v. Ballarpur Industries Ltd. [1979] 119 ITR 817. In that case, the admissibility of expenditure incurred Rs. 1,00,000 on aerial survey for providing technical operational data on the utilisation of hardwood for the manufacture of chemical pulp which is a basic raw material for the manufacture of paper, came up for consideration. While the Assessing Officer held that it was capital expenditure because of the enduring benefit which would be available for all the future years, as pulp is the raw material in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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