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TMI Blog1985 (5) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... ening stock. During the year three horses were purchased for Rs. 1,13,040. These two figures, opening and purchased together constituted Rs. 3,31,673 which was loss in the P L A/c for the year ended 31st March, 1978 as live stock, closing stock at cost. The P L A/c showed receipts of Rs. 1,46,659 under the head Milk, covering fees etc. Deducting therefrom a sum of Rs. 1,42,082 on account of food, upkeeping of the live stock, livery charges etc. a gross profit of Rs. 4,577 was carried down for working out the net profit for the year. 3. It would appear that during the year, the company changed the accounting treatment in the case of horses comprised in the live stock and represented as stated above in the P L A/c and balance sheet. Earlier the company had included the cost of horses under the head live stock and treated the same as current assets. A replenishment reserve at 30per cent of the cost of the horses was added in the respective years. During the year under appeal, the assessee-company claimed to treat the horses as fixed assets, depreciation being provided at 10per cent of their cost. The cost of horses as on 1st April, 1978 amounting to Rs. 3,12,019 was transferred fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not really affect the trading account of the assessee but the horses not meant for resale being brought under closing stock was a clear mistake. In fact that this is so was clear from the fact that the assessee claimed no deduction initially as both the left and right side of the P L A/c showed the value of horses purchased. It was on the realisation of this mistake that the assessee claimed that the horses purchased for live stock breeding should be treated as 'plant' and depreciation granted on the same. The assessee in fact made it clear that the progenies of the horses were not to be treated as plant. As a matter of fact, during this year there were no progenies. In support of its case, reliance is placed on the English decision in the case of Yarmouth vs. France (1889) 19 QBD 647 in which leading case horses were held to be plant. The decision in the case of Yarmouth has expounded further in Jarrod's case was approved by the Supreme Court in the case of CIT vs. Taj Mahal Hotel 1973 CTR (SC) 480 : (1971) 82 ITR 44 (SC). Reference is also made to the decision of the Gujarat High Court in the case of CIT vs. Elecon Engineering Co. Ltd. (1974) 96 ITR 672 (Guj), where the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch specifically deals with animals which have been used for the purpose of the business or profession otherwise than a stock in trade and have died or become permanently useless for such purposes. This, clearly indicated that the legislature intended that in respect of animals not treated as stock in trade the difference between the actual cost and realisation on disposal of the dead would only be deductible. Sec. 36(1)(vi) in the present case however, would not apply, since the assessee has treated the horses the stock-in-trade in the books of account. On the question of allowance of Rs. 18,000 for the dead horse, no such deduction is admissible since the horse constituted stock-in-trade. The apportionment of common expenses on the basis of overall turnover is also objected to. Support for this is sought from the fact that in some of the cases, the actual expenses incurred for the particular part of the business can itself be found out. 8. The facts lie in a small compass. The assessee has the business of live stock breeding. For this purpose, it purchases and imports horses. These horses it keeps for 'coverage'. The horses are not sold. During the year under appeal, there were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of doing this is to find out whether the horses constitute in these circumstances 'plant' entitled to depreciation. The reference made by the CIT(A) and the ld. Departmental Representative to s. 36(1)(vi) in this connection is noteworthy. The s. 36(1)(vi) provides that where animals are used in the business and die or become useless, the difference between the cost of the animals and realisation from the corpse when dead etc. can be treated as expenditure allowed. This is only a refinement over the first method noted above. The fact that the statute deals with this method cannot, in our opinion, rule out as the CIT(A) has pointed out any other method of taking into account the deterioration of the fixed asset like the horses in computing the profit. 11. The direct decision in Yarmouth vs. France, holds horses to be plant. Even though in the cases of London and Eastern Countries Loan and Discount Co. vs. Creasey 5 Tax Cases 383 and Earl of Derby vs. Ailmer (1915) 3 (KB) 374 stallions used serve mares were not head to be plant. This should be under stood as obtaining under the particular wording of the statute. On the contrary, the Gujarat High Court in the case of Elecon Engg. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT vs. Bank of India Ltd. (1979) 8 CTR (Bom) 230 : (1979) 118 ITR 809 (Bom)—electrical installations, the assets were not treated as plant. Taking the overall view of the decided cases, what is normally utilised as the apparatus or base which is itself not a stock in trade but which could be utilised as the basic item with which profits can be earned, has been regarded as plant. Our popular conception as to what these would look like or do not prejudice the issue so long as they are utilised as the basic asset without selling which and by working of which or with the help of which other trading or business activities are carried on and the income earned. Applying these decisions even though a horse could be a stock in trade in certain circumstances, could be a personal affect or some other capacity in other circumstances, in the present case where it is used only as a medium for procreation of horses and live stock breeding, it could very well be understood as plant. As a matter of fact, therefore, the assessee's stand in this regard has to be accepted. If therefore, the assessee has not been granted deduction of the value of the horses purchased from time to time in the year when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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