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TMI Blog1986 (9) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative stated that the correct figure was Rs. 73,790). The selling price was reportedly credited to the trading account. No opening stock or closing stock of buffaloes was maintained and, therefore, no value of such stock made while arriving at the trading profit. In the course of assessment proceedings the assessee's representative stated before the ITO that the assessee was not a trader in cattle. He was purchasing and selling milch cattle to enable him to carry on the business of conducting a dairy farm. The ITO held that the purchase of 55 buffaloes could not be allowed as a revenue expenditure of the year. The ITO further observed that none of the buffaloes purchased during the year was sold. The 83 buffaloes sold were old buffaloes. Provisions of section 36(1)(vi) of the Income-tax Act, 1961 ('the Act') were applicable in this case. The ITO further held that since the purchase price of buffaloes which were sold during the year was allowed as revenue expenditure in the earlier years, the sale proceeds realised during the year would be taxed under section 41(1) of the Act. 3. The matter went before the Commissioner (Appeals) both on the question of admissibility of cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock-in-trade. In support of this argument Shri Raju referred to the provisions of section 80JJ of the Act which provided for deduction of a specific amount in business of live-stock breeding or poultry or dairy farming. Shri Raju pointed out that the assessee sold only decrepit animals because it had to maintain a constant number of animals which would provide adequate milk to ensure steady supply of milk, to a fixed clientele. On behalf of the assessee Shri Gokhale, CA, relied mainly on the order of the Commissioner (Appeals). He argued that the opening stock of buffaloes was taken over as on 1-9-1979 when the business of dairy farming was taken over from the erstwhile firm by the assessee as his proprietary business. The total number of cattle as on 1-9-1979 was 130 and 65 heads of cattles were purchased during the year for Rs. 1,98,597 and 83 sold during the year. According to Shri Gokhale, the assessee supplied milk in Chembur area. He had a fixed number of customers to whom coupons were given and he was under obligation to provide milk to these customers as per their daily requirements indicated in the coupons supplied to them. In order to ensure the availability of specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could be compared with that of a stud farm where horses were bred for racing and disposed of when they were no longer in their form, or it could be compared with a kennel club where pedigree dogs were owned by private owners and maintained for race meetings. In both such cases the animals did not form stock-in-trade of business but provided source of income in some form or the other to the owner who purchased them or maintained them. Reference in this case may be made to the provisions of section 36(1)(vi). Clause (vi) reads as under : " (vi) in respect of animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals ;" The following comments on this section by the learned author Shri Sampath Iyengar in their Law of Income-tax, Vol. 2, 1985 edn., are relevant and apposite in the present context : " Animals must not be a trading asset.---In order to claim deduction under this clause [36(1)(vi)] the user of the animals m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and, therefore, a valuation of the kennel at the beginning and end of the financial year was not the proper method of arriving at the company's profits. 6. We have to examine the question whether the impugned expenditure is capital expenditure or revenue expenditure in the light of the judgments referred to above and the facts of the present case. We find on facts that the expenditure on purchase of buffaloes cannot be considered as a normal business expenditure merely because the amount was debited to the trading account and similar expenditure was allowed as revenue expenditure in the past. These accounting entries have wrongly influenced the decision of the Commissioner (Appeals). The treatment given to such expenditure in the past by the department also cannot be allowed to cloud our judgment. We must take note of the fact that the buffaloes provided a source of income to the assessed. The assessee's main stock-in-trade was milk and the buffaloes or milch cattle which only constituted a plant from which such stock of milk in which the assessee traded, was derived. The cost of buffaloes cannot be said to enter into the cost of production of milk. Expenditure on pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess' for the business of the assessee. We Also find that the Commissioner (Appeals) has not given any finding on the applicability of section 36(1)(vi). In our opinion, therefore, the third question where the revenue submits that the assessee can claim benefit in buffalo account only under section 36(1)(vi) is on the facts and circumstances of the present case an academic question and need not be dealt with on merits as it does not arise out of the orders of the authorities below. 8. The next ground raised by the department is that the Commissioner (Appeals) erred in holding that the ITO's action in classifying the sale proceeds of buffaloes as income taxable under section 41(1) is incorrect inasmuch as that in the past inadvertently the purchase of buffaloes has been allowed as deduction while computing the total income. We do not find much substance in this ground for the following reasons. 9. The facts in this regard would indicate that the department is really not aggrieved by the decision of the Commissioner (Appeals) which was given in the following circumstances. The assessee as stated above, credited sales proceeds of buffaloes amounting to Rs. 73,795 to the trading acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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