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TMI Blog1985 (5) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... g stock' livestock. The corresponding figure for the earlier year being Rs. 2,18,633 showed the same as opening stock. During the year three horses were purchased for Rs. 1,13,040. These two figures, opening and purchased together constitute Rs. 3,31,673 which was shown in the profit and loss account for the year ended 31-3-1978 as livestock, closing stock at cost. The profit and loss account 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 livestock, 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 comprises in the livestock and represented as stated above in the profit and loss account and balance sheet. Earlier the company had included the cost of the horses under the head livestock and treated the same as current assets. A replenishment reserve at 30 per 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coverage' and used in the livestock breeding business. By mistake, the assessee treated the cost of the horses purchased as livestock under the head Closing stock' and at their cost. Since the valuation was at cost, it 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 and both the left and right side of the profit and loss account showed the value of the horses purchased. It was on the realisation of this mistake that the assessee claimed that the horses purchased for livestock 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 v. France [1887] 19 QBD 647 in which, a leading case, horses were held to be plant. The decision in the case of Yarmouth as expounded further in Jarrold (Inspector of Taxes) v. John Good & S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have specifically observed that horse is a plant. In fact, the decision in London & Eastern Countries Loan & Discount Co. v. Creasey and Earl of Derby referred to by the Commissioner (Appeals) clearly holds a different view. Stress is laid in this context on the provisions of section 36(1)(vi) which specifically deals with animals which have been used for the purpose of the business or profession otherwise than as 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. Section 36(1)(vi) in the present case, however, would not apply, since the assessee has treated the horses as 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as profit to be credited to the profit and loss account. This would be a correct method, but the assessee has not adopted the same. The amounts spent for the horses and lost on account of their deterioration or death certainly has to find a place in the profit and loss account and computation of the profit. The other method of doing this is to find out whether the horses constitute in these circumstances 'plant' entitled to depreciation. The reference made by the Commissioner (Appeals) and the learned departmental representative to section 36(1)(vi) in this connection is noteworthy. The section 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 Commissioner (Appeals) has pointed out any other method of taking into account the deterioration of a fixed asset like the horses in computing the profit. 11. The direct decision in Yarmouth's case, holds horses to be plant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Kanodia Warehousing Corpn. [1980] 121 ITR 996 (All.), Warehouse---Jayasingrao Piraji Rao Ghatge's case ; Water storage tank in the case of CIT v. Bank of India Ltd. [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 effect or some other capacity in other circumstances, in the present case where it is used only as a medium for procreation of horses and livestock 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, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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