In the famous judgment of Commissioner of Income Tax vs Ruia Stud & Agricultural Farms:
The assessee is engaged in the business of livestock breeding. For that purpose, it purchases and imports horses. These horses are not sold. The assessee claimed that the horses having been used for its business constituted ‘plant’ and, therefore, depreciation was allowable on cost thereof under section 32.
The Income Tax Officer rejected the claim of the assessee on the ground that the horses were held by the assessee as stock-in-trade.
The assessee appealed to the Commissioner (Appeals). It was contended by the assessee before the Commissioner (Appeals) that the horses were held by it not as stock-in-trade but as fixed assets. The Commissioner (Appeals) rejected the appeal of the assessee, He held that horses did not constitute ‘plant’.
On further appeal, the claim of the assessee was accepted by the Tribunal. The Tribunal accepted the contention of the assessee that horses were not its stock-in-trade but fixed assets. The Tribunal also held that horses could be treated as plant and that the assessee was entitled to claim depreciation thereon.
Current Provision: –
There was a controversy whether livestock would constitute plant within the meaning of clause (3) of section 43 of the Act, that controversy has now been set at rest by the amendment of section 43(3) by the Parliament by the Finance Act, 1995 with retrospective effect from the inception of the Act, i.e., 1-4 -1962 to exclude tea bushes and livestock from the ambit of ‘plant’. 1t is now made clear in the definition of ‘plant’ in section 43(3) mentioned below
As per Section 43(3) of The Income Tax Act, 1961 “plant” includes ships, vehicles, books, scientific apparatus, and surgical equipment used for the purposes of the business or profession but does not include tea bushes or livestock, or buildings or furniture and fittings.
Analysis with respect to Livestock: –
As specifically mentioned in the above provision Plant does not include livestock so depreciation is not allowed for the same while computing incomes chargeable under the head Profit and gains from business or profession.
Section 36(1)(vi) of The Income Tax Act, 1961 provides the following treatment of livestock while computing incomes chargeable under the head Profit and gains from business or profession.
This provision is applicable for animals used for the purpose of business otherwise than as stock-in-trade.
If the animal has died or become permanently useless then the difference between the actual cost of animals and the amount realized (if any) will be allowed as deduction under this provision.
Let’s take an example to understand better –
Mr. A purchased an elephant for the purposes of his business on 15th June 2012 for ₹ 5 lakh and the elephant died on 10th May 2021 and Mr. A was able to realize only Rs. 35000 from the sale of carcasses of the animal.
As per the above-mentioned provisions, no depreciation shall be allowed while computing income from AY 2013-14 to AY 2021-22 because section 43(3) specifically excludes livestock from the definition of Plant.
While computing PGBP income for the Assessment year 2022-23 difference between the actual cost of animals and the amount realized will be allowed as deduction as per Section 36(1)(vi) of The Income Tax Act, 1961
Therefore Rs. 5,00,000 minus Rs. 35,000 i.e., Rs. 4,65,000 will be allowed as deduction as mentioned above.
