In the famous judgment of Commissioner of Income Tax vs Ruia Stud & Agricultural Farms :
The issue before the court was that horses used for stock-breeding constitute, plant’ so as to be eligible. for depreciation under section 37 of the Income-tax Act, 1961?
Following is the summary of the judgment passed.
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.
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 ₹ 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 ₹ 5,00,000 minus ₹ 35,000 i.e. ₹ 4,65,000 will be allowed as deduction as mentioned above.