History: –

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.

  • 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.

Depreciation on Livestock

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 ₹ 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.

Author Bio

Qualification: Student - CA/CS/CMA
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Location: Noida, Uttar Pradesh, India
Member Since: 21 Nov 2021 | Total Posts: 1

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  1. Swagato Saha says:

    Hello Sir, just asking for assuring,
    If I purcase cows for the purpose of selling cow-milk, on a financial year, and the cows dies on another financial year, will I get the deduction u/s 36(1)(vi).

    1. Sailesh Mehrotra says:

      Depreciation for a cow is calculated as follows: purchase price or replacement cost minus salvage value equals productive years in the herd. Purchase price is the dollar value of the bred heifer or cow when she is bought and enters the herd.

      1. Rahul Tayal says:

        Hi Sailesh,
        This method of calculating depreciation is incorrect for the purpose of Income Tax as the said section clearly states the method of calculating the deduction for livestock.

        Hope you understood my point,
        Please feel free to share your doubts I will be happy to help you.

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