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1987 Supreme(AP) 229
Andhra Pradesh High Court
Judges : B.P.JEEVAN REDDY, UPENDRA LAL WAGHRAY
Krishna Dairy and Agricultural Farm - Appellant
Versus
Commissioner of Income Tax - Respondent
Decided On : 04-02-87
The sale of calves born to milk-producing cows or she-buffaloes, which are capital assets, does not result in capital gain if there was no cost of acquisition for the calves.
Headnote:
CAPITAL GAINS TAX - SALE OF CALVES - NO COST OF ACQUISITION - NO CAPITAL GAIN: The sale of calves born to milk-producing cows or she-buffaloes, which are capital assets, does not result in capital gain if there was no cost of acquisition for the calves.
Fact of the Case:
The assessee, a firm that runs a dairy farm and raises agricultural produce, sold calves born to its milk-producing cows or she-buffaloes. The Income-tax Officer treated 75% of the sale proceeds as capital gain, while the appellate authority directed the Income-tax Officer to determine the expenditure incurred on rearing and maintaining the calves from birth to the date of sale, as it constituted a part of the actual cost of the calves.
Finding of the Court:
The court held that since there was no cost of acquisition for the calves, there could not be capital gain by their sale as capital asset.
Issues: Whether the sale of calves born to milk-producing cows or she-buffaloes, which are capital assets, results in capital gain if there was no cost of acquisition for the calves.
Ratio Decidendi: The court relied on the Supreme Court decision in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294, which held that there was no capital gain on the transfer of goodwill because there was no cost of acquisition. The court also noted that the birth of calves is incidental to the business activity of milk production and that it is difficult to visualize them as assets, particularly when they are sold in their young age.
Final Decision: The court answered the question referred to it in the negative, holding that the sale of calves did not result in capital gain.
( 1 ) IN this reference under section 256 (1) of the Income-tax Act, 1961, at the instance of the assessee, the following question is referred for the opinion of this court :"whether, on the facts and in the circumstances of the case, the sum of Rs. 29,730 realised on sale of calves was liable to capital gains tax ?"
( 2 ) THE assessee-firm in connection with its business runs a dairy farm and also raises agricultural produce. During the period relevant to the claimed that it represented a capital receipt and not liable to levy of income-tax. The Income-tax Officer held that it was a sale of capital asset resulting in a short-term capital gain (as the age of the calves that were sold was less than one year ). Applying the principle in the decision of the Supreme Court in CIT v. Gold Mohore Investment Co. Ltd. [1969] 74 ITR 62 (a case of transfer of bonus shares issued by the company), he estimated the capital gains at 75 per cent. of the price realised, that is, Rs. 22,298. The appellate authority rejected the assessees contention that because there was no cost of acquisition, there was no capital gain, as it considered the expenditure on feeding and maintenance of the calves after their birth till the date of sale as a part of the cost of acquisition. It directed the Income-tax Officer to determine to deduction to be granted for the expenditure on the maintenance of the calves from their birth to the date of sale. The further appeal by the assessee was dismissed by the Tribunal.
( 3 ) COUNSEL for the assessee, relying upon the decision of the Supreme Court in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (a case of transfer of goodwill), has urged that because there was no cost of acquisition for the calves within the meaning of section 55 (2), the sale proceeds of the calves which were a capital asset of the firm did not result in a capital gain. The further argument is that the rearing or sale of the calves is not a part of the business of the assessee which runs a dairy. The birth of calves is not a part of the business of the assessee which runs a dairy. The birth of calves was an addition to their assets and it did not involve any cost of acquisition and hence no capital gain arises in view of the ratio of the aforesaid Supreme Court decision. He also urged that the decision of the Supreme Court in CIT v. Gold Mohore Investment Co. Ltd. [1969] 74 ITR 62 relied upon by the Income-tax Officer does not apply to the facts of this case.
( 4 ) THE standing counsel for the Revenue has supported the view taken by the Tribunal.
( 5 ) BEFORE dealing with the controversy, it is necessary to point out the inconsistency which has arisen because of the order of the Income-tax Officer and that of the appellate authority which was confirmed by the Tribunal. The Income-tax Officer had treated 75 per cent. of the price as capital gain. The appellate authority, however, directed the Income-tax Officer to determine the expenditure incurred on the rearing and maintenance of the calves from the birth to the date of sale, as it constituted a part of the actual cost of the calves. Apparently, the adoption of the figure of 75 per cent. as capital gain by the Income-tax Officer does not stand and in its place, the sale price less cost of rearing will be the cost of acquisition.
( 6 ) FOR this purpose, it would be necessary to exclude the amount so determined from the revenue or business expenditure. This will naturally result in an increase in the taxable income. The net result will be that whatever is given as a deduction from the price for determining capital gains would bel added to the income of the assessee, as a result of reduction of the revenue or business expenditure. It is doubtful whether the birth of calves in a case like this would amount to addition to the assets. Milk-producing cows or she-buffaloes are capital assets and these have to be fed and maintained for production of milk. The birth of calves, male o
