The expression "have died or become permanently useless" in Section 10 (2) (viii) of the Indian Income-tax Act, 1922, should be interpreted to mean that the animals had become permanently useless for the purposes of the assessee's business, and not merely because the business had been discontinued.

ARUN K. MUKHERJEA, J.

( 1 ) THIS reference arises out of the following facts and circumstances. The assessee is a company manufacturing, among other things, medicines. Before May, 1959, the assessee used also to manufacture serum. The assessee appears to have suffered loss of income from the production of serum for a considerable number of years as a result of which the assessee finally decided to stop the manufacture of serum with effect from May, 1959. As a consequence of this stoppage certain animals which were kept by the assessee for the manufacture of serum became actually useless to it for its business. The assessee, therefore, sold away these animals. By reason of this sale the company suffered a loss amounting to Rs. 9,929. The company claimed deduction of the said sum of Rs. 9,929 under Section 10 (2) (viii) of the Indian Income-tax Act, 1922, for the assessment of its income for the assessment year 1960-61. The Income-tax Officer, however, disallowed this deduction. On appeal the Appellate Assistant Commissioner refused to interfere. On further appeal the Income-tax Appellate Tribunal confirmed this disallowance. The assessee-company then made an application under Section 66 (1) of the Indian Income-tax Act, 1922, requiring the Tribunal to refer three questions of law to this High Court. The Tribunal made an order on that application by which the following question has been referred to us for our answer :"whether, on the facts and in the circumstances of the case, the claim for loss of Rs. 9,929 was allowable as deduction under Section 10 (2) (viii) of the Indian Income-tax Act, 1922?" the facts on which this reference has been made are undisputed. The assesses admittedly used to manufacture serum as part of its business in the manufacture of medicines, drugs and chemicals. It is also a fact that the assessee stopped the manufacture of serum permanently in May, 1959. The sale of the animals and the resulting loss of Rs; 9,929 are also admitted. There is absolutely no suggestion of any oblique or any dishonest motive on the part of the assessee. The only question is whether the loss suffered is an admissible deduction in terms of Section 10 (2) (viii) of the said Act. The point is one which is not covered by any decision. Our attention was drawn to the case of In re Ganeshilal Bhattawala, [1938] 6 I. T. R. 489 (All.) in which the Allahabad High Court was called upon to consider whether if a dairy business of an assessee was closed down in 1930 and the live-stock left over were sold in 1932 at a loss of Rs. 414, the assessee can claim an allowance in respect of the loss in the assessment of his income from a brick-kiln and property for the year 1933-34. The Allahabad High Court held that this allowance was not admissible inasmuch as the animals had been sold not on account of their having become permanently useless but because the entire business had been closed down and inasmuch as the words "for the purposes of the business" in the same Clause referred to the business in respect of which a return has been called for and submitted. This decision is obviously one which can have no application to the facts of the case before us. The loss in question in the Allahabad case was not at all one in respect of the business for which return had been called for and submitted. The point that we have to decide in this reference is, therefore, one which is entirely of first impression. "

( 2 ) SECTION 10 (2) (viii) of the Indian Income-tax Act, 1922, provides that an allowance shall be made "in respect of animals which have been used for the purposes of the business, profession or vocation otherwise than as stock-in-trade and have died or become permanently useless for such purposes". Let us examine whether the facts of our case satisfy the requirements of this proviso. The animals had admittedly been used for the purposes of the business in connection with which the income-tax return was filed. The difficulty that faced the Alla

Click Here to Read the rest of this document