2008 (1) TMI 61 - HC - Income Tax

Court Rules No Capital Gain on Sale of Calves

DEPUTY COMMISSIONER OF INCOME-TAX Versus SMT SUNITI SINGH

The court upheld the Income-tax Appellate Tribunal's decision that no capital gain arose from the sale of calves due to the absence of a cost of ... Assessee is running a dairy & sells cow milk - no material on record to show that selling of calves is a part of the business activity - sale of calves is not on account of realisation of stock-in-trade or as a business activity – gains from sale of calves couldn’t be regarded as capital gains since the cost of acquisition was not ascertainable - quantum of addition involves Rs. 68,000 & tax effect is Rs. 15,984 which is much below the quantum fixed by the CBDT – Revenue’s appeal dismissed Issues Involved:1. Whether the Income-tax Appellate Tribunal was justified in holding that no capital gain arose from the sale of calves due to the absence of cost of acquisition.2. Whether the sale of calves should be treated as business income or capital receipt.3. Applicability of Central Board of Direct Taxes (CBDT) instructions on the monetary limit for filing appeals.Detailed Analysis:1. Justification of the Tribunal's Decision on Capital Gain:The core issue was whether the sale of calves, which had no ascertainable cost of acquisition, could result in a capital gain. The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) that no capital gain could arise since there was no cost of acquisition involved in the birth of calves. The Revenue argued that expenses were incurred in maintaining the calves, thus making them stock-in-trade. However, the Tribunal found that these expenses were related to the production of milk, not the acquisition of calves. The court referred to the concept of stock-in-trade, emphasizing that it must be a commodity bought and sold in the course of business, distinct from assets exploited for income (H. Mohmed and Co. v. CIT, 1977). The court also cited CIT v. B. C. Srinivasa Setty (1981), which held that if the cost of acquisition is unworkable, the charge under section 45 fails.2. Business Income vs. Capital Receipt:The court examined whether the sale of calves constituted business income or a capital receipt. The assessee's primary business was the sale of milk, with cows maintained for milk production. The sale of calves, particularly male calves that do not produce milk, was incidental and not part of the business activity. The court noted that the expenses for maintaining cows were already accounted for as revenue expenditure in the profit and loss account. The court referenced Sri Krishna Dairy and Agricultural Farm v. CIT (1988), which held that gains from the sale of calves, with no cost of acquisition, were not liable to tax as capital gains. The court distinguished this case from CIT v. V. Ramaswamy Mudaliar (1992), where the cost of acquisition was ascertainable due to specific nurturing expenses.3. Applicability of CBDT Instructions:The court also considered the monetary limit for filing appeals as per CBDT instructions. The tax effect in this case was Rs. 15,984, significantly below the threshold of Rs. 50,000 set by the CBDT circular dated October 28, 1992. The court cited Asst. CIT v. Aradhana Oil Mills (2002), which held that CBDT circulars are binding on tax authorities, and appeals involving amounts below the prescribed limit should be dismissed.Conclusion:The court concluded that the Tribunal was correct in holding that the sale of calves did not result in a capital gain due to the unascertainable cost of acquisition. The sale of calves was not part of the assessee's business activity but rather a capital receipt. Additionally, the appeal was dismissed based on the CBDT's monetary limit instructions. The court thus found the appeal without merit and dismissed it without any order as to costs.