L.G. Balakrishnan vs Commissioner of Income Tax

R. Jayasima Babu, J.

The assessee is running a poultry-farm. The birds as wed as chicks were treated as stock-in-trade. After rejecting the assessee''s claim that the

chicks are capital assets, the assessing officer valued the stock of the chicks at market rate and the Commissioner (Appeals) on appeal held that

the chicks were assets. The Tribunal held that the chicks were not capital assets and that they form part of the stock, required to be valued on the

basis of the realisable value. The assessment year is 1982-83.

The correctness of this finding of the Tribunal has been called into question before us. Having regard to the amendment of the definition of the

word ""plant"" in section 43(3) of the Income Tax Act, with effect from 1-4-1962, which amendment has been effected by the Finance Act, 1995, it

must be held that the Tribunal was quite right in holding that the birds being ''livestock'' could not be regarded as capital assets, and that, therefore,

were required to be valued as part of the stock-in-trade of the assessee. That question as to whether the Tribunal was right in holding that the

chicks do not constitute the fixed assets of the assessee''s poultry business is therefore, answered against the assessee and in favour of the revenue.

As regards the other question regarding the valuation of the stock of the, chicks, the Tribunal''s view cannot be sustained. It is settled law that in

case of running business the stock-in-trade has to be valued either on cost basis or on the basis of market price, whichever is lower. The Apex

Court recently had occasion to review the case law on this aspect in the case of Sakthi Trading Co. Vs. Commissioner of Income Tax,

Coimbatore, . The court therein noticed the earlier decisions of the Apex Court which had held that the valuation should be on that basis, the

decisions so referred to being the cases of A.L.A. Firm Vs. Commissioner of Income Tax, Madras, , Chainrup Sampatram Vs. Commissioner of

Income Tax, West Bengal, and Commissioner of Income Tax Vs. Kikabhai Premchand, . The Supreme Court in the case of Sakthi Trading Co. v.

CIT (supra) after the review of the law held as under :

Even as per the principles laid down in A.L.A. Firm''s case (supra) in such a case the closing stock is to be valued at the cost or market price,

whichever is lower. That is an established rule of commercial practice and accountancy.

The answer to the second question as to whether the opening stock of the chicks as also the closing stock should be on the basis of realisable

value is, therefore, answered against the revenue and in favour of the assessee.

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