L G BALAKRISHNAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is running a poultry-farm. THE birds as well as chicks were treated as stock-in-trade. After rejecting the assessee's claim that the chicks are capital assets, the AO valued the stock of the chicks at market rate and the CIT(A) 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 s. 43(3) of the IT Act, w.e.f. 1st April, 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. CIT. 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. CIT, Chainrup Sampatram vs. CIT and Sir Kikabhai Premchand vs. CIT. THE Supreme Court in the case of Sakthi Trading Co. vs. CIT (supra) after the review of the law held as under :