COLLISTER AND BAJPAI, JJ. - This is a reference by the Commissioner of Income Tax, Central and United Provinces, under Section 66(2) of the Income-tax, Act. The assessee was Pandit Ganeshi Lal, now represented by his widow, and he owned and worked a brick-kiln. The accounting year is the year ending 30th September, 1932, and the Income-tax Officer assessed him to Income-tax at Rs. 5,206. The Income-tax Officer disallowed five items, for which the assessee claimed allowance.
The assessee appealed from the assessment order to the assistant Commissioner. The latter allowed two of the items in respect to which allowance was sought. About another item there was no controversy. As regards the other two items, the Assistant Commissioner found against the assessee. One of these items is a sum of Rs. 414 and is described by the Income-tax Officer as 'loss in the dairy account, the assessee having discontinued the business in the year 1930 and the loss being merely the result of the sale of live stock left over.' The Assistant Commissioner, having scrutinised the accounts, found that the assessee has been debited with an item of Rs. 2,197 which, though shown as cost of earth for moulding bricks, included, in fact, the price paid for the acquisition of proprietary rights in certain plots of the village in which the brick-kiln was situated and also the cost of executing and registration of the sale deed. The assessee contended before the assistant Commissioner that, since the land had been purchased for the purpose of extracting earth for manufacturing bricks, the price paid therefore was expenditure necessary for earning profits; but the Assistant Commissioner repelled this contention and held that the expenditure was of a capital nature. In the result, he enhanced the assessment to Rs. 6,729.
There was a second appeal to the Commissioner under Section 32(1) of the Act, but the appeal was dismissed. Subsequently the assessee applied to the Commissioner for a reference to the High Court under Section 66(2) of the Act, and accordingly the Commissioner has referred the following two questions to this Court :
(1) Does the item of Rs. 414 represent such a loss as can under the provisions of section 10(2) (vii) (a) be allowed to the assessee?
(2) Is the assessee entitled to the deduction of the item of Rs. 2,197 out of the profits assessed to income-tax?
As regards the first question, Section 10(2) (vii) (a) provides that an allowance shall be made 'in respect of animals which have been used for the purposes of the business other wise than as stock-in-trade and have died or become permanently useless for such purposes'. The dairy was admittedly closed down in 1930, i.e., long before the accounting year; and the Assistant Commissioner finds as a fact that the cattle were not sold because they had become permanently usless but were sold because the dairy business was closed down. Upon this finding it is clear that under the provisions of Section 10(2) (vii) (a) of the Act no allowance can be given in respect to the cattle thus sold. There is, however, another objection to the claim of the assessee, for it seems clear to us that the words 'for the purposes of the business' are referable to the business in respect to which a return has been called for and submitted. In our opinion the assessee is not entitled to any allowance in respect to this item of Rs. 414.
As regards the second question, the matter has been concluded by a decision of a Full Bench of this Court in Commissioner of Income-tax v. Tika Ram & Sons, Ltd. According to that authority the item of Rs. 2,197 is expenditure of a capital nature.
The above is our answer to the reference. A copy of this judgment will be sent under the seal of the Court to the Commissioner of Income-tax. The assessee will pay the costs of this reference. Learned Counsel or the department will certify his fee within six weeks. He is entitled to a fee of Rs. 100.