1. In this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter called 'the Act'), the Income-tax Appellate Tribunal has referred the following question ;
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is not entitled to claim the loss of Rs. 27,000 under Section 36(1)(vi) of the Income-tax Act, 1961 ?'
2. The assessee is the owner of race horses using them for the purpose of earning income from the races. The assessee sold three horses and incurred a total loss of Rs. 38,000 and claimed the said amount as deduction under Section 36(1)(vi) of the Act. The case put forward before the ITO was that the horses had to be withdrawn from the races since the certificates granted to them had been revoked by the race club authorities and that they had become permanently useless for the purpose of the racing business. This claim of the assessee was negatived by the ITO on the ground that the horses were not dead or permanently useless for the purpose of the racing business. On appeal, the AAC also held that unless the horses were dead or had become permanently useless the deduction under Section 36(1)(vi) could not be had. When the matter came up before the Tribunal, it also confirmed the disallowance. It is this order of the Tribunal which has given rise to the present reference.
3. Section 36(1)(vi), in so far as it relates to the present case, runs as follows :
'36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28--......
(vi) in respect of animals which have been used for the purposes of the business or profession otherwise than as stock-in-trade and have died or become permanently useless for such purposes, the difference between the actual cost to the assessee of the animals and the amount, if any, realised in respect of the carcasses or animals. '
4. Though the assessee had claimed a deduction of Rs. 38,000 before the ITO, the claim was restricted to Rs. 27,000 as arising out of the sale of the horse named ' Only Son '. There is no dispute about the fact that this horse was used for the purpose of the assessee's business otherwise than as stock-in-trade. The Tribunal has observed in para. 5 of the order as follows :
' The extract filed from the Madras Race Club shows that the certificate granted to the horse ' Only Son ' for participating in the race was revoked followed by restoration for a short time and on 14-1-1969 the certificate finally came to be revoked. '
5. It is seen from this finding that the horse had become permanently useless because without a certificate from the race club the horse could not have been used in the races. The fact of revocation of the certificate had been intimated to the race clubs at Calcutta and Bangalore as the said horse had been running in races conducted in those places. The result was, the assessee could not run the horse in any of the race clubs where he was running previously, after January 14, 1969, when the certificate cameto be finally revoked. After noticing this fact the Tribunal when it came to the question of finally determining the assessee's liability to deduction found that I ' since the appellant has not discontinued the business of running race horses and since the material on record is not sufficient to establish that the race horse, ' Only Son ', has become permanently useless for purposes of the appellant's business of running race horses, the claim for deduction of the loss suffered on the sale of the race horse. ' Only Son ', cannot be allowed under Section 36(1)(vi) '.
6. This finding is absolutely inconsistent with what had been found earlier in the passage which we have extracted already. Further, the Tribunal is wrong in its view that the assessee must discontinue his business in order to get the deduction. Section 28 of the Act opens with the words ' the following income shall be chargeable to income-tax under the head ' profits and gains of any business or profession ' which was carried on by the assessee at any time during the previous year '. The section contemplates the carrying on of the business by the assessee, and it is only in the course of the carrying on of the business that the assessee will be able to avail himself of the other allowances described in Sections 30 to 43A of the Act. Section 36(1)(vi) is one of the provisions which comes within the group of provisions relating to business. This section will apply only with reference to the business carried on by the assessee. The Tribunal is, therefore, wrong in proceeding as if the assessee's discontinuance of business in any year would disentitle (sic) him for the allowance claimed under Section 36(1)(vi). The Tribunal also does not appear to be correct in saying that the material on record is not sufficient to establish that the race horse has become permanently useless, as the finding given earlier clearly states that the certificate finally came to be revoked and the same fact was intimated to the other race clubs also. As already pointed out, when the certificate is revoked, the horse would be useless for participating in races, and there can be no doubt about its having become permanently useless, for the purpose of the business of ' racing '. The result is, both the reasons given by the Tribunal are not correct and the conclusion that Section 36(1)(vi) does not apply to the present case is unsustainable. For these reasons, the question is answered in the negative and in favour of the assessee. The assessee will be entitled to his costs. Counsel fee is Rs. 500.