HELLO FRIENDS, MY CLIENT HAS A BIG DAIRY FARM
INCOME SOURCE IS SALE OF MILK
BUT THEY HAVE LOT OF CATTLES PURCHASE AND SALE OF CATTLES IS ALSO THEIR BUSINESS ACTIVITY
NOW PLEASE HELP ME WHETHER PUCHASE OF CATTLES IS THEIR STOCK OR IT IS THE CAPITAL EXPENDITURE
AND WHAT IS THE TREATEMENT OF PROFIT OR LOSS
PLS TELL ME.
Dear Sir,
The term "Stock in trade" is not defined under Income tax Act
So it has to be understood in its common paralance therefore I have extracted the definition of Inventories from AS-2 issued by the ICAI (I am aware that AS 2 doesnot apply to Live stock but then I referred it only for the definition)
Inventories are assets:
(a) held for sale in the ordinary course of business; (or we can say Finished Goods)
(b) in the process of production for such sale (or we can say Work In Progress); or
(c) in the form of materials or supplies to be consumed in (or we can say Raw materials)
the production process or in the rendering of services.
So from above definition it is clear that only those assets can be considered as Stock in Trade, which
a) are to be sold or
b) have been consumed or
c) will be consumed.
Now cattle/Live stock used in Dairy Farming AND NOT MEANT FOR SALE AS SUCH cannot be cosidered as "Stock in Trade" in the light of above definition and hence the treatment given u/s 36 reads as follows -
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;
BUT,THEIR BUSINESS IS ALSO PURCHASE AND SALE OF CATTLES
NOW WHAT CAN I DO
PLS HELP ME
IN THIS CASE IS THE CATTLES STOCK IN TRADE.
AND IF THESE ARE NOT STOCK IN TRADE
THEN IT HAS TO BE SHOWN IN THE FIXED ASSETS
AND W/OFF WHEN IT BECAME DIED.
AM I CORRECT?
PLS SOLVE MY PROBLEM
I AM IN VERY GREAT NEED
Dear Sir,
In that case u have to segrregate which of the cattles are held for Sale in the ordinary couse of business and will be treated as Stock in Trade/Inventories and the remaining will be treated u/s 36. Just as a Builder/Contractor does like these are buildings which are meant for sale in the ordinary business so treats them as Stock in trade and rest as Fixed Assets..
If the above segrregation is not possible then I think ALL the cattles will be treated as Stock in Trade and Sec 36 will not apply in this case.
CAclubindia
