2003 (2) TMI 55 - HC - Income Tax

(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in denying the investment allowance on E. C. G. machine, x-ray unit and other laboratory equipments ? - (2) Whether, the Tribunal was justified in holding that since the above referred equipments are not independent industrial undertaking but only part of the composite undertaking and therefore the benefit of investment allowance is not available ? - The assessee is therefore entitled to get investment allowance in respect of hospital equipments and other laboratory equipments. We therefore answer the questions in favour of the assessee and against the Revenue.

Summary

Issues:
1. Denial of investment allowance on E.C.G. machine, x-ray unit, and other laboratory equipment.
2. Eligibility for investment allowance as part of a composite undertaking.

Issue 1: Denial of investment allowance on specific equipment
The case involved the denial of investment allowance on various equipment, including an E.C.G. machine, x-ray unit, and laboratory equipment, installed in a hospital. The Assessing Officer disallowed the claim as the machinery was not used for manufacturing or production. The Commissioner upheld the disallowance, citing a Supreme Court decision that a hospital did not qualify as an industrial undertaking for manufacturing. The Tribunal also rejected the claim, stating that the equipment was part of a composite undertaking and not eligible for investment allowance. The applicant argued that the apex court's decision was not applicable, citing other tribunal decisions allowing investment allowance for similar equipment. The High Court considered relevant provisions under sections 34 and 32A(2)(b) to determine eligibility for investment allowance. It noted that hospitals could manufacture products for patient benefit, citing precedents where investment allowance was granted for medical equipment. The High Court held in favor of the assessee, allowing investment allowance for the hospital equipment.

Issue 2: Eligibility for investment allowance as part of a composite undertaking
The second issue revolved around whether the hospital's equipment, as part of a composite undertaking, qualified for investment allowance. The Revenue argued that the equipment, installed for the hospital's own use, did not constitute an industrial undertaking producing articles. The High Court analyzed the conditions for eligibility under sections 34 and 32A(2)(b), emphasizing the requirement for the undertaking to produce articles. It referenced cases where investment allowance was granted for equipment used in specialized services like aerial photography and medical diagnostics. Relying on judicial precedents, the High Court concluded that the hospital equipment qualified for investment allowance. The judgment favored the assessee, granting investment allowance for the hospital and laboratory equipment. The court directed the forwarding of the judgment to the Income-tax Appellate Tribunal for compliance.

This detailed analysis of the judgment highlights the key issues of denial of investment allowance and eligibility for investment allowance as part of a composite undertaking, providing a comprehensive overview of the legal reasoning and precedents considered by the High Court in reaching its decision.