TMI Blog2011 (4) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... graphy, gamma camera, stress analysis equipment etc.?" 3.The assessee is a public limited company engaged in the business of running hospital. The assessment year is 1989-1990 and the corresponding accounting year ended on 31.03.1989. The assessee filed a return of income on 29.12.1989 showing total income of Rs.82,36,600/- as per Section 115J of the Act. Later the assessing officer made prima facie adjustment under Section 143(1) (a) of the Act and sent an intimation dated 30.06.1990 to the assessee. In the course of the assessment proceedings, notice under Section 143(2) of the Act was issued and the assessing officer completed the assessment as per the normal provision and made addition and disallowed the investment allowance claimed under Section 32A of the Act and in respect of 115J computation, there has been certain disallowances. The assessee claimed investment allowance to the extent of Rs.41,63,858/- in respect of the equipment such as x-ray machines, ultrasound scanner, angiography. Gamma camera, stress analysis equipment etc. The assessing officer was of the view that the hospital is not engaged in manufacture or production of any article or thing, which is a pre-requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court in the case of INSIGHT DIAGNOSTIC AND ONCOLOGICAL RESEARCH INSTITUTE PRIVATE LIMITED V. DEPUTY COMMISSIONER OF INCOME TAX reported in (2003) 262 ITR 41 and also the decision of Delhi High Court in COMMISSIONER OF INCOME TAX V. DR.YOGENDAR SARMA reported in 311 ITR 372 and further contended that the Madras High Court in the assessee's own case in 300 ITR 167 while considering the scope of Section 72-A of the Act, held that the assessee is not industrial undertaking and hence the assessee is not entitled to investment allowance under Section 32A of the Act. He further contended that the assessee has not produced or manufactured any article or thing. Further the learned counsel relied on the decisions of Supreme Court in INDIAN HOTELS COMPANY LIMITED V. I.T.O ( 245 ITR 538); STERLING FOODS V. STATE OF KARNATAKA (1996) 3 SCC 469 and COMMISSIONER OF INCOME TAX V. VENKATESWARA HATCHERIES (P) LIMITED (237 ITR 174) to support his proposition. Further, it was contended that the Hospital provides only health care services and it cannot be said that the hospital manufactures or produces any article or thing and therefore, the order passed by the Tribunal is not in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of INDIA CINE AGENCIES V. COMMISSIONER OF INCOME TAX reported in 308 ITR 098; and INCOME TAX OFFICER, UDAIPUR VS. ARIHANT TILES AND MARBLES PRIVATE LIMITED reported in (2010) 2 SCC 699, contended that the view taken by the Tribunal as well as the Commissioner of Income Tax (Appeals) is in conformity with law and the same has to be confirmed. 6. Heard the learned counsel on either side and perused the documents available on record. The assessee claimed investment allowance in respect of X-ray, ultra sound, angiography, gamma camera and stress analysis equipment under Section 32A of the Income Tax Act. The said provision was introduced by the Finance Act, 1976 with effect from 01.04.1976. The said Section is akin with the provision under Section 33 of the Income Tax Act relating to the development rebate and the same was discontinued with effect from 1st June, 1974. The claim of investment allowance is on the lines of the development rebate scheme. The Section provides investment allowance equal to 25% of the actual costs of the ship, aircraft machinery and plant installed by the assessee. The relevant provision of Section 32A is as follows: "32A.Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (iii) In any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule." It is clear from the above that in order to claim investment allowance, the assessee has to satisfy the following conditions. (a) The assessee should own the plant and machinery; (b) The same should be used wholly for the purpose of the business carried on by the assessee; (c) The plant and machinery should come under any of the categories specified in sub section (2) of Section 32A. Section 32A specifically states that the new plant and machinery should be installed after 31st day of March, 1976 in any industrial undertaking for the purpose of business of manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh schedule. In the present case, there is no dispute regarding the above first two conditions since the assessee satisfied the same. The dispute involved in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , liver, kidney, etc., which are useful in diagnosing the condition of the patient. 3.Ultramark 6C color flow imaging system (ultra sound):The ultrasound imaging system uses transducers which produce ultrasound waves generally in the range of 1 to 10MHz frequency. These waves are directed at different organs and tissues in the patient and the reflected waves from boundaries of soft tissue, air or bone are picked up by the transducer and processed to form images on a display screen or film. The ultrasound scanner/ultra sonographic machine is an instrument with a monitor and the computer. As the ultrasound waves do not involve any harmful radiation like x-rays, they are more useful in gynecological examinations and pre-child birth checkups apart from Doppler color blood flow studies in the heart and other arteries. Different transducers are used for imaging heart, abdomen and other body parts. Thus using the ultrasound system, images are produced on film which enables diagnosis of various diseases in these organs/tissues. The system can also be used for obtaining biopsy samples under ultrasound image guidance. 4.Quinton 3000 stress analysis system with ECG recordings output: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts have taken a contrary view. 8.The only argument advanced by the learned Standing counsel for the Revenue is that 'hospital' is not an industrial undertaking and also the same does not produce or manufacture any article or thing. The hospitals are only rendering service. Various High Courts in India considered the cases of hospitals as well as individual doctors and came to the conclusion that the hospital and the individual doctors carried on business activities and hence, they are entitled to investment allowance under Section 32A of the Act. 9.The Madras High Court, in the case of COMMISSIONER OF INCOME TAX V. DR.V.K.RAMACHANDRAN reported in (1981) 128 ITR 727, has considered the scope of development rebate under Section 33 of the Act and held that a medical practitioner is entitled to development rebate under Section 33 of the Income Tax Act on X-ray machine. In that case, the assessee was a medical practitioner. The issue before the Court was whether the assessee was indulging in a commercial activity for the purpose of claiming development rebate or not. The Court held that the assessee has been carrying on the business as a commercial activity. Further the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of hospitals as well as the individual Doctors and allowed investment allowance under Section 32A of the Act on the ground that the hospitals are considered to be industrial undertakings and also the technical instruments installed in the hospitals are engaged in manufacture or production of any article or thing. Now let us go to the case laws, which were decided in favour of the assessee. 10.The Rajasthan High Court, in the case of COMMISSIONER OF INCOME TAX V. TRINITY HOSPITAL reported in (1997) 225 ITR 178, has considered the scope of 32A of the Act. The assessee in that case is a hospital. The machinery installed in the hospital premises are (i) X-ray machine; (ii) Ultra sound scanner/ultra sonographic machine; (iii) a foetal monitor and (iv) air conditioning equipment. The Rajasthan High Court has taken a view that the assessee is a small scale industrial undertaking and that the hospital is engaged for the purpose of manufacture or production of article or thing as provided under Section 32A(2)(b)(ii) of the Act by following the judgment of this Court in the case of DR.V.K.RAMACHANDRAN((1981) 128 ITR 727) and held as follows: "The provisions have been made in the Act to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt working of these machines and has not been installed for the purpose of office. This is a pure finding of fact. The Tribunal was, therefore, right in allowing investment allowance to the assessee." 11. The Kerala High Court in the case of COMMISSIONER OF INCOME TAX V. UPASANA HOSPITAL reported in 225 ITR 845, has considered the same issue and granted investment allowance. In this case, the assessee, a hospital claimed investment allowance in respect of an x-ray, I.C.C.U and E.C.G. Equipment. The Kerala High Court, relying on the judgment of this Court in Dr.V.K.Ramachandran's case cited supra, held that the hospital is a small scale undertaking and organised business activity resulting in manufacture or produce things, which amounts to industrial undertaking. The Kerala High Court in another case in MAR GREGORIOUS MEMORIAL MUTHOOT MEDICAL CENTRE V. COMMISSIONER OF INCOME TAX reported in (2003) 261 ITR 443 had taken a similar view as in the Upasana's case and granted investment allowance in respect of X-ray, ECG and other Laboratory equipment. In that case also, the assessee is running a hospital. 12. The Gauhati High Court, in the case of COMMISSIONER OF INCOME TAX V. DO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance on X-rays. The above said High Courts of Rajasthan, Kerala, Gauhati, Punjab and Haryana, Gujarath, Andhra Pradesh, Allahabad and Patna, have considered the scope of Section 32A of the Act and held that the assessee is entitled to investment allowance on X-ray, ultrasound scanner, ECG, ICCU and other monitors and also following this Court's judgment in the case of Dr.V.K.Ramachandran held that the hospital is considered to be an industrial undertaking and granted investment allowance. 18. Further, the Supreme Court in the case of COMMISSIONER OF INCOME TAX V. ORACLE SOFTWARE INDIA LIMITED reported in (2010) 320 ITR 546 considered the scope of 80IA of the Act and held that the technological advancement in science makes knowledge as of today obsolete tomorrow and further the Court categorically stated that the Courts need to move with the times and the revenue in each case has to study the actual process undertaken by the assessee in claiming deduction and the term 'manufacture' implies a change, but every change is not a manufacture, despite the fact that every change is an article is the result of a treatment of labour and manipulation. So the manufacture needs to be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production , it has to follow that mining activity for the purpose of production of mineral ores would come within the ambit of the word production since ore is a thing , which is the result of human activity or effort. It has also been held by this Court in CIT v. N.C. Budharaja and Co. that the word production is much wider than the word manufacture . It was said: (SCC pp. 286-87, paras 7-8) 'The word production has a wider connotation than the word manufacture . While every manufacture can be characterised as production, every production need not amount to manufacture. The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. 20. This Court in the case of COMMISSIONER OF INCOME TAX V. JAMAL PHOTO INDUSTRIES (I) P. LTD., reported in (2006) 285 ITR 209 considered the case of photo industries and as to whether the assessee can claim deduction under Section 80I of the Act. In that case, the assessee derived income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered as an industrial undertaking and it is not involved in manufacture or production of any article or thing. The Bombay High Court has taken a view that the fees charged is not the price of the exposed film but it is charged for services rendered. The price paid was for rendering professional service and hence, X-ray films cannot be treated as a manufactured article or thing and the CT Scan machine installed and run by the assessee was not an industrial undertaking. As stated earlier, the Supreme Court categorically stated in the case of COMMISSIONER OF INCOME TAX V. ORACLE SOFTWARE INDIA LIMITED cited supra that the Court has to move along with the times and must study the actual process undertaken by the assessee and see whether there is any change in the article. Considering the above principle, we are inclined to follow the other High Court judgments. 23. The Delhi High Court in the case of COMMISSIONER OF INCOME TAX V.DR.YOGENDAR SARMA reported in 311 ITR 372 considered the scope of Section 32 of the Act and held that the hospital cannot be considered as industrial undertaking and followed the Bombay High Court judgment and distinguished all other decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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