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TMI Blog2012 (12) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to deduction under section 80-IA of the Act? 2. The respondent i.e. M/s Dewan Chand Satyapal (hereinafter referred to as "the assessee") is engaged in running an advanced radiological clinic providing services of X-ray, MRI, CT Scan and NMI etc. This Diagnostic Centre was setup in 1948. The Assessee established a new Magnetic Resonance Imaging (MRI) unit in the assessment year 1995-96. The assessment- for the assessment year 1995-96 -was completed under Section 143(3) at an income of Rs..69,30,880/- by order dated 28.08.1997. Deductions under Section 80-IA were allowed to the assessee at Rs..6,18,205/-. On 28.03.2000, the CIT issued an order under Section 263 of the Act which found that during the accounting year relevant to assessment year under consideration, the assessee established a new MRI unit and had claimed a deduction under Section 80-IA of the Income Tax Act, ("the Act") at Rs..6,18,205/- and the deduction, as it existed then could be granted where the gross income of the assessee included any profits or gains derived from an industrial undertaking or a hotel etc manufacturing or producing any article or a thing not being the article or thing specified in the list in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee purchased, from a Japanese concern, a resonance scanner used for medical diagnosis by using the scanner so as to expose unexposed films. The petitioner contended that by virtue of certain provisions of the Income Tax Act, 1961, discussed hereafter- they were entitled to relief in regard to the interest payable on the purchase price of the scanner. Their submission was that they process the goods, being the unexposed films by the use of the scanner and thus they are to be classed as an industrial undertaking. They relied upon Section 10(15) (iv) (c) of the 1961 Act and upon the Explanation to Section 10(15) (iv) (i). The Explanation mentioned is set out below: "Explanation.--For the purposes of this sub-clause, the expression 'industrial undertaking' means any undertaking which is engaged in- (a) the manufacture or processing of goods ; or (b) the business of generation or distribution of electricity or any other form of power ; or (c) mining ; or (d) the construction of ships ; or (e) the operation of ships or aircrafts ;" The learned single judge held: "If a medical diagnostic centre were to be classed as an industrial undertaking processing goods being the films w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Industrial Disputes Act. As mentioned above, we are in agreement with the view taken by the Bombay High Court. What is required to be seen is that the machinery or plant must be installed first of all in a small scale industrial undertaking and, secondly, it must be used for the purposes of business of manufacture or production of any article or thing. The primary question is, therefore, whether a clinic or a diagnostic centre is at all a small scale industrial undertaking. Explanation (2) to section 32A(2) is a deeming provision and an industrial undertaking shall be deemed to be a small scale industrial undertaking, if it satisfies certain conditions. But, first of all, it must be an industrial undertaking before the deeming provision with regard to the financial limits can be invoked. In other words, if a unit is not an industrial undertaking then, even if it fulfils the financial requirements, it cannot be deemed to be a small scale industrial undertaking. Therefore, what is to be first seen is whether a unit is an industrial undertaking or not. If the answer is in the negative then the deeming provision cannot be invoked. In our opinion, the expression "industrial under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "industrial undertaking" under section 33B (as referred to by in section 80- IA as it existed prior to the amendment w.e.f. 1.04.2000), diagnostic centre is an industrial undertaking. In the said case, the assessee, an air survey company, in the business of survey, mapping, aerial photography and aeromagnetic photography claimed investment allowance under Section 32A of the Act in respect of aircraft radio purchased. The question before the High Court was whether the activity and the use of aircraft radio in the aforesaid business would fall within the purview of the expression "manufacture" or "production" and whether the ultimate photography which came to be produced as a result of such activity was covered by the expression "article" or "thing". It was held by the Calcutta High Court that it does amount to manufacture or production and the question was answered in favour of the assessee. 9. The assessee had placed heavy reliance on the decision reported as CIT v. Peerless Consultancy (P) Ltd 186 ITR 609. The Court had noticed a previous ruling of the Karnataka High Court, and held as follows: "In support of the contention that the business activity of the assessee is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions under Section 80-IA. In this respect, the ruling in CIT v. Oracle 320 ITR 546 (SC) was relied upon. The Supreme Court had, on that occasion, held as follows: "From the details of Oracle Applications, we find that the software on the Master Media is application software. It is not an operating software. It is not system software. It can be categorized into Product Line Applications, Application Solutions and Industry Applications. A commercial duplication process involves four steps. For the said process of commercial duplication, one requires Master Media, fully operational computer, CD Blaster Machine (a commercial device used for replication from Master Media), blank/unrecorded Compact Disc also known as recordable media and printing software / labels. The Master Media is subjected to a validation and checking process by software engineers by installing and rechecking the integrity of the Master Media with the help of the software installed in the fully operational computer. After such validation and checking of the Master Media, the same is inserted in a machine which is called as the CD Blaster and a virtual image of the software in the Master Media is thereafter create ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Media and the software on the pre-recorded media is the same, there is no manufacture because the end product is not different from the original product. We find no merit in this argument. Firstly, as stated above, the input in this case is blank disc. Secondly, the test applied by the Department may not be relevant in the context of computer technology. One of the questions which arose for determination before this Court in the case of Tata Consultancy Services v. State of Andhra Pradesh, 137 STC 620 was whether a software programme put in media for transferring or marketing is "goods" under Section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957. It was held that a software programme may consist of commands which enable the computer to perform a designated task. The copyright in the programme may remain with the originator of the programme. But, the moment copies are made and marketed, they become goods. It was held that even an intellectual property, once put on to a media, whether it will be in the form of computer discs or cassettes and marketed, it becomes goods. It was further held that there is no difference between a sale of a software programme on a CD/ Floppy fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction or refining of mineral oil in the North Eastern Region or in any part of India on or after the 1st day of April, 1997 (such business being hereinafter referred to as the eligible business) to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6). (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely :- (i) It is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "industrial undertaking" means any undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining." 12. A joint reading of Section 80IA and Section 33B would make it apparent that the first condition spelt out in sub-section (2) (iii) is that the industrial undertaking "manufactures or produces any article or thing."; the second condition is that the "article or thing" should not be listed in the Eleventh schedule. The third aspect is that Section 33-B contains a somewhat wider definition of "industrial undertaking"; it posits that the unit should be an "undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining." The articles listed out in the Eleventh Schedule are: "1. Beer, wine and other alcoholic spirits. 2. Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff. 3. Cosmetics a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tta High Court in JMD Medical Ltd (supra) was echoed in Insight Diagnostic and Oncological Research Institute P. Ltd. v. Deputy CIT [2003] 262 ITR 41 by the Bombay High Court. That decision was noticed by this Court's Division Bench, in Dr. Yogendar Sharma's case (supra). The Bombay High Court, pertinently observed that: "The CT scan machine is installed in a diagnostic centre. That diagnostic centre is not an industrial undertaking for the purpose of business manufacture. In this connection, one must read the expression "industrial undertaking" in the context of the Income Tax Act and not in the context of the Industrial Disputes Act and, if so read, it is clear that the activity should be of production of any article or thing and any activity which primarily concerns production of any article or thing would fall in the category of industrial undertaking.......In the present case, the report of patients coming from the CT scan machine did not amount to manufacture or production of article or thing and therefore, one of the basic tests laid down in CIT v Shaan Finance Pvt. Ltd 1998 (231) ITR 308 (SC) is not satisfied...." 14. The common thread or refrain in these decisions, wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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