1999 (6) TMI 33 - HC - Income Tax

Issues Involved:
1. Entitlement to investment allowance under section 32A of the Income-tax Act for ultrasound medical diagnostic equipment, air-conditioner, and servo-voltage stabiliser.
2. Whether the ultrasound machine qualifies as manufacturing or producing an article.
3. Applicability of previous judicial decisions to the present case.
4. The necessity of referring the question of law to the High Court under section 256(2) of the Income-tax Act.

Detailed Analysis:

1. Entitlement to Investment Allowance under Section 32A:
The respondent-assessee claimed an investment allowance under section 32A of the Income-tax Act for ultrasound medical diagnostic equipment, air-conditioner, and servo-voltage stabiliser. The Assessing Officer disallowed this claim, arguing that the ultrasound equipment does not manufacture or produce any new article. The Deputy Commissioner of Income-tax (Appeals) overturned this decision, stating that the ultrasound machine is an electronic unit that produces a final product, i.e., the positive print after processing the raw film. This view was upheld by the Income-tax Appellate Tribunal, which relied on the decision of the Rajasthan High Court in CIT v. Trinity Hospital [1997] 225 ITR 178.

2. Qualification as Manufacturing or Producing an Article:
The core issue was whether the ultrasound machine could be considered as manufacturing or producing an article. The appellate authority observed that the ultrasound machine uses high-frequency sound waves to produce images of internal body organs, which are then printed on a film. This process was deemed to result in the manufacture of a new article, as the final print is a distinct product compared to the raw film. The Tribunal supported this view, noting that the Revenue did not dispute the detailed functioning and use of the equipment.

3. Applicability of Previous Judicial Decisions:
Both parties cited various judicial decisions to support their arguments. The Revenue relied on CIT v. Pressure Piling Co. (India) P. Ltd. [1993] 204 ITR 412 (SC) and CIT v. Rajasthan Spinning and Weaving Mills Ltd. [1993] 202 ITR 10 12, arguing that no new article was manufactured. In contrast, the respondent-assessee cited CIT v. Prasad Film Laboratories P. Ltd. [1997] 225 ITR 348 (AP), CIT v. Air Survey Co. of India (P.) Ltd. [1998] 232 ITR 707 (Cal), and other cases where similar diagnostic equipment was considered to produce new articles, thus qualifying for investment allowance.

4. Necessity of Referring the Question of Law:
The High Court examined whether it was necessary to refer the question of law to itself under section 256(2) of the Income-tax Act. The court concluded that it is not required to refer every question of law, especially when the issue stands settled by previous judicial decisions. The court noted that the Tribunal had taken a correct view, supported by various High Court decisions, and found no reason to direct the Tribunal to refer the question of law. The court emphasized that it must be satisfied with the correctness of the Tribunal's decision before requiring a reference.

Conclusion:
The High Court rejected the application under section 256(2) of the Income-tax Act, affirming that the Deputy Commissioner of Income-tax (Appeals) and the Tribunal had correctly allowed the investment allowance for the ultrasound medical diagnostic equipment. The court found that the Tribunal's decision was correct and supported by judicial precedent, thus no reference to the High Court was necessary. No order as to costs was made.

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