2011 (4) TMI 477 - HC - Income Tax

Deduction u/s 32A - Investment allowance - X-ray, ultra sound, angiography, gamma camera, stress analysis equipment etc. - Held that - the hospitals and individual doctors are engaged in commercial activity. - therefore the assessee is an industrial undertaking and also they are engaged in manufacture or production of any article or thing - the assessee is entitled to investment allowance under Section 32A of the Act.

Summary

Issues Involved:
1. Entitlement to investment allowance under Section 32A of the Income Tax Act for hospital equipment.
2. Classification of hospitals as industrial undertakings.
3. Interpretation of "manufacture" or "production" of any article or thing under Section 32A.

Detailed Analysis:

1. Entitlement to Investment Allowance under Section 32A:
The primary issue was whether the hospital was entitled to investment allowance for equipment like X-ray, ultrasound, angiography, gamma camera, and stress analysis systems under Section 32A of the Income Tax Act. The assessee, a public limited company running a hospital, claimed an investment allowance of Rs.41,63,858/- for the assessment year 1989-1990. The assessing officer disallowed this claim, arguing that the hospital did not engage in the manufacture or production of any article or thing, a pre-requisite for the allowance. The Commissioner of Income Tax (Appeals) allowed the claim, following the assessee's own case from the assessment year 1986-1987. The Income Tax Appellate Tribunal upheld this decision, referencing similar judgments from various High Courts. The Revenue appealed against this decision, contending that the hospital did not qualify as an industrial undertaking and did not manufacture or produce any article or thing.

2. Classification of Hospitals as Industrial Undertakings:
The court examined whether a hospital could be considered an industrial undertaking. The Revenue argued that hospitals provide healthcare services and do not engage in manufacturing or production. However, the assessee contended that the hospital's activities, involving sophisticated medical equipment, amounted to the production of diagnostic images and data, which could be considered as "things" under Section 32A. The court considered the functions of the equipment, which produced images and data essential for medical diagnosis. The court noted that the equipment produced tangible results (images and data) used for diagnosis, thus qualifying as the production of "things."

3. Interpretation of "Manufacture" or "Production" under Section 32A:
The court analyzed the terms "manufacture" and "production" as used in Section 32A. The court referenced various High Court judgments that had granted investment allowances to hospitals and individual doctors for similar equipment, interpreting these activities as manufacturing or producing articles or things. The court emphasized that technological advancements in medical equipment enable the production of diagnostic images and data, which are tangible outputs. The court highlighted that eight High Courts had ruled in favor of granting investment allowances to hospitals, considering them industrial undertakings engaged in the production of articles or things. Only the Delhi and Bombay High Courts had taken a contrary view.

Conclusion:
The court concluded that the hospital's activities, involving the use of advanced medical equipment, amounted to the production of tangible diagnostic images and data. Thus, the hospital qualified as an industrial undertaking engaged in the production of articles or things under Section 32A. The court agreed with the majority view of various High Courts and dismissed the Revenue's appeal, affirming the assessee's entitlement to the investment allowance. The court noted that the Revenue had not appealed against similar favorable judgments in other cases, which had attained finality. The court also distinguished the present case from the assessee's own case relating to Section 72A, which dealt with a different context and legal provisions.