2012 (12) TMI 789 - HC - Income Tax

Deduction u/s 80-IA - Diagnostic Centre - an industrial undertaking - assessee established a new MRI unit - ITAT allowed the claim - Held that - A joint reading of Section 80IA and Section 33B states 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 . As decided in Insight Diagnostic and Oncological Research Institute P. Ltd. v. DCIT 2003 (4) TMI 79 - BOMBAY HIGH COURT the CT scan machine as installed in a 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 - 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 (3) TMI 8 - SUPREME COURT) is not satisfied The unit or undertaking must engage in production of an article or thing be it in the context of Section 32A or Section 10 (15). Such consideration is equally important and relevant for applicability of Section 80-IA by virtue of Sub-section (2) (iii) of that provision. What emerges from all these decisions, and the relevant provisions i.e. Sections 80-IA and 33-B that the unit or activity is deemed an industrial undertaking, if it is involved in production of goods or articles - as in the present case there is no change of the article, the intention of the service provider is not to produce the article the film is the medium in which what is recorded is made available for interpretation by the physician or doctor. If it can be more conveniently given in a pen drive or even over the internet, the question of production of goods or article would not arise - in favour of the revenue While the benefit which might flow to the general public if diagnostic facilities are deemed industrial undertakings is undeniable, as it would probably result in lower cost of diagnosis of diseases and conditions, yet that result cannot be achieved by doing violence to the statute, in the guise of interpretation. The remedy (to this perceived mischief) is clearly elsewhere.

Summary

Issues Involved:
1. Whether the ITAT was correct in holding that a Diagnostic Centre is an industrial undertaking within the meaning of Section 80-IA of the Income Tax Act 1961?
2. Whether the ITAT was correct in law in holding that the assessee was entitled to deduction under section 80-IA of the Act?

Detailed Analysis:

Issue 1: Diagnostic Centre as an Industrial Undertaking
The primary contention was whether a Diagnostic Centre qualifies as an industrial undertaking under Section 80-IA of the Income Tax Act 1961. The assessee, engaged in advanced radiological services, claimed deductions under Section 80-IA, which were initially allowed but later disallowed by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals).

The revenue argued that the Diagnostic Centre does not manufacture or produce any article or thing, as required by Section 80-IA, and thus does not qualify as an industrial undertaking. The revenue cited several judgments, including JMD Medical Limited v. Union of India and CIT v. Yogender Sharma, which held that diagnostic centres do not engage in the manufacture or production of articles or things and thus do not qualify as industrial undertakings under the Income Tax Act.

The court emphasized that the term "industrial undertaking" must be interpreted within the context of the Income Tax Act, not other laws. The primary activity of a diagnostic centre is to provide medical diagnostic services, which do not involve manufacturing or processing goods. The court noted that diagnostic equipment like X-ray machines and CT scanners produce images used for medical diagnosis, which cannot be classified as manufacturing or producing articles or things.

Issue 2: Entitlement to Deduction under Section 80-IA
The second issue was whether the assessee was entitled to deductions under Section 80-IA. The revenue contended that the deductions under this section are applicable only to new industrial undertakings engaged in the manufacture or production of articles or things. Since the assessee's diagnostic centre was operational since 1948 and the installation of new machines was merely an expansion, it did not qualify as a new industrial undertaking.

The court examined the legislative intent behind Section 80-IA, which aims to provide benefits to undertakings involved in industrial activities that result in the production of goods or services of universal application. The court referred to the definition of "industrial undertaking" under Section 33B, which includes undertakings engaged in the manufacture or processing of goods. However, it clarified that the processing must involve goods or articles, which is not the case with diagnostic centres.

The court also considered the negative list in the Eleventh Schedule, which lists articles or things excluded from the benefits of Section 80-IA. The court concluded that diagnostic centres do not fall within the ambit of industrial undertakings as they do not engage in the manufacture or processing of goods or articles.

Conclusion:
The court held that the ITAT erred in classifying the Diagnostic Centre as an industrial undertaking under Section 80-IA. Consequently, the assessee was not entitled to deductions under this section. The appeals were allowed in favor of the revenue, with the questions of law answered against the assessee. The court emphasized that while diagnostic services benefit the public, they do not qualify for industrial undertaking benefits under the current legislative framework.