2006 (8) TMI 108 - HC - Income Tax

Assessee who is running a pathological centre Investment allowance in respect of equipment installed in the centre is allowed

Summary

Issues:
1. Interpretation of Section 32-A of the Income-tax Act, 1961 regarding investment allowance for a pathological laboratory.
2. Determining whether a pathological laboratory qualifies as an industrial undertaking for investment allowance under Section 32-A.
3. Analysis of judicial precedents regarding the definition of industrial undertaking in relation to the production of articles or things.

Analysis:
1. The primary issue in this case revolves around the interpretation of Section 32-A of the Income-tax Act, 1961 concerning the eligibility for investment allowance. The Tribunal referred a question regarding whether a pathological laboratory, engaged in a profession, can be considered as carrying on a business as an industrial undertaking for investment allowance on new machinery installed.

2. The Revenue argued that the work done in a Pathological Laboratory does not equate to an industrial undertaking as there is no end product in the pathological examination. They relied on a judgment of the Andhra Pradesh High Court, emphasizing that the report from conducting tests using equipment does not amount to production of an article or thing. The Revenue contended that the Tribunal was unjustified in granting investment allowance to the assessee.

3. Conversely, the assessee's counsel argued that if the end result of an undertaking utilizing plant or machinery is something new, it qualifies as an industrial undertaking. They cited various judgments from different High Courts and the Supreme Court to support their stance that the activity of the assessee Trust, running a Pathological Laboratory, should be considered an industrial undertaking eligible for investment allowance.

4. The High Court analyzed previous judgments, including the Andhra Pradesh High Court's decision in the case of Dr. S. Surender Reddy, and observed that the mere recording of readings through machinery does not constitute the production of an article or thing. However, they highlighted judgments from Gujarat, Kerala, and Rajasthan High Courts, indicating that activities primarily concerning the production of any article or thing fall under the category of industrial undertaking for investment allowance.

5. The Court further discussed the definition of "industry" in the context of employer-employee relations, emphasizing that the meaning of "industrial undertaking" under the Income-tax Act is based on the activity for which new plant or machinery is set up. They referenced cases involving hospitals and data processing to illustrate that the end product, even if in the form of a report or figures, qualifies as an industrial undertaking for investment allowance.

6. Ultimately, the High Court concluded that if a plant and machinery are installed, and the end result is different from the raw material used, even in the form of a report, it constitutes an industrial undertaking eligible for investment allowance. The Tribunal's decision in favor of the assessee Trust, running a Pathological Laboratory, was deemed justified, and the question was answered in favor of the assessee, disposing of the reference without costs.