2008 (10) TMI 189 - HC - Income Tax

Depreciation u/s 32(1)(iv) at Rate of Depreciation - Commissioner of Income-tax (Appeals) came to the conclusion that the assessing authority was wrong in not accepting that the hospital is a welfare centre and that in view of section 32(1) (iv) of the Income-tax Act, as it then stood, concluded that the welfare centre would include hospital. The Tribunal also accepted the decision In taxing statute particularly it is not the dictionary meaning which has to be seen but the meaning as understood in common parlance specially in commercial circles and that, in interpreting words and phrases in taxing statutes it is the popular meaning which has to be followed it - It is also well settled that exemptions under taxing statutes must be strictly construed . This is a case of depreciation and there is no definition for either welfare centre or hospital Hospitals can not be treated as par with welfare centre benefit of higher depreciation is not allowed.

Summary

Issues:
1. Interpretation of the term "welfare centre" under the Income-tax Act for the purpose of claiming depreciation on furniture and fittings in a hospital.

Analysis:
The case involved a hospital claiming depreciation on furniture and fittings at a rate of 15% under the Income-tax Act. The Commissioner of Income-tax (Appeals) and the Tribunal supported the hospital's claim, considering hospitals as "welfare centres" eligible for the higher depreciation rate. The Revenue challenged this decision, arguing that the term "welfare centre" does not inherently include hospitals. The key question raised was whether the hospital could be classified as a "welfare centre" under the relevant provisions of the Income-tax Rules.

The Revenue's counsel contended that the section in question, Section 32(1)(iv) of the Income-tax Act, did not explicitly define "welfare centre" to include hospitals. Referring to a previous judgment by the Kerala High Court, the counsel argued against considering hospitals as welfare centres for the purpose of depreciation. The Kerala High Court had reasoned that a hospital, being primarily for the sick, does not align with the common understanding of a welfare centre meant for the well-being of the community.

Further examination of the relevant provisions in the Income-tax Act revealed that the term "welfare centre" was not explicitly defined to include hospitals. The Act also specifically mentioned hospitals and medical institutions in other sections, indicating a separate treatment for these entities. The court also cited the principle of strict construction of exemptions under taxing statutes and emphasized the importance of interpreting terms based on their common understanding in commercial circles.

In light of the above analysis, the court sided with the Revenue's interpretation and ruled in their favor. The court concluded that hospitals should not be considered as "welfare centres" for the purpose of claiming higher depreciation rates on furniture and fittings. Despite recognizing the potential discrepancy in depreciation rates for different establishments, the court upheld the strict interpretation of the relevant provisions and decided in favor of the Revenue. As a result, the tax case appeals were allowed in favor of the Revenue.