2008 (4) TMI 32 - HC - Income Tax

Deduction u/s 32A - Investment Allowance - Assessee is a practicing Radiologist and he had installed an X-ray machine on which he claimed a deduction by way of an investment allowance under Section 32A - The expression industrial undertaking is to be used in the context in which it is used in the Income Tax Act and not in the context in which it is used in other laws such as the Industrial Disputes Act - The order of ITAT allowing deduction u/s 32A reversed.

Summary

Issues: Whether the Assessee is entitled to an investment allowance under Section 32A of the Income Tax Act for installing an X-ray machine in a clinic.

Analysis:
1. Facts and Background: The Assessee, a practicing Radiologist, installed an X-ray machine in his clinic and claimed a deduction under Section 32A of the Income Tax Act. The deduction was disallowed by the Assessing Officer and the Commissioner of Income Tax (Appeals), leading to the case being referred to the High Court.

2. Legal Provisions: Section 32(A)(1) of the Act allows an Assessee to claim a deduction for machinery or plant owned by them and wholly used for the business. Section 32A(2) specifies that new machinery installed in a small-scale industrial undertaking for manufacturing or production purposes is eligible for the deduction.

3. Judicial Precedents: Various High Courts have dealt with similar cases. The Rajasthan High Court, Kerala High Court, Andhra Pradesh High Court, Gauhati High Court, Madras High Court, and Gujarat High Court have all held that certain medical equipment in clinics or hospitals can be considered as part of a small-scale industrial undertaking and qualify for the investment allowance.

4. Primary Condition: The key issue is whether a clinic or a diagnostic center can be classified as an industrial undertaking. The High Court emphasized that the term "industrial undertaking" in the Income Tax Act should be interpreted within the Act's context, not in the context of other laws like the Industrial Disputes Act.

5. Decision: The High Court agreed with the Bombay High Court's view that a clinic or diagnostic center does not qualify as an industrial undertaking under the Income Tax Act. Therefore, even if the X-ray machine produces an article, since the primary condition of being an industrial undertaking is not met, the Assessee is not entitled to the investment allowance.

6. Conclusion: The High Court answered the referred question of law in the negative, favoring the Revenue and against the Assessee. The reference was disposed of, and appreciation was extended to the assisting advocate.

This detailed analysis of the judgment underlines the interpretation of relevant legal provisions and judicial precedents to determine the eligibility of the Assessee for an investment allowance under Section 32A of the Income Tax Act for installing an X-ray machine in a clinic.