2000 (11) TMI 313 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to investment allowance under section 32A for machinery installed in a Diagnostic Centre.
2. Classification of the activity carried on by the assessee as a business or profession.
3. Determination of whether the Diagnostic Centre qualifies as an industrial undertaking.
4. Disallowance of expenses incurred on the inauguration of the Diagnostic Centre.

Issue-wise Detailed Analysis:

1. Entitlement to Investment Allowance:
The primary issue in the appeal was whether the assessee was entitled to an investment allowance under section 32A for machinery installed in a Diagnostic Centre. The assessee, a private limited company, installed a CT Scanner and claimed the investment allowance on its cost. The Assessing Officer rejected the claim, arguing that the assessee was engaged in a profession, not a business, and that the activity did not amount to manufacturing or production. The CIT(A) allowed the claim, holding that the activity amounted to manufacturing and that the term 'business' included professions. The Tribunal ultimately concluded that the Diagnostic Centre did not qualify as an industrial undertaking and thus was not entitled to the investment allowance.

2. Classification as Business or Profession:
The Tribunal examined whether the activity carried on by the assessee was a business or a profession. The assessee argued that its activity had all the characteristics of a business, including investment, employment of staff, and organized operations. The Tribunal agreed, noting that the venture was commercial, systematic, and profit-oriented. Therefore, the Tribunal held that the Diagnostic Centre's activity amounted to a business activity.

3. Qualification as an Industrial Undertaking:
The Tribunal considered whether the Diagnostic Centre could be classified as an industrial undertaking. It noted that for claiming investment allowance under section 32A, the machinery must be installed in an industrial undertaking. The Tribunal referred to case laws and concluded that the primary purpose of the Diagnostic Centre was to diagnose diseases, not to manufacture or produce any article or thing. It emphasized that the activity was service-oriented, and taking photographs of the human body was ancillary. The Tribunal held that the Diagnostic Centre did not qualify as an industrial undertaking in common parlance and thus was not entitled to the investment allowance.

4. Disallowance of Inauguration Expenses:
The Tribunal addressed the disallowance of Rs. 65,550 incurred on the inauguration of the Diagnostic Centre. The Assessing Officer considered these expenses as entertainment expenses. The CIT(A) partially agreed, stating that not all expenses were on food and beverages and that the staff also participated. The CIT(A) directed a 50% disallowance of such expenses, subject to a deduction of Rs. 5,000 as per section 37(2A). The Tribunal upheld the CIT(A)'s order, finding no error in the decision.

Conclusion:
The Tribunal concluded that the Diagnostic Centre did not qualify as an industrial undertaking and thus was not entitled to the investment allowance under section 32A. It also upheld the partial disallowance of inauguration expenses. The appeal of the Revenue was partly allowed.