2005 (9) TMI 43 - HC - Income Tax

Investment allowance - Supreme Court in the case of Associated Cement Companies Ltd. v. Commissioner of Customs 2001 (1) TMI 248 - Supreme court of India has held in a case under the Customs Act that drawing plans, manuals, computer discs and cassettes containing information technology or ideas for construction of hotels and resorts are goods and exigible to duty. Thus in view of the aforesaid discussion it is not possible to say that the pictures, etc., produced by these machines for diagnostic purposes are not an article or thing. Respectfully following the aforesaid decisions Tribunal was legally correct in granting investment allowance to the assessee

Summary

Issues involved:
Whether investment allowance can be granted to the assessee for the ultra sound machine equipment used in the business activities.

Analysis:
The dispute in this case revolves around the claim of investment allowance by the assessee for an ultra sound machine equipment named Echoscan used in the business of a nursing and maternity home. The Income-tax Officer initially disallowed the claim, stating that the equipment did not produce any "article" or "thing." However, the Commissioner of Income-tax (Appeals) acknowledged that the equipment produced an echograph similar to an X-ray machine and directed the Income-tax Officer to verify other conditions under section 32A of the Income-tax Act. The Tribunal upheld the decision of the first appellate authority, leading to the reference of the question of law to the High Court.

The counsel for the assessee relied on various judicial decisions to support the contention that investment allowance should be granted for machines like ultra sound scanners in medical facilities. The decisions highlighted the importance of such equipment in providing efficient medical services and considered them as machinery or plant for the production of an "article" or "thing" as per the relevant sections of the Income-tax Act. The courts emphasized the functions and uses of these machines in medical activities, such as obtaining images for diagnostic purposes, which qualify as producing an "article" or "thing."

Several High Courts, including Madras, Rajasthan, Kerala, and Gauhati, have previously ruled in favor of granting investment allowance for medical equipment like ultra sound machines and X-ray equipment. These judgments emphasized that the products, images, or reports generated by these machines constitute tangible outputs qualifying as "articles" or "things" under the Income-tax Act. The courts considered the technological advancements and diagnostic capabilities of these machines as crucial factors in determining their eligibility for investment allowance.

Additionally, the High Court referred to cases where investment allowance was granted for equipment used in diverse businesses like air survey, data processing through computers, and construction of hotels and resorts. These cases established a broad interpretation of what constitutes an "article" or "thing" under the Income-tax Act, encompassing a wide range of tangible outputs and products resulting from various business activities.

In conclusion, the High Court, after thorough consideration of the legal precedents and arguments presented, upheld the decision of the Tribunal to grant investment allowance to the assessee for the ultra sound machine equipment. The court deemed the products generated by the equipment as qualifying under the definition of an "article" or "thing," in line with the provisions of the Income-tax Act. The judgment favored the assessee, emphasizing the importance of technological advancements and the tangible outputs produced by modern medical equipment in qualifying for investment allowances.