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TMI Blog2012 (12) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... ression “industrial undertaking” in the context of the Income Tax Act and not in the context of the Industrial Disputes Act and, if so read, it is clear that the activity should be of production of any article or thing and any activity which primarily concerns production of any article or thing would fall in the category of industrial undertaking…… - the report of patients coming from the CT scan machine did not amount to manufacture or production of article or thing and therefore, one of the basic tests laid down in CIT v Shaan Finance Pvt. Ltd (1998 (3) TMI 8 - SUPREME COURT) is not satisfied The unit or undertaking must engage in production of an article or thing – be it in the context of Section 32A or Section 10 (15). Such consideration is equally important and relevant for applicability of Section 80-IA by virtue of Sub-section (2) (iii) of that provision. What emerges from all these decisions, and the relevant provisions – i.e. Sections 80-IA and 33-B that the unit or activity is deemed an industrial undertaking, if it is involved in production of goods or articles - as in the present case there is no change of the article, the intention of the service provider is not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act which found that during the accounting year relevant to assessment year under consideration, the assessee established a new MRI unit and had claimed a deduction under Section 80-IA of the Income Tax Act, ( the Act ) at Rs..6,18,205/- and the deduction, as it existed then could be granted where the gross income of the assessee included any profits or gains derived from an industrial undertaking or a hotel etc manufacturing or producing any article or a thing not being the article or thing specified in the list in the Eleventh Schedule. 3. On 22.03.2002, a fresh assessment order was made by Assessing Officer under Sections 143/ 263 of the Act which disallowed the benefit of deduction under section 80-IA of the Act. The ITAT passed an order on 26.10.2004 which confirmed the order of the CIT and held that the Appeal of the Department was infructuous in view of the order of the ITAT dated 16.08.2002. 4. The Assessee filed its return of income for the assessment year 1999- 2000 on 24.12.1999 declaring an income of Rs.4065110 and same was assessed under the provision of section 143(3) of the IT Act 1961. On 22.03.2002, the Assessing Officer (A.O.) passed an Assessment order wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: Explanation.--For the purposes of this sub-clause, the expression 'industrial undertaking' means any undertaking which is engaged in- (a) the manufacture or processing of goods ; or (b) the business of generation or distribution of electricity or any other form of power ; or (c) mining ; or (d) the construction of ships ; or (e) the operation of ships or aircrafts ; The learned single judge held: If a medical diagnostic centre were to be classed as an industrial undertaking processing goods being the films within the meaning of the above Explanation, it would become grouped with such other organisations as are concerned with mining, construction of ships, etc. This would appear to be an unnatural construction of the words "processing of goods". Secondly, as emphasised by the Board, the films which are claimed to be the processed goods are not themselves sold to outsiders. It is indeed a weird case of processing of goods undertaken by an industrial undertaking when none of the processed goods is sold to anybody at all. Thirdly, the purpose of the above relief is obviously to permit industrial undertakings to engage with relief in the activity of manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. But, first of all, it must be an industrial undertaking before the deeming provision with regard to the financial limits can be invoked. In other words, if a unit is not an industrial undertaking then, even if it fulfils the financial requirements, it cannot be deemed to be a small scale industrial undertaking. Therefore, what is to be first seen is whether a unit is an industrial undertaking or not. If the answer is in the negative then the deeming provision cannot be invoked. In our opinion, 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. If so understood, it cannot be said by any stretch of imagination or by the use of common English language, that a hospital or a clinic or a diagnostic centre or any such unit is an industrial undertaking. It may be that a machine or a plant within a clinic or a hospital or a diagnostic centre may manufacture or produce an article or thing; but that would not convert a clinic or a hospital or a diagnostic centre into an industrial undertaking. The unit must first be an industrial unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be produced as a result of such activity was covered by the expression "article" or "thing". It was held by the Calcutta High Court that it does amount to manufacture or production and the question was answered in favour of the assessee. 9. The assessee had placed heavy reliance on the decision reported as CIT v. Peerless Consultancy (P) Ltd 186 ITR 609. The Court had noticed a previous ruling of the Karnataka High Court, and held as follows: In support of the contention that the business activity of the assessee is industrial in nature, reliance has been placed on a decision of the Karnataka High Court in the case of CIT v. Datacons (P.) Ltd. [1985] 155 ITR 66, where it was held that the term "industrial company" has been described as including a company engaged in the processing of goods. The word "processing" has not been defined and, therefore, it must be interpreted according to the dictionary meaning according to which, where commodity is subjected to a process or treatment with a view to its development or preparation for the market, as for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity. The nature and exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Master Media), blank/unrecorded Compact Disc also known as recordable media and printing software / labels. The Master Media is subjected to a validation and checking process by software engineers by installing and rechecking the integrity of the Master Media with the help of the software installed in the fully operational computer. After such validation and checking of the Master Media, the same is inserted in a machine which is called as the CD Blaster and a virtual image of the software in the Master Media is thereafter created in its internal storage device. This virtual image is utilized to replicate the software on the recordable media. 9. What is virtual image? It is an image that is stored in computer memory but it is too large to be shown on the screen. Therefore, scrolling and panning are used to bring the unseen portions of the image into view. [See Microsoft Computer Dictionary, Fifth Edition, page 553] According to the same Dictionary, burning is a process involved in writing of a data electronically into a programmable read only memory (PROM) chip by using a special programming device known as a PROM programmer, PROM blower, or PROM blaster. [See Pages 64, 77 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1957. It was held that a software programme may consist of commands which enable the computer to perform a designated task. The copyright in the programme may remain with the originator of the programme. But, the moment copies are made and marketed, they become goods. It was held that even an intellectual property, once put on to a media, whether it will be in the form of computer discs or cassettes and marketed, it becomes goods. It was further held that there is no difference between a sale of a software programme on a CD/ Floppy from a sale of music on a cassette/ CD. In all such cases the intellectual property is incorporated on a media for purposes of transfer and, therefore, the software and the media cannot be split up. It was further held, in that judgment, that even though the intellectual process is embodied in a media, the logic or the intelligence of the programme remains an intangible property. It was further held that when one buys a software programme, one buys not the original but a copy. It was further held that it is the duplicate copy which is read into the buyer's computer and copied on memory device. [See Pages 630 and 631 of the said judgment] If one reads the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y :- (i) It is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: Provided that the condition in this clause shall, in relation to a small-scale industrial undertaking, or an industrial undertaking referred to in sub-clause (b) of clause (iv) which begins to manufacture or produce an article or thing during the period beginning on the 1st day of April, 1993 and ending on 31st day of March, 1998 apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking ; it posits that the unit should be an undertaking which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. The articles listed out in the Eleventh Schedule are: 1. Beer, wine and other alcoholic spirits. 2. Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff. 3. Cosmetics and toilet preparations. 4. Tooth paste, dental cream, tooth powder and soap. 5. Aerated waters in the manufacture of which blended flavouring concentrates in any form are used. Explanation. Blended flavouring concentrates shall include, and shall be deemed always to have included, synthetic essences in any form. 6. Confectionery and chocolates. 7. Gramophones, including record-players and gramophone records. 8. 9. Projectors. 10. Photographic apparatus and goods. 11-21. 22. Office machines and apparatus such as typewriters, calculating machines, cash registering machines, cheque writing machines, intercom machines a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputes Act and, if so read, it is clear that the activity should be of production of any article or thing and any activity which primarily concerns production of any article or thing would fall in the category of industrial undertaking .In the present case, the report of patients coming from the CT scan machine did not amount to manufacture or production of article or thing and therefore, one of the basic tests laid down in CIT v Shaan Finance Pvt. Ltd 1998 (231) ITR 308 (SC) is not satisfied . 14. The common thread or refrain in these decisions, whether of this Court, or the Bombay or the Calcutta High Court is the emphasis on the statutory condition that the unit or undertaking must engage in production of an article or thing be it in the context of Section 32A or Section 10 (15). Such consideration is equally important and relevant for applicability of Section 80-IA by virtue of Sub-section (2) (iii) of that provision. No doubt, Section 33-B facially is cast in wider terms since it talks of processing. Yet, that activity is not unqualified; it is processing of goods . What emerges from all these decisions, and the relevant provisions i.e. Sections 80-IA and 33-B is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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