Allahabad High Court
Commissioner Of Income Tax vs Shri R.M. Malhotra, Pro. Malhotra ... on 30 September, 2005
Equivalent citations: (2006)203CTR(ALL)498, [2006]283ITR181(ALL)
Author: Prakash Krishna
Bench: R.K. Agrawal, Prakash Krishna
JUDGMENT Prakash Krishna, J.
1. The Income Tax Appellate Tribunal, New Delhi has referred the following question of law under Section 256(1) of the Income Tax Act 1961, (hereinafter referred to as the Act) for opinion to this Court :-
"Whether on facts and circumstances of the case, the Appellate Tribunal was legally correct in granting investment allowance to the assessee?"
2. The dispute relates to the assessment year 1984-85. The assessee, who is an individual, carries on proprietary business in the name of M/s Malhotra Nursing & Maternity Home. The assessee's claim of investment allowance with reference to ultra sound machine equipment shown by the name of Echoscan which is a scanner specially intended for obstetrics and gynaecology was disallowed by the assessing officer. By means of the scanner an image is got on the screen for various purposes relating to the assessment of pregnancy, control of foetus, heart activity, foetus positioning, foetal sex assessment, foetal malformations, biometry etc. The claim of the investment allowance was disallowed by the I.T.O., on the ground that the aforesaid equipment could not be said to be productive of "article" or "thing." In Appeal, the Commissioner of Income Tax (Appeals) accepted the fact that echo scanning equipment in question produces an echo graph, which is like an x-ray machine. Consequently, it directed the Income Tax Officer to verify other conditions prescribed under Section 32A like creation of reserve etc. and to grant investment allowance accordingly. The Tribunal has upheld the order of the first appellate authority.
3. Heard Sri Shambhu Chopra, learned Standing Counsel for the department and Sri R.R. Kapoor and Sri Krishna Agrawal learned counsels for the assessee/respondent.
4. Learned counsel for the assessee/respondent has placed reliance upon certain decisions in support of his contention that the echo scanning equipment produced a echo graph and on such machine the investment allowance is allowable. In , CIT v. V.K. Ram Chandran, the Madras High Court has held that allowability of development rebate on x-ray machine is a debatable point and can not be subject matter of rectification proceedings under Section 154 of the Income Tax Act. In Commissioner of Income Tax v. Trinity Hospital it has been held that for rendering an efficient medical services to the patients investment allowance is allowable on various machines installed by the Hospital including (i) x-ray (ii) ultra sound scanner/ultra sonographic machine (iii) foetal monitor and (iv) air conditioning equipments to ensure proper working of these machines. It has been held that the machines and equipments can legally be called machinery or plant installed in small scale industrial undertakings for the purpose of manufacture and production of an "article" or "thing" as provided in Section 32A(2)(b)(ii) read with Section 32A(1) of the Act. The Court has taken into consideration the functions, purposes and uses of these machines in the business activities of the Hospital. Ultra sound scanner/ultra sonographic machine is an instrument, with a TV monitoring set and a computer and works on sound waves, picture of abdominal organs (liver, gall bladder, pancreas, kidney, uterus etc.) and photographs are obtained, which are extremely useful for diagnostic purposes. These machines produces the photos, pictures and graphs. Thus it is wrong to say that these machines do not produce any "article" or "thing". A similar view has been taken by the Kerala High Court in CIT v. Upcome Cables Ltd., 225 ITR 845. It has been held that investment allowance is allowable in respect of x-ray machine and accessories, ICCU and ECG equipments.
5. In Commissioner of Income Tax v. Dr. S. Surender Reddy it has been held that by putting the X-ray film into the X-ray machine a different article is produced. What was produced by the X-ray machine was a different article from the film and was, therefore, entitled for investment allowance.
6. In Commissioner of Income Tax v. M.L. Agarwala (2002) 258 ITR 102 the Gauhati High Court has held that the assessee who was a qualified radiologist engaged in the business of X-ray diagnosis is entitled for investment allowance in respect of ultra sound, medical electronic equipment. To arrive at the aforesaid conclusion the Gauhati High Court has placed reliance upon the decision of the Rajasthan High Court in the case of Trinity Hospital (supra), B.K. Ramchandran (supra) of Madras High Court. In CIT v. Air Survey Co. of India (P.) Ltd., , the assessee was a Air Survey Company engaged in the business of survey, mapping, Arial photograph and aero magnetic photography. Its claim for investment allowance under Section 32A of the Act in respect of Air Craft, Radio purchase was held to be admissible as the use of Air Craft Radio. The aforesaid business would fall within the purview of the expression "manufacture" and "production" and the ultimate photograph which came to produced as a result of such activities covered by the expression "article" or "thing."
7. The Kerala High Court in the case of Mar Gregorious Memorial Muthoot Medical Centre v. Commissioner of Income Tax, has held that although a Hospital as such could not manufacture or produce any article or thing by separate industrial undertakings, since the hospital could not manufacture and produce various products for the benefits of their patients or else the patient had to go out side and get materials like X-ray, scanning reports etc, the assessee was entitled to get investment allowance in respect of hospital equipment and other laboratory equipments.
8. A similar view has been taken by Gujarat High Court in the case of Commissioner of Income Tax v. Professional Information Systems And Management, and has held that data processing through computer amounts production of article.
9. In Commissioner of Income Tax v. Venkateshwara 237 ITR 174, the Supreme Court has held that the assessee who is running hatcheries where eggs are hatched on a large scale by adopting latest scientific technological methods is not entitled for development allowance under Section 32A on the ground that the assessee does not contribute to the formation of chicks. The formation of chicks is a natural and biological process over which the assessee has no hand or control. The only difference seems to be that by the application of mechanical method, mortality rate of chicks is less and assessee may get chicks more in number, this however, would not mean when the assessee produced the chicks and the chicks are "articles or things". This case has no application to the controversy involved in the present case, in as much as the ultra sound machine equipment etc. do produce photographs.
10. The Supreme Court in the case of Associated Cement Companies Ltd. v. Commissioner of Customs, has held that in a case under Customs Act that drawing plans, manuals, computer discs and cassettes containing information technology or ideas for constructions of Hotels and resorts are goods and exigible to duty.
11. Thus, in view of the aforesaid discussions it is not possible to say that the pictures etc. produced by these machines for diagnostic purposes is not an article or thing.
12. Respectfully following the aforesaid decisions we are of the opinion that the view taken by the Tribunal is perfectly justified. We, therefore, answer the question referred to us in the affirmative i.e. in favour of the assessee and against the department/Revenue. There shall be no order as to costs.