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2001 DIGILAW 221 (GAU)

Commissioner of Income Tax v. Down Town Hospital

2001-08-09

A.K.PATNAIK, J.N.SARMA

body2001
A. K. Patnaik, J.- This is an appeal under section 260 A of the Income Tax Act, 1961, (herein after referred to as the Act, 1961). 2. The respondent herein carries on the business of a Hospital. For the assessment year 1994-95, the respondent claimed a deduction under section 80HH and section 80-1 of the Act, 1961, amounting to Rs. 14,85,3 87. The Assessing Officer, namely, the Deputy Commissioner of Income Tax (Assessment), Special Range 1, Guwahati, in his assessment order under section 143 (3) of the Act, 1961, dated 5.3.1997 held that since the assessee company was not an industrial undertaking, it was not eligible for deduction under sections 80HH and 80-1 of the Act, 1961. Against the said order of assessment, the respondent filed an appeal before the Commissioner of Income Tax (Appeals), Guwahati. The Commissioner of Income Tax (Appeals) held that the issue as to whether the respondent was entitled to deduction under sections 80HH and 80-1 of the Act, 1961, had been decided by him in favour of the respondent by order dated 8.5.1998 in Appeal No.Guwa-101/96-97 relating to assessment year 1993-94 and since a the facts for the assessment year 1994-95 where identical, the Commissioner held following his earlier decision that the respondent was an industrial undertaking and directed the Assessing Officer to allow relief as per the provisions of sections 80HH and 80-1 of the Act, 1961. Aggrieved by the said order of the Commissioner of Income Tax (Appeals), the Income Tax Department went up in appeal before the Income Tax Appellate Tribunal, Guwahati Bench. The Income Tax Appellate Tribunal observed in its order dated 17.8.2000 that running of a hospital by the assessee was an industrial undertaking following the decision of the Kerala High Court in the case of CIT vs. Upasana Hospital, (1997) 225 ITR 845, the decision of the Raj as than High Court in the case of CIT vs. Trinity Hospital, (1997) 225 ITR 178, and also the decision of the Apex Court in CIT vs. Dr. B. Venkata Rao, (2000) 243 ITR 81, and accordingly, rejected the appeal of the Department. Aggrieved by the said order of the Appellate Tribunal, the Department has filed this appeal under section 260A of the Act, 1961. 3. At the time of admission of this appeal, this Court by order dated 19.1.2001 formulated the following substantial questions of law: "1. B. Venkata Rao, (2000) 243 ITR 81, and accordingly, rejected the appeal of the Department. Aggrieved by the said order of the Appellate Tribunal, the Department has filed this appeal under section 260A of the Act, 1961. 3. At the time of admission of this appeal, this Court by order dated 19.1.2001 formulated the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the CIT (A) directing to allow the deduction under section 80-1 of the Income Tax Act, 1961 ? 2. Whether on the facts and in the circumstances of the case, the Tribunal did not err in relying upon the order of the Hon'ble Supreme Court reported in 243 ITR 81 when the issue dealt with by the Apex Court in the said decision did not relate to the application of sections 80HH and 80-1 of the Income Tax Act, 1961 ? 3. Whether on the facts and in the circumstances of the case, the CIT (A) and the Tribunal were justified and correct in law in holding the assessee to be an industrial I undertaking and entitled to claim deduction under sections 80HH and 80-I of the Income Tax Act, 1961?" 4. At the time of hearing of this appeal, Mr. U. Bhuyan, learned counsel appearing for the Income Tax Department, submitted that the decision of the Supreme Court in the case of CIT vs. Dr. B. Venkata Rao (supra) was not under sections 80HH and 80-1 of the Act, 1961, but was under section 32 of the Act. The Supreme Court held in that case that as the building or structure constituted an apparatus of the nursing home of the assessee in that case and means of such apparatus the business activities were carried on, it amounted to a plant. Mr. Bhuyan submitted that in the said decision of the Supreme Court, the Supreme Court nowhere held that hospital is an industrial undertaking and, therefore, the said decision is of no relevance to the present case and is not applicable for the purpose of deciding whether or not a hospital is an industrial undertaking for grant of relief under sections 80HH and 80-1 of the Act, 1961. Mr. Mr. Bhuyan further submitted that the decisions of Rajasthan High Court in the case of CIT vs. Trinity Hospital (supra) and the Kerala High Court in the case of CIT vs. Upasana Hospital (supra) on which great reliance has been placed by the Tribunal in the order under appeal were also the decisions under section 32A of the Act, 1961 and, therefore, were not applicable for the purpose of determining whether relief under sections 80HH and 80-1 of the Act was available to hospitals. Mr. Bhuyan referred to the bare provisions of section 80HH and in particular sub-section (2) thereof to show that the section applies only to an industrial undertaking in backward area in which activities of manufacture and producing of articles take place. He also referred to the similar provisions in sub-section (2) of section 80-1 of the Act, 1% 1, to show that the said section is also applicable to an industrial undertaking in which activities of manufacture or producing of articles take place, and not otherwise. Mr. Bhuyan contended that since no article or thing is produced or manufactured in the hospital of the respondent-assessee, the hospital of the respondent-assessee cannot be considered to be an industrial undertaking, and the provisions of sections 80HH and 80-1 of the Act, 1961, are not applicable to such hospital. He further argued that if the intention of the Legislature was to make the provisions of section 80HH applicable to hospitals, then a provision would have been made therein as has been done in the case of Hotels expressly stating that the provisions of the said section 80HH would also be applicable to hospitals besides industrial undertakings and hotels. But no such provision has been made in section 80HH of the Act, 1961. 5. Mr. GN Sahewalla, learned counsel appearing for the respondent-assessee, on the other hand, relied on the aforesaid decision of the Supreme Court in the case of Dr. B. Venkta Rao (supra), and submitted that if it has been held therein that the building of the nursing home was a plant within the meaning of section 32 of the Act, the nursing home or the hospital should be treated as an industrial undertaking for the purpose of relief under sections 80HH and 80-1 of the Act, 1961. B. Venkta Rao (supra), and submitted that if it has been held therein that the building of the nursing home was a plant within the meaning of section 32 of the Act, the nursing home or the hospital should be treated as an industrial undertaking for the purpose of relief under sections 80HH and 80-1 of the Act, 1961. He also relied on the decisions of the Rajasthan High Court in Trinity Hospital (supra) and the Kerala High Court in Upasaaa Hospital (supra) and the decision of a Division Bench of this Court in Commissioner of Income Tax vs. ML Agarwalla, 1999 (2) GLT 159 (1999 (2) GLJ 450), in which the Court has held that nursing homes or hospitals are entitled to investment allowance under section 32A of the Act. He referred to the provisions of section 32A and in particular sub-section (2) thereof which provides that deduction shall be allowed under sub-section (1) in respect of machinery or plant installed in a small scale industrial undertaking for the purposes of business of manufacture or production of any article or thing. 6. We have perused the aforesaid decisions of the Supreme Court and different High Courts relied on by the Tribunal as well as the learned counsel for the respondent-assessee. In the case of Dr. B. Venkata Rao (supra), the question for consideration was whether building used as a nursing home was to be treated as a plant for the purpose of determining the depreciation that was allowable on such building, and the Supreme Court held that since the building was used not only to house patients and nurse them, but also to treat them, for which various kinds of equipment and instruments were installed, such building or nursing home was a plant and would be entitled to depreciation as such plant under section 32 of the Act. In the said decision of the Supreme Court, there is no discussion on the point as to whether a hospital or nursing home is an industrial undertaking. Hence, the said decision is of no assistance for the respondent-assessee in deciding the questions to whether a nursing home or a hospital is an industrial undertaking for the purpose of relief under section 80HH and section 80-1 of the Act, 1961. Hence, the said decision is of no assistance for the respondent-assessee in deciding the questions to whether a nursing home or a hospital is an industrial undertaking for the purpose of relief under section 80HH and section 80-1 of the Act, 1961. In Trinity Hospital (supra), the question for decision was whether investment allowance could be allowed on machines and equipments (X-ray machines, ultrasound scanner, foetal monitor and air-conditioning equipment) installed in a nursing home under section 32A of the Act, and the Rajasthan High Court decided the question in favour of the assessee and against the Department by holding ^ that the Tribunal was justified in directing that the investment allowance maybe allowed on the X-ray machine, ultra-sound scanner, foetal monitor and the air-conditioning equipment under section 32A (2) (b) (ii) read with section 32A (1) of the Act, 1961. Similarly, in the case of Upasana Hospital (supra), the question for decision before the Kerala High Court was whether the assessee firm was entitled to investment allowance under section 32 A of the Act, 1961 in respect c of X-ray plant, ICCU and ECG equipment, and the Kerala High Court decided the said question in favour of the assessee and against the Revenue by holding mat when raw X-ray film is exposed and processed, the resulting X-ray photograph is a production of a new article or thing, and the article produced is a distinct and different article from raw film, and that the assessee's unit of X-ray machine and accessories is a small-scale industrial undertaking for the production of X-ray photographs coming within the ambit of section 32A (2) (b) (ii) of the Act, 1961. Similarly, in the case of ML Agarwalla (supra), the question before the Division Bench of this Court was whether the assessee in that case was entitled to investment allowance under section 32A of the Act, 1961, in respect of ultrasound medical diagnostic electrical equipment, air-conditioner and serve voltage stabiliser, and the Division Bench has held that a special type of film or material is to be fed which is obviously blank, but after the processing it is obtained with the photographs/prints of the organs and the data related to such organs, and that such product is not the same thing, as fed into the machine as raw material, and, therefore, the Deputy Commissioner of Income Tax (Appeals) was right in allowing investment allowance in respect of ultrasound medical diagnostic electrical equipment. But from the reading of the facts of the present case as determined finally by the Appellate Tribunal, we do not find that deduction under section 80HH and section 80-1 of the Act, 1961, is claimed in respect of any particular machine, such as X-ray machine, ultrasound medical diagnostic electrical equipment, foetal monitor, etc and the claim of deduction by the assessee-respondent under section 80HH and section 80-1 of the Act. 1961, is generally in respect of the entire hospital of the respondent-assessee. In the absence of clear finding on materials to show that any new article or thing is manufactured or produced out of some raw materials, it is difficult to hold that the respondent-assessee is an industrial undertaking entitled to relief under sections 80HH and 80-1 of the Act, 1961. Sub-section (2) of section 80HH expressly states that section 80HH applies to any industrial undertaking which fulfils all the conditions mentioned therein and one of the conditions mentioned therein is that it has begun or begins to manufacture or produce articles after the date mentioned therein in any backward area. Thus, unless a clear finding is recorded by the Tribunal on the materials before it that some articles were manufactured or produced in the hospital of the respondent-assessee, in our considered opinion, reliefs under section 80HH of the Act, 1961, cannot be granted to the respondent-assessee. Similarly,, sub-section (2) of section 80-1 also provides that the section applies to any industrial undertaking which fulfils all the conditions mentioned therein, and one of the conditions mentioned therein is that it manufacturers or produces any article or thing. Similarly,, sub-section (2) of section 80-1 also provides that the section applies to any industrial undertaking which fulfils all the conditions mentioned therein, and one of the conditions mentioned therein is that it manufacturers or produces any article or thing. Unless therefore a clear finding is recorded by the Tribunal that the respondent-assessee was producing or manufacturing any article or thing in its hospital, in our considered opinion, the respondent-assessee cannot be held to be entitled to deduction under section 80-1 of the Act, 1961. 7. In this context, we would like to refer to the decision of the Supreme Court in Union of India vs. Delhi Cloth and General Mills, AIR 1963 SC 791 , in which the Supreme Court discussed at length the authorities on the point of what amounted to 'manufacture' and cited Permanent Edition of Words and Phrases, Vol 26, from an American judgment, the following passage: "Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use." Similarly, in Allenbury Engineers vs. Ramkrishna Dalmia, (1973) 1 SC0C 7, the Supreme Court after discussing at length the meaning of the expression 'manufacture' including the aforesaid passage from the Permanent Edition of Words and Phrases, Vol. 26, and the decision of the Supreme Court in Union of India vs. Delhi Cloth and General Mills (supra), held : "....The expression 'manufacturing purposes' in section 106, thus, means purposes for making or fabricating articles or materials by physical labour, or skill, or by mechanical power, vendible and useful as such. 26, and the decision of the Supreme Court in Union of India vs. Delhi Cloth and General Mills (supra), held : "....The expression 'manufacturing purposes' in section 106, thus, means purposes for making or fabricating articles or materials by physical labour, or skill, or by mechanical power, vendible and useful as such. Such making or fabricating does not mean merely a change in an already existing article or material, but transforming it into a different article or material having a distinctive name, character or use or fabricating a previously known article by a noval process." Again, in Deputy Commissioner of Sales Tax vs. Pio Food Packers, (1980) 46 STC 63 , the Supreme Court took note of the aforesaid meaning of the word 'manufacture' as laid down by judicial authorities and made a distinction between 'processing' and 'manufacture' and held that although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it and, therefore, the activity of cutting pineapple into slices and putting the same in sealed cans does not amount to manufacture but may amount to processing. In Sati Prasanna Mukherjee vs. Md Fazel, AIR 1952 Calcutta 320, the Calcutta High Court examined the word 'manufacture' occurring in section 106 of the Transfer of Property Act, and held : "The word 'manufacture' must in this context in my opinion be construed in a popular sense. The popular concept is that there must be production of a new or a different article or the process must be such as converts one kind of article into another kind..." The aforesaid decision of the Calcutta High Court succinctly defines the word 'manufacture' with which we respectively agree. 8. In view of the aforesaid authorities on the question as to what amounts to 'manufacture' of an article, a finding has to be recorded on the basis of the materials by the Tribunal that the activities carried on in the hospital of the respondent-assessee are or are not of the nature as described in the aforesaid decisions, and amount or do not amount to manufacture for the purpose of deciding whemer an assessee was entitled to relief under section 80HH and section 80-1 of the Act, 1961. In CIT vs. NC Budharaja & Co, (1993) 204 ITR 412 , the question before the Supreme Court was as to whemer the assessee in that case was entitled to relief under section 80HH of the Act, 1961 in respect of its activity of construction of a Dam, and the Supreme Court referred to the provision of sub-section (2) of section 80HH of the Act, and after considering the judicial pronouncements on the meaning of the word 'manufacture' held that a Dam was constructed, it was not manufactured or produced and, therefore, the assessee was not entitled to the relief under section 80HH of the Act, 1961. The Supreme " Court in particular held: "It may be that the respondent is himself manufacturing some of the articles like gates, windows and doors which go into the construction of a dam but that makes little difference to the principle. The petitioner is not claiming the deduction provided by section 80HH on the value of the said manufactured articles but on the total value of the dam as such. In such a situation, it is immaterial whether the manufactured articles which go into the construction of a dam are manufactured by him or purchased by him from another person. We need not express any opinion on the question what would be the position if the respondent had claimed die benefit of section 80HH on the value of the articles manufactured or produced by him which articles have gone into/consumed in the construction of the dam." In the present case also as we have already indicated mat the respondent-assessee is not claiming deduction under section 80HH and section 80-1 of the Act, 1961, for undertaking manufacture of article in its X-ray and other diagnostic machines, but is claiming deduction generally in respect of the entire hospital or nursing home under sections 80HH and 80-1 of the Act, 1961, and as we have held that in the absence of a finding by the Tribunal on the materials before it that & the activities carried on in the hospital or nursing home of the respondent-assessee amount to manufacture or production of any article, the order of the Tribunal to the effect mat the respondent-assessee is not entitled to relief under sections 80HH and 80-1 of the Act, 1961, is not sustainable. 9. At this stage, Mr. 9. At this stage, Mr. Sahewalla, learned counsel appearing for the respondent-assessee, submitted mat the appeal should be remanded to the Tribunal for re­hearing on the question as to whether any article or thing is manufactured in the hospital of the respondent-assessee. We are afraid, we cannot allow such indulgence to the respondent-assessee at this stage because an appeal under section 260A of the Act, 1961, to the High Court is confined to only substantial question of law and sub-section (6) of the said section 260A provides that the High Court may determine any issue which is either not determined by the Tribunal or has been wrongly determined by reason of a decision on the substantial question of law. But there are no relevant materials before this Court to show that as a matter of fact manufacturing or production of articles or things was undertaken in the hospital of the respondent-assessee. Since the respondent-assessee was claiming the reliefs under sections 80HH and 80-1 of the Act, the respondent-assessee should have adduced all relevant materials to establish that it was an industrial undertaking manufacturing or producing articles or things during the previous year relevant to the assessment year 1994-95. We however make it clear that it will be open for the respondent-assessee to adduce materials in support of its claim of deduction under sections 80HH and 80-1 of the Act, 1961, for the subsequent assessment years before the appropriate authority, and if such materials are adduced by the respondent-assessee, we have no doubt in our mind that the same will be considered by the appropriate authority, under the Act, and a decision will be recorded as to whether things or articles are in fact manufactured or produced in the hospital of the respondent-assessee, and depending upon the findings given therein the question of reliefs under sections 80HH and 80-1 of the Act, 1961, will be determined by the authority. 10. Mr. 10. Mr. Sahewalla next cited the decision of the Supreme Court in Ananthram Veerasinghaiah & Co vs. IT Commissioner, AP, AIR 1980 SC 1146 , in which it has been held that the High Court having found that the legal basis underlying the order of the Appellate Tribunal was not sustainable, the High Court should have limited itself to the question raised by the reference in the negative leaving it to the Appellate Tribunal to take up the appeal again and redetermine it in the light of the law laid down by the High Court. The said decision of the Supreme Court was in respect of a reference made under section 256 of the Act on a question of law to the High Court, and we have great doubt as to whether the said decision will at all apply to an appeal on certain substantial questions of law under section 260A of the Act. Even if the said decision applies and holds good after the substitution of the provisions for reference under section 256 by an appeal on substantial question of law under section 260A of the Act, the said decision instead of going in favour of the respondent-assessee is actually against the respondent-assessee. In the present case, we have found that the order of the Appellate Tribunal was not sustainable on the facts as found by the Appellate Tribunal, and all that we are required to do is to answer the substantial questions of law arising in this appeal against the respondent-assessee and in favour of the Department. 11. Mr. Sahewalla next relied on the decision of the Supreme Court in CIT vs. UP Forest Corporation, (1998) 3 SCC 530 , wherein the Supreme Court has held that in the presence of contention having been raised before the Income Tax Authorities, the High Court ought not to have itself embarked upon examining the issue for the first time and then come to a conclusion in favour of the respondent, and if the High Court had wanted the issue to be decided, the proper course would have been to have remanded the case to the Tribunal or to the Assessing Authority for a decision. Mr. Mr. Sahe walla submitted that in view of the said law laid down by the Apex Court, the proper course in this case is to remand the case to the Tribunal or to the Assessing Authority for a decision. This decision again was a decision of the Supreme Court in respect of the power of the High Court under Article 226 of the Constitution as it appears from a reading of the facts of the said decision that in a petition under Article 226 of the Constitution b the High Court had decided certain factual issues, and the Supreme Court had taken a view that such factual issue ought not to have been decided by the High Court. But so far as the present case is concerned, it is an appeal on certain substantial questions of law under section 260A of the Act, 1961, and the powers of the High Court in an appeal under section 260 A of the Act is circumscribed by the provisions of the said section 260A of the Act. 1961. We are afraid, we cannot resort to the course suggested by Mi. Sahewalla, namely, to remand the matter to the Tribunal for a fresh decision in the light of the answer given by us to the substantial questions of law in this appeal. 12. For the foregoing reasons, we answer question No.l in the negative, i.e., in favour of the Department and against the respondent-assessee; question No.2 in the affirmative in favour of the Department and against the respondent-assessee: and question No.3 in the negative in favour of the Department and against the respondent-assessee and set aside the impugned orders of the Appellate Tribunal and the Commissioner of Income Tax (Appeals), Guwahati, in so far as they relate to reliefs under sections 80HH and 80-1 of the Act, 1961. The appeal stands allowed.