* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON : 05.12.2012
PRONOUNCED ON: 21.12.2012
+ ITA NOS. 87/2003 &
ITA NOS. 1411/2006
COMMISSIONER OF INCOME TAX ..............Appellant
Through : Sh. Sanjeev Sabharwal, Sr. Standing Counsel
with Ms. Gayatri Verma and Sh. Puneet Gupta, Jr.
Standing Counsel.
Vs.
M/S. DEWAN CHAND SATYAPAL ............ Respondent
Through : Sh. M.S. Syali, Sr. Advocate with Sh. Satyen Sethi,
Sh. Arta Trana Panda, Ms. Husnal Syali,
Sh. Mayank Nagi and Sh. Rahul Sateeja, Advocates.
ITA NOS. 1541/2006
COMMISSIONER OF INCOME TAX ..............Appellant
Through : Sh. Sanjeev Sabharwal, Sr. Standing Counsel with
Ms. Gayatri Verma and Sh. Puneet Gupta, Jr. Standing
Counsel.
Vs.
DEWAN CHAND SATYAPAL ............ Respondent
Through : Sh. M.S. Syali, Sr. Advocate with Sh. Satyen Sethi,
Sh. Arta Trana Panda, Ms. Husnal Syali, Sh. Mayank Nagi
and Sh. Rahul Sateeja, Advocates.
ITA Nos. 87/03, 1411, 1541/06 Page 1
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT
%
1. This judgment disposes of appeals by the revenue under Section 260A
of the Income Tax Act 1961 against the orders of the Income Tax Appellate
Tribunal (hereinafter referred to as "ITAT") dated 16.08.2002, 26.10.2004
and 01.12.2005 respectively. The appeals involve similar substantial
questions of law which are:
1) Whether the ITAT was correct in holding that a Diagnostic Centre is
an industrial undertaking within the meaning of Section 80-IA of the Income
Tax Act 1961?
2) Whether the ITAT was correct in law in holding that the assessee was
entitled to deduction under section 80-IA of the Act?
2. The respondent i.e. M/s Dewan Chand Satyapal (hereinafter referred
to as "the assessee") is engaged in running an advanced radiological clinic
providing services of X-ray, MRI, CT Scan and NMI etc. This Diagnostic
Centre was setup in 1948. The Assessee established a new Magnetic
Resonance Imaging (MRI) unit in the assessment year 1995-96. The
assessment- for the assessment year 1995-96 -was completed under Section
143(3) at an income of `.69,30,880/- by order dated 28.08.1997. Deductions
under Section 80-IA were allowed to the assessee at `.6,18,205/-. On
28.03.2000, the CIT issued an order under Section 263 of the Act which
ITA Nos. 87/03, 1411, 1541/06 Page 2
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
`.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 which
noticed that Assessee has claimed deduction under Section 80-IA on the
MRI and CT Scan-II machines installed in August 1991 and March 1991
respectively and A.O. disallowed the claim of deduction under section 80-IA
on the ground that the deduction is allowable to a new industrial undertaking
unit, whereas the installation of new machines by the Assessee was just an
ITA Nos. 87/03, 1411, 1541/06 Page 3
expansion of existing business, as the assessee's Radiology and imaging unit
was in existence since 1948. On 16.10.2002, the Commissioner of Income
Tax (Appeals) made an order confirming the order of the A.O. On appeal,
the ITAT passed an order on 1.12.2005 by following its own orders in the
case of the Assessee for the A.Y. 1998-99 in I.T.A. No. 1614/Del/2000 and
for A.Y. 1995-96 in I.T.A. No. 2050/Del/2000.
5. The revenue challenges the correctness of orders of the ITAT on the
grounds that any profits derived from any business of an industrial
undertaking is entitled to deduction under this Section at 25% for an initial
assessment year in which it begins to manufacture or produce articles or
things and ten succeeding years, the assessee was running the business since
1948 and it was not a new industrial undertaking and to be entitled under 80-
IA the industrial undertaking must manufacture or produce any articles or
thing which is different from inputs utilised in it. Also, the revenue further
contends that X-Ray equipments, scanners, etc. cannot be considered to
manufacture of new articles or things as it involves no manufacturing. The
revenue relies on JMD Medical Limited v. Union of India [1996] 218 ITR
184 (Cal) where the Calcutta High Court decided whether a diagnostic
centre was an industrial undertaking. In that case, the assessee purchased,
from a Japanese concern, a resonance scanner used for medical diagnosis by
using the scanner so as to expose unexposed films. The petitioner contended
that by virtue of certain provisions of the Income Tax Act, 1961, discussed
hereafter- they were entitled to relief in regard to the interest payable on the
purchase price of the scanner. Their submission was that they process the
ITA Nos. 87/03, 1411, 1541/06 Page 4
goods, being the unexposed films by the use of the scanner and thus they are
to be classed as an industrial undertaking. They relied upon Section 10(15)
(iv) (c) of the 1961 Act and upon the Explanation to Section 10(15) (iv) (i).
The Explanation mentioned is set out below:
"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.
ITA Nos. 87/03, 1411, 1541/06 Page 5
Thirdly, the purpose of the above relief is obviously to
permit industrial undertakings to engage with relief in the
activity of manufacture or processing of goods even when such
activity requires purchase of foreign machinery. A diagnostic
centre is, by no ordinary meaning of the words, an industrial
undertaking merely by purchase of a machine and only for the
purpose of tax relief to be claimed by it as owner of the said
machine. The purpose of the relief nowhere appears to be the
grant of any benefit for the rendering of any professional
services.
Fourthly, an industrial processing of goods has a certain
similarity in the case of each of the goods processed. The
products are largely similar or identical to one another. This is
usual though not always the case. A scanner machine will,
however, produce photographs which are totally different in the
case of different patients and the value of the photographs
derives from those differences rather than from their identity to
one another.
In short, it is quite clear that the diagnostic centre is not
processing goods as an industrial undertaking when it is
exposing films by the use of the scanner obtained from Japan.
Like most obvious things, it is easier to see and to understand
than to explain."
6. The revenue relied on a decision of this Court reported as
CIT v. Yogender Sharma 311 ITR 372 (Del). The Court held as
follows:
"As mentioned above, the Bombay High Court has taken a
different view in Insight Diagnostic and Oncological Research
Institute P. Ltd. v. Deputy CIT [2003] 262 ITR 41. In this case,
a CT scan machine was installed in a diagnostic centre and it
was held that a diagnostic centre is not an industrial
undertaking in the context of the Income-tax Act. In fact the
expression "industrial undertaking" must be read in the context
ITA Nos. 87/03, 1411, 1541/06 Page 6
of the Income-tax Act and not in the context of the Industrial
Disputes Act.
As mentioned above, we are in agreement with the view
taken by the Bombay High Court. What is required to be seen is
that the machinery or plant must be installed first of all in a
small scale industrial undertaking and, secondly, it must be
used for the purposes of business of manufacture or production
of any article or thing. The primary question is, therefore,
whether a clinic or a diagnostic centre is at all a small scale
industrial undertaking. Explanation (2) to section 32A(2) is a
deeming provision and an industrial undertaking shall be
deemed to be a small scale industrial undertaking, if it satisfies
certain conditions. 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 undertaking and it is then that we have to
see whether it can be deemed to be a small scale industrial
undertaking and then if it is involved in the production or
manufacture of an article or thing.
ITA Nos. 87/03, 1411, 1541/06 Page 7
The primary condition in the present case is not met
inasmuch as the clinic of the assessee cannot be said to be an
industrial undertaking. If that be so, it is of no consequence
whether the x-ray machine manufactures or produces an article
or a thing. The primary condition is not met in the first place.
In our opinion, the question of law referred to us is
required to be answered in the negative in favour of the
Revenue and against the assessee."
7. It was highlighted, during the submissions, that the intention of the
legislature was not to confer benefits on all kinds of activity, but only those
which have some element of industrial activity which result in the
production of goods, or result in production of intangibles which would be
of use to the customer. In the case of diagnostic equipment, there is no such
outcome; the result is of no universal application; unlike software, it does
not facilitate production of goods or services. It is an aid to medical science,
and assists physicians and other specialists to diagnose the symptoms and
other conditions that a patient suffers.
8. The assessee resisted the submissions of the revenue and contended
that several High Courts have ruled that hospitals are industrial
undertakings, and diagnostic centres are also such industrial undertakings. It
relied on the decision reported as Commissioner of Income Tax v. Air Survey
Co. of India (P) Ltd [1998] 232 ITR 707 to support his argument that they
are manufacturing goods and therefore, in terms of the definition of
"industrial undertaking" under section 33B (as referred to by in section 80-
IA as it existed prior to the amendment w.e.f. 1.04.2000), diagnostic centre
is an industrial undertaking. In the said case, the assessee, an air survey
ITA Nos. 87/03, 1411, 1541/06 Page 8
company, in the business of survey, mapping, aerial photography and aero-
magnetic photography claimed investment allowance under Section 32A of
the Act in respect of aircraft radio purchased. The question before the High
Court was whether the activity and the use of aircraft radio in the aforesaid
business would fall within the purview of the expression "manufacture" or
"production" and whether the ultimate photography which came 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 extent of processing may vary from case to case
; in one case, the processing may be slight and in another, it
may be extensive, but with each process suffered, the
commodity would undergo a change. Where a company was
ITA Nos. 87/03, 1411, 1541/06 Page 9
engaged in processing the data furnished by its customers by
using IBM Unit Record Machine Computer, it was held
(headnote): "that the assessee received vouchers and
statements of accounts from its customers and converted them
into balance-sheets ... Such activities amounted to 'processing'
of goods." And the assessee was held to be an industrial
company and entitled to the concessional rate of taxation. We,
respectfully, agree with the view expressed by the Karnataka
High Court in the case mentioned above. Following the
aforesaid decision, question No. 1 must be answered in the
affirmative and in favour of the assessee. So far as the second
question is concerned, since we hold that it is an industrial
company within the meaning of section 2(7)(c) of the Finance
Act, 1981, the assessee is entitled to get investment allowance
in respect of the generator installed by it."
10. Counsel for the assessee contended that the Courts have always
construed the term "industrial undertaking" in a broad sense, so as to include
processing activity. Viewed from that perspective, the specialized activity of
diagnostics in which the film is processed, and the end product reflecting the
details which assist a patient in medical diagnostic can certainly be called a
part of the processing of articles. Counsel emphasized that it is not the entire
business of the assessee, but only a part of it, which deals with the MRI, CT
scanning and X-Ray, that can be termed as "industrial undertaking" justly
qualifying for concessions under Section 80-IA. In this respect, the ruling in
CIT v. Oracle 320 ITR 546 (SC) was relied upon. The Supreme Court had,
on that occasion, held as follows:
"From the details of Oracle Applications, we find that the
software on the Master Media is application software. It is not
an operating software. It is not system software. It can be
categorized into Product Line Applications, Application
ITA Nos. 87/03, 1411, 1541/06 Page 10
Solutions and Industry Applications. A commercial duplication
process involves four steps. For the said process of commercial
duplication, one requires Master Media, fully operational
computer, CD Blaster Machine (a commercial device used for
replication from 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 Microsoft Computer Dictionary, Fifth Edition]
10. In our view, if one examines the above process in the
light of the details given hereinabove, commercial duplication
cannot be compared to home duplication. Complex technical
nuances are required to be kept in mind while deciding issues
of the present nature. The term "manufacture" implies a
change, but, every change is not a manufacture, despite the fact
that every change in an article is the result of a treatment of
labour and manipulation. However, this test of manufacture
needs to be seen in the context of the above process . If an
operation/ process renders a commodity or article fit for use for
which it is otherwise not fit, the operation/ process falls within
the meaning of the word "manufacture". Applying the above
ITA Nos. 87/03, 1411, 1541/06 Page 11
test to the facts of the present case, we are of the view that, in
the present case, the assessee has undertaken an operation
which renders a blank CD fit for use for which it was otherwise
not fit. The blank CD is an input. By the duplicating process
undertaken by the assessee, the recordable media which is unfit
for any specific use gets converted into the programme which is
embedded in the Master Media and, thus, blank CD gets
converted into recorded CD by the afore-stated intricate
process. The duplicating process changes the basic character of
a blank CD, dedicating it to a specific use. Without such
processing, blank CDs would be unfit for their intended
purpose. Therefore, processing of blank CDs, dedicating them
to a specific use, constitutes a manufacture in terms of Section
80IA(12)(b) read with Section 33B of the Income Tax Act.
11. One of the arguments advanced on behalf of the
Department is that since the software on the Master Media and
the software on the pre-recorded media is the same, there is no
manufacture because the end product is not different from the
original product. We find no merit in this argument. Firstly, as
stated above, the input in this case is blank disc. Secondly, the
test applied by the Department may not be relevant in the
context of computer technology. One of the questions which
arose for determination before this Court in the case of Tata
Consultancy Services v. State of Andhra Pradesh, 137 STC
620 was whether a software programme put in media for
transferring or marketing is "goods" under Section 2(h) of the
Andhra Pradesh General Sales Tax Act, 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
ITA Nos. 87/03, 1411, 1541/06 Page 12
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 judgment in Tata Consultancy
Services (supra), it becomes clear that the intelligence/ logic
(contents) of a programme do not change. They remain the
same, be it in the original or in the copy. The Department needs
to take into account the ground realities of the business and
sometimes over-simplified tests create confusion, particularly,
in modern times when technology grows each day. To say, that
content of the original and the copy are the same and,
therefore, there is manufacture would not be a correct
proposition. What one needs to examine in each case is the
process undertaken by the assessee. Our judgment is confined
strictly to the process impugned in the present case. It is for this
reason that the American Courts in such cases have evolved a
new test to determine as to what constitutes manufacture. They
have laid down the test which states that if a process renders a
commodity or article fit for use which otherwise is not fit, the
operation falls within the letter and spirit of manufacture. [See
United States v. International Paint Co. reported in 35 C.C.P.A.
87, C.A.D. 76]"
11. The relevant extract of Section 80-IA as it existed prior to it being
substituted w.e.f. 1.04.2000 is as follows:
"Section 80-IA. DEDUCTIONS IN RESPECT OF PROFITS
AND GAINS FROM INDUSTRIAL UNDERTAKINGS, ETC., IN
CERTAIN CASES.
(1) Where the gross total income of an assessee includes any
profits and gains derived from any business of an industrial
undertaking or a hotel or operation of a ship or developing,
ITA Nos. 87/03, 1411, 1541/06 Page 13
maintaining and operating any infrastructure facility or
scientific and industrial research and development or providing
telecommunication services whether basic or cellular or
operating an industrial park or commercial production or
refining of mineral oil in the North Eastern Region or in any
part of India on or after the 1st day of April, 1997 (such
business being hereinafter referred to as the eligible business)
to which this section applies, there shall, in accordance with
and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction from
such profits and gains of an amount equal to the percentage
specified in sub-section (5) and for such number of assessment
years as is specified in sub-section (6).
(2) This section applies to any industrial undertaking which
fulfils all the following conditions, namely :- (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 re-
establishment, 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
ITA Nos. 87/03, 1411, 1541/06 Page 14
thing specified in the list in the Eleventh Schedule" had been
omitted;
(iv)(a) In the case of an industrial undertaking not specified in
sub-clause (b), or sub-clause (c), it begins to manufacture or
produce articles or things or to operate such plant or plants, at
any time during the period beginning on the 1st day of April,
1991 and ending on the 31st day of March, 1995, or such
further period as the Central Government may, by notification
in the Official Gazette, specify with reference to any particular
industrial undertaking.
xxxxxxxxxx xxxxxxxxxxx
(d) In the case of an industrial undertaking being a small scale
industrial undertaking, not specified in sub-clause (b) or in sub-
clause (c), it begins to manufacture or produce articles or
things or to operate its cold storage plant at any time during
the period beginning on the 1st day of April, 1995 and ending
on the 31st day of March, 2000;
(v) In a case where the industrial undertaking manufactures or
produces articles or things, the undertaking employs ten or
more workers in a manufacturing process carried on with the
aid of power, or employs twenty or more workers in a
manufacturing process carried on without the aid of power.
xxxxxxxxxx xxxxxxxxxxx
(12) For the purposes of this section, - (a) "Domestic satellite"
means a satellite owned and operated by an Indian company
for providing telecommunication service;
(aa) "Hilly area" means any area located at a height of one
thousand metres or more above the sea level;
(b) "Industrial undertaking" shall have the meaning assigned
to it in the Explanation to section 33B;
xxxxxxxxxx
xxxxxxxxxxx"
ITA Nos. 87/03, 1411, 1541/06 Page 15
The definition of "industrial undertaking" under Explanation to
Section 33B is as follows:
"33B. Rehabilitation allowance.
"...Explanation: In this section, "industrial undertaking"
means any 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."
12. A joint reading of Section 80IA and Section 33B would make it
apparent that the first condition spelt out in sub-section (2) (iii) is that the
industrial undertaking "manufactures or produces any article or thing."; the
second condition is that the "article or thing" should not be listed in the
Eleventh schedule. The third aspect is that Section 33-B contains a
somewhat wider definition of "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.
ITA Nos. 87/03, 1411, 1541/06 Page 16
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 and teleprinters.
Explanation.--The expression "office machines and
apparatus" includes all machines and apparatus used in
offices, shops, factories, workshops, educational institutions,
railway stations, hotels and restaurants for doing office work
and for data processing (not being computers within the
meaning of section 32AB).
23. Steel furniture, whether made partly or wholly of steel.
24. Safes, strong boxes, cash and deed boxes and strong room
doors.
25. Latex foam sponge and polyurethane foam.
26.
27. Crown corks, or other fittings of cork, rubber, polyethylene
or any other material.
ITA Nos. 87/03, 1411, 1541/06 Page 17
28. Pilfer-proof caps for packaging or other fittings of cork,
rubber, polyethylene or any other material.
29. ....."
A plain reading of the two provision clarifies that Parliament intended the
benefit of Section 80-IA to specific kinds of undertakings; if Section 80-IA
which prescribes preconditions for the extension of the benefit were to be
seen, then the undertaking should produce or manufacture articles or things.
A somewhat broader intention can be discerned if one considers Section 33-
B, since it talks of 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 assessee's contentions hinge on the terms "processing of
goods". The argument is that in its diagnostic centre, which maintains
separate accounts and where such equipment are installed, raw film is used
and the image from a patient is printed on it from the imaging machine, such
as X-Ray or CT-Scan. This assists the attending doctor in diagnosing the
patient medical condition.
13. The view of the Calcutta High Court in JMD Medical Ltd (supra) was
echoed in Insight Diagnostic and Oncological Research Institute P. Ltd. v.
Deputy CIT [2003] 262 ITR 41 by the Bombay High Court. That decision
was noticed by this Court's Division Bench, in Dr. Yogendar Sharma's case
(supra). The Bombay High Court, pertinently observed that:
"The CT scan machine is installed in a diagnostic centre. That
diagnostic centre is not an industrial undertaking for the
purpose of business manufacture. In this connection, one must
read the expression "industrial undertaking" in the context of
ITA Nos. 87/03, 1411, 1541/06 Page 18
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.......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 that the unit or activity is deemed an industrial undertaking, if it
is involved in production of goods or articles. The Supreme Court decision
in Oracle, in this Court's opinion does not advance the assessee's case
further; the court there was concerned with the replication, on discs of
copyrighted content, which was commercially sold or licensed. The situation
is entirely different; there is no change of the article; the intention of the
service provider is not to produce the article the film is the medium in
which what is recorded is made available for interpretation by the physician
or doctor. If it can be more conveniently given in a pen drive or even over
the internet, the question of production of goods or article would not arise.
ITA Nos. 87/03, 1411, 1541/06 Page 19
What is important is that the primary activity is not manufacture or
processing of goods; the end use product is one capable of use only by one
person, for a limited purpose; even the "producer" has no right to
disseminate it in any manner, because it is the private property or
confidential matter of the patient. Plainly, it is a service that is provided.
Another aspect to the matter is that the negative list the contents of the
Eleventh schedule, all point to articles or things, which illustrate that
facilities provided by diagnostic centres do not result in manufacture or
production of goods or things, or their processing.
15. A judge's task is limited to interpreting the law; if the language of the
statute is plain, the interpretation has to be literal. In the case of a fiscal
statute, the Court must interpret the statute as it stands; it cannot make good
deficiencies, if there be any: (Ref. C.A. Abraham v ITO 1961 (41) ITR 425).
To quote Oliver Wendell Holmes, that great American judge "A word is not
a crystal, transparent and unchanged; it is the skin of a living thought and
may vary greatly in color and content according to the circumstances and
time in which it is used." In the present context, the expression
"manufacture" or "production" or processing has to be of "articles or
things". They are to be interpreted as such along with the company (of the
other words) they keep. While the benefit which might flow to the general
public if diagnostic facilities are deemed industrial undertakings is
undeniable, as it would probably result in lower cost of diagnosis of diseases
and conditions, yet that result cannot be achieved by doing violence to the
statute, in the guise of interpretation. The remedy (to this perceived
mischief) is clearly elsewhere.
ITA Nos. 87/03, 1411, 1541/06 Page 20
16. In view of the above conclusions, the questions of law framed in these
appeals are answered in favour of the revenue, and against the assessee; the
appeals are consequently allowed. No costs.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
December 21, 2012
ITA Nos. 87/03, 1411, 1541/06 Page 21
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