ORDER
K.C. Singhal, Judicial Member
1. The main issue arising in this appeal is whether the assessee is entitled to deduction on account of investment allowance in respect of machinery installed in the Diagnostic Centre.
2. The assessee is a private limited company formed by 48 Shareholders including 8 Doctors. This is the first year of business. In the year under consideration, the assessee purchased and installed a Computerised Axial Tomography Scanner (CT Scanner) on 9-12-1989. This machine is used as one of the latest techniques for acquiring images of the internal parts of the human-body to detect various diseases in human-body. The cost of the machinery including the air-conditioner was Rs. 83, 89, 185. The contribution of the shareholders was Rs. 29 lakhs while rest of the money was borrowed from the Bank. The business was commenced w. e. f. 11-12-1989. It has employed three Radiologists, two CT Scan Technicians, two Ward Boys, two Darkroom Attendants and other Administrative staff. According to the assessee, it is governed by Industrial Labour Laws and is also registered under the Employees’ Provident Fund Act. The total receipts during the year amounted to Rs. 13, 05, 345 as per the Profit & Loss Account and after claiming the expenses and depreciation, the net loss as per P&L A/c was Rs. 6, 32,174. The assessee had also claimed investment allowance under Section 32A on the total cost of the machinery.
3. The activity of the assessee as stated before us is described as under: –
The patient is laid on the bed attached to the machine. The Raw C. T. Scan film is inserted in the machine and settings of the machine are arranged accordingly. The damaged or suspected part of the human body is screened by the machine and seen on the screen. The said screen image is transferred on the Raw (un-exposed) C. T. Scan film. The said C. T. Scan film is then taken to a Dark-Room for further processing to* get the final product ie. the positive print. For the purpose of developing and fixing, liquid/powder chemicals are used. Thereafter the C. T. Scan films so exposed are dried. The dried C. T. Scan films are seen by the Doctors through View Box and they give their comments by reading the images produced by the machine. Thus, the machine produces the images of the internal part of the human body. The doctors take view of such images produced by the machine for their comments. The Assessee purchases raw material in the form of Un-exposed C. T. Scan films and after collecting images on the raw films by using the abovesaid machine handover the final product i. e. exposed films with report to patient.
4. The claim of the assessee regarding investment allowance was rejected by the Assessing Officer on two grounds. Firstly, the assessee was carrying a profession while the investment allowance can be claimed by an assessee carrying on a business. Secondly, the activity carried on by the assessee does not amount to manufacture or production inasmuch as no new article or thing emerges. The reliance was placed by the Assessing Officer on the decision of the Tribunal Pune Bench in the case of Hotel Amir Pvt. Lid. and the decision of Supreme Court in the case of Idandas v. Anand Ramachandra Phadke AIR 1982 SC 127.
5. The matter was carried before the CIT(A), who has allowed the claim of the assessee by holding that article produced is different from the raw material and therefore, the activity of assessee amounted to manufacture. It was further held by him that the word ‘business’ is of wide import which not only includes trade or manufacture but also professions, vocations and callings. Hence, the assessee was running a business. In support of his findings, he relied on the decision of Madras High Court in the case of CIT v. Dr. V. K. Ramachandmn [1981] 128 ITR 727′. Aggrieved by the same, the Revenue is in appeal before the Tribunal.
6. The learned D. R. Mr. K. Srinivasan vehemently relied on the reasonings given by the Assessing Officer and also invited our attention to the relevant conditions provided in Section 32 A. According to him, the venture carried on by the assessee cannot be said to be an industrial undertaking. The purpose of the Centre is to diagnose the disease with the help of image obtained on the raw film through the C. T. Scanner. So, the machinery, installed is only an aid to the medical profession. Proceeding further, it was submitted by him that the Diagnostic Centre is merely a service oriented venture wherein machine has been installed to achieve the object of rendering the service to the patient. Even assuming it is a business venture, the same cannot be called an industrial venture. In support of his submissions, he relied on the two decisions of Calcutta High Court in the case of JMD Medicare Ltd. v. Union of India and JMD Medicare Ltd. v. Union of India.
7. On the other hand, the ld. counsel for the assessee has vehemently relied on the findings of the CIT(A). Firstly, it has been argued by him that the activity carried on by the assessee cannot be said to be an activity of profession considering all the factual aspects. According to him, it has all the basic characteristics of a business. He also made a distinction between profession and business pointing out that if the assessee carries on such activity with reference to its own patients, then it would be an activity of profession, but where such activity is carried on with reference to the patients coming from outside referred by other doctors, then it would amount to business activity. In support of the contention that activity carried on by the assessee amounts to business activity, he has relied on the judgment of Madras High Court in the case of Dr. V. K. Ramachandran (supra), the judgment of Kerala High Court in the case of CIT v. Upasana Hospital [1997] 225 ITR 845′ and the decision of Special Bench of the Tribunal in the case of First ITO v. Dr. P. Vittal Bhat [1983] 6 ITD 560.
8. The next line of argument is that the business of assessee is that of manufacturing inasmuch as the exposed film with images of human body is different from the raw film which is used in the machine for acquiring the images of human body. So, the test laid down by the Supreme Court in the case of Union of India v. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791 is satisfied. In this connection, he also relied on various decisions of Tribunal and High Court wherein such activity has been held to be an activity of manufacturing or producing article or thing. These decisions are in the case of CIT v. Trinity Hospital [1997] 225 ITR 1792 (Raj.), Natvarlal Ambalal Dave v. CIT[1997] 225 ITR 936 (Guj.), CIT v. M. L. Agarwalla [l999] 238 ITR 603 (Gauhati), Dr. S. V. Gharpure v. First ITO [1989] 35 TTJ (Bom.) 440, Dr. Suresh Amin Family Trust v. Asstt. CIT [1995] 52 TTJ (Ahd.) 59, Asstt. CIT v. Soni Photo Films (P.) Ltd. [1998] 67 ITD 81 (Delhi) (SB). Proceeding further, it was argued by him that the premises where such manufacturing activity is carried on is called the industrial undertaking. According to him, the expression ‘industrial undertaking’ is of wide import and would include hospital, university, library, service club, local body, research institute, chamber of commerce etc. In support of this submission, he relied on the decision of Supreme Court in the case of Bangalore Water Supply & Sewerage Board v. A. Rajappa AIR. 1978 SC 548. Lastly, he referred to a Board Circular No. 24F dated 27 July, 1969 wherein it has been clarified that Cinema Film suitable for exhibition is entirely different from the raw film. In view of these submissions, it was prayed by him that order of CIT(A) be upheld.
9. Rival submissions of the parties, case law and the material referred to before us have been considered carefully. The first controversy arising in this appeal is whether the activity carried on by the assessee amounts to business activity or professional activity. The word ‘Business’ is of wide import and it refers to real, substantial and systematic or organised course of activity with a set purpose as held by Supreme Court in the case of Narain Swadeshi Wvg. Mills Ltd. v. CEPT[1954] 26 ITR 765 and in the case of Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368. This definition, would normally include profession. However, since Legislature has defined the words ‘business’ and ‘profession’ separately, the word ‘business’ would not include the professional activity. The profession implies professed attainment of special knowledge as distinguished from mere skill. It involves labour, skill, education and special knowledge. Despite this distinction, if any professional activity is carried on tinged with a commercial character, then it may amount to business. This view has been taken by the Madras High Court in the case of Dr. V. K. Ramachandran (supra). Similar view has been endorsed by the Kerala High Court in the case of Upasana Hospital (supra).
10. In the present case, the factual aspects as rejted by us earlier clearly show that venture carried on by the assessee is a commercial venture as seen from the various factors namely – (1) that it was started with a view to earn profit by making investment and borrowing funds from the bank, (2) the activity is looked after by the employed persons i. e. by radiologists and technician and other staff members, (3) the risk factor is also involved, and (4) the entire activity is carried on in an organised and systematic manner. Accordingly, it is held that the Diagnostic Centre started by the assessee is a commercial venture and the activity carried on amounts to business activity.
11. The next controversy between the parties is whether the venture carried on by the assessee can be said to be an industrial venture/ undertaking. In order to appreciate this controversy, it would be useful to mention that prior to introduction of Section 32A, similar deduction was available to the assessee by way of development rebate under Section 33. The perusal of provisions of Sections 33 and 32A shows that conditions to be satisfied for claiming such deduction are almost the same except one condition which is additionally to be satisfied for claiming deduction under Section 32A. This additional condition is that plant & machinery must be installed in an industrial undertaking. This condition was not necessary to be satisfied while claiming Development Rebate under Section 33. Therefore, the case law with reference to Development Rebate may not be helpful in resolving this controversy.
12. In most of the case-laws cited before us, the real controversy was whether the activity carried on by the assessee amounted to manufacture or production of an article or thing. But, the issue whether the plant & machinery was installed in an industrial undertaking or not was not considered in those cases. This aspect has been considered by the Hon’ble Bombay High Court in the case of Fariyas Hotels (P.) Ltd. v. CIT[1995] 211 ITR 390″. In that case, the assessee was running a hotel in which it had installed certain machineries for preparation of the food and in respect of such machineries, investment allowance was claimed under Section 32A. The Hon’ble Bombay High Court held that hotel business was a trading concern and therefore, investment allowance could not be allowed to the assessee. Similar view was taken by the Hon’ble Calcutta High Court in the case of CIT v. S. P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 1792 wherein it was held that business of a hotel is essentially an non-manufacturing or non-producing or even non-processing concern and is only a trading concern. Consequently, the investment allowance could not be allowed. This view has also been upheld recently by Hon’ble Supreme Court in the case of Indian Hotel Co. Ltd. v. ITO [2000] 245 ITR 53 83 by observing at page 545 that production activity must be by an industrial undertaking and not by the assessee having mainly trading activity. The question before the Supreme Court was whether assessee was entitled to investment allowance in respect of plant & machinery installed to run a flight kitchen. A question arose as to what should be the meaning of the words ‘industrial undertaking’. The Apex Court noted that such words are not defined in the Income-tax Act. Accordingly, it was observed at page 543 that such words should be construed as understood in the common parlance. Finally, the Apex Court held that hotel business was mainly a trading concern and flight kitchen was ancillary to the main business of hotel. Hence, assessee could not be said to be running of industrial undertaking. Consequently, it was held that assessee was not entitled to investment allowance.
13. The perusal of these case-laws clearly shows that investment allowance cannot be allowed merely on the ground that plant & machinery is installed in a business venture carried on by the assessee. In order to claim such allowance, it must also be established that business of assessee must be primarily business of manufacturing as understood in common parlance and where the primary business is non-manufacturing, but an ancillary activity of processing is carried on with the help of some machinery, then such business cannot be considered as industrial undertaking. Whether business of assessee is mainly a manufacturing business or not would, in our opinion, depend on the pre-dominant purpose or object of the business. ,
14. The medical profession merely comprises of two activities i. e. to diagnose the disease and to treat the same. These two activities may be carried on by a person as a profession or as a business like running a nursing home. In the advanced age of medical science, the activity of diagnosing the disease is carried on with the help of sophisticated equipments involving substantial amount of capital. An individual carrying on a profession normally is not in a position to install such costly equipments as he might not get the return of his investment. This factor resulted in establishment of diagnostic centres in various cities on commercial basis, so that the local doctors may send their patients for diagnosis of their diseases. After receiving the reports of the patients from such centres, the doctors treat the patients conveniently. This clearly shows that predominant object or purpose of running a diagnostic centre is not to manufacture anything, but to find out the disease of the patient. Basically, it is purely service oriented organisation and taking of photograph of human-body is merely an ancillary activity in the furtherance of the main object. This view is also supported by two decisions of Calcutta High Court in the case of JMD Medicare Ltd. and JMD Medicare Ltd. Even according to the test of common parlance, the meaning of words ‘industrial undertaking’ is to be seen as understood by the persons who are in contact with such concern. The patients going to the diagnostic centre do not think in terms of getting anything manufactured by such centre. Even the doctors referring the patients to such centres do not think in such manner. The main purpose of patients going to the centre and of the doctors referring the patients to such centre is only to find out the disease of the patient. Therefore, it is difficult to hold that in common parlance, the diagnostic centres are known as manufacturing concerns or industrial undertakings. Accordingly, we are of the considered view that the diagnostic centre run by the assessee cannot be said to be of industrial undertaking. Consequently, it is not entitled to deduction of investment allowance under Section 32A. The order of CIT(A) is, therefore, reversed and order of Assessing Officer is restored on this issue.
15. The next issue relates to the disallowance of Rs. 65, 550 incurred on inauguration of the Diagnostic Centre. The disallowance is made by the Assessing Officer on the ground that such expenses amounted to entertainment expenses. On appeal, the CIT(A) was of the view that entire expenses could not be considered as entertainment expenses, since in his view the entire expenses were not on food and beverages. Further, staff of the assessee must have also participated in the inauguration function. Accordingly, it was held by him that 50% of such expenditure should be considered on account of entertainment. Accordingly, he directed the Assessing Officer to disallow 50% of such expenses subject to deduction of Rs. 5000 as provided in Section 37(2A) Aggrieved by the same, the Revenue is in appeal. After hearing both the parties, we do not find any error in the order of the CIT(A). Accordingly, the same is upheld on this issue.
16. In the result, appeal of the Revenue is partly allowed.