B.R. Arora, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, by its order dated September 23, 1991, for the assessment year 1986-87, referred the following questions of law for the opinion of this court : " (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in directing that investment allowance may be allowed on X-ray machines, ultrasound scanner, foetal monitor and air-conditioning equipment as provided under Section 32A(2)(b)(ii) read with Section 32A(1) of the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, these machines and equipments can legally be called machinery or plant installed in a small-scale industrial undertaking for the purpose of business of manufacture or production of any article or thing as provided in Section 32A(2)(b)(ii) read with Section 32A(1) of the Income-tax Act, 1961 ? "
(2.) THE assessee, Trinity Hospital, Jodhpur, is a registered firm and is running a hospital/nursing home in the city of Jodhpur. For rendering efficient medical services to the patients, the assessee, during the previous year relevant to the assessment year 1986-87, installed in its hospital various machines including (i) X-ray machine, (ii) ultrasound scanner/ultra sonographic machine, (iii) foetal monitor, and (iv) air-conditioning equipment, to ensure the proper working of these machines. In installing these four items, the assessee spent Rs. 4,28,196. THE assessee, under Section 32A of the Income-tax Act, 1961 (for short, "the Act"), therefore, claimed investment allowance amounting to Rs. 1,07,266 on the investment made by it for installing these machines/plants in its hospital. THE Income-tax Officer, "A" Ward, Jodhpur, by its order dated March 23, 1988, disallowed the investment allowance by holding that these machines only produce photos of the patients in technical digits and do not produce any article. THE Income-tax Officer also held that the hospital is not a "production" or "manufacturing" unit. Dissatisfied with the order dated March 23, 1988, passed by the Income-tax Officer, "A" Ward, Jodhpur, in not allowing the deduction under Section 32A of the Act, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Jodhpur. THE Commissioner of Income-tax (Appeals), Jodhpur, allowed the appeal filed by the assessee and held that the assessee is entitled to investment allowance on the machines installed, as per Section 32A of the Act. THE relevant observation made by the Commissioner of Income-tax (Appeals), Jodhpur, reads as under : " THE running of a clinic with the facilities provided for X-ray screening of abdominal organs (liver, gall bladder, pancreas, kidney, ovary, etc.) and foetal monitor are commercial activities. Further, the appellant has been registered with the Director of Industries as small-scale industry. As per the aforesaid decision, the setting-up of such machines constitutes an industry and investment allowance thereon is admissible as per Section 32A. Considering all the relevant facts and respectfully following the aforesaid decisions, I hold that the appellant is entitled to investment allowance on the machines installed under Section 32A." Aggrieved with the order dated August 50, 1988, passed by the Commissioner of Income-tax (Appeals), Jodhpur, the Revenue preferred an appeal before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, and the Tribunal, by its order dated January 12, 1990, dismissed the appeal filed by the Revenue and maintained the order passed by the Commissioner of Income-tax (Appeals) allowing the investment allowance under Section 32A of the Act to the assessee. The Revenue, thereafter, moved an application under Section 256(1) of the Act before the Tribunal for referring the question of law mentioned in the application and the Tribunal, by its order dated September 23, 1991, stated the case before this court and referred the questions of law, mentioned in paragraph No. 1 of this order, for the opinion of this court. It is contended by learned counsel for the Revenue that the investment allowance under Section 32A of the Act can be allowed to a small-scale industrial undertaking on the machinery and plant installed in its undertaking for the purpose of business of manufacture or production of any article or thing. These machines, namely, X-ray machines, ultrasound scanner/sonogpraphic machines and foetal monitor installed by the assessee in its hospital, do not manufacture or produce any article or thing and, therefore, no investment allowance can be allowed on the installation of these machines ; and so far as the air-conditioner is concerned, that was an office equipment which is not entitled to any investment allowance. Learned counsel for the assessee, on the other hand, has submitted that the X-ray machines as well as the ultrasound scanner/sono-graphic machine and foetal heart monitor produce pictures and data and, therefore, it cannot be said that these machines are not producing any article or thing. So far as installation of air-conditioning equipment is concerned, that was installed to ensure proper working of these various machines installed in the hospital and, therefore, it cannot be said to be an office equipment and the Commissioner of Income-tax (Appeals) as well as the Tribunal rightly held that the assessee is entitled to investment allowance. We have considered the submissions made by learned counsel for the parties. Section 32A(2)(b)(ii) of the Act provides that the investment allowance equal to 25 per cent. of the actual cost of the machinery or plant, is admissible to the assessee in respect of any machinery or plant installed in a small-scale industrial undertaking which is owned by the assessee and is wholly used for the purposes of the business of manufacture or production of any articles or things, including the articles or things specified in the Eleventh Schedule to the Act, carried on by it. As per the second proviso appended to Section 32A of the Act, this deduction in the form of investment allowance is not allowable in respect of : (a) any machinery or plant installed in any office premises or any residential accommodation including any accommodation in the nature of guest house ; (b) any office appliances or road transport vehicles ; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Section 33 of the Act; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year.
(3.) FOR the purpose of grant of investment allowance, "small-scale industry" has been defined in Explanation (2) to Section 32A(2) of the Act. As per this Explanation, an industrial undertaking shall be deemed to be a "small-scale undertaking", if the aggregate value of the machinery and plant (other than tools, jigs, dies and moulds) installed, as on the last day of previous year, for the purposes of the business of the undertaking, does not exceed (i) in a case where the previous year ends before 1st day of August, 1980, Rs. 10,00,000, (ii) in a case where the previous year ends after the 31st day of July, 1980, but before the 18th day of March, 1985, Rs. 20,00,000 ; and (iii) in a case where the previous year ends after the 17th day of March, 1985, Rs. 35,00,000. It is not in dispute that the assessee has installed the aforesaid four machines in its hospital for providing efficient medical services to its patients for a commercial purpose and invested a sum of Rs. 4,28,196. It is also not in dispute that these machines have been installed by the assessee for its business activities and are being used for the hospital as such for investigation, etc. The only question that requires consideration, therefore, is; whether the assessee is entitled to investment allowance for the installation of these machines ? For admissibility of the investment allowance it is necessary that the machinery or plant, (i) should be owned by the assessee ; (b) should be wholly used for the purpose of business carried on by it ; (c) the machinery or the plant specified in Sub-section (2) of Section 32A should be new machinery or plant installed in the industrial undertaking for the purpose of business of manufacture or production of article or thing ; and (d) to cover its case under a small-scale industrial undertaking, the aggregate value of the machinery and plant installed should not exceed the limit provided in Explanation (2) to Section 32A(2) of the Act. So far as conditions Nos. (a), (b) and (d) are concerned, there is no dispute between the parties that the assessee satisfies these conditions. The only controversy, in the present case, which remains to be decided, is : whether the machinery or plant installed by the assessee, have been installed for the purpose of business of manufacture or production of any article or thing including an article or thing specified in the Eleventh Schedule to the Act ? The question, which requires consideration, therefore, is : whether the X-ray machine, ultrasound scanner/ultra sonographic machine and foetal heart monitor are manufacturing or producing any article or thing and whether the air-conditioning equipment has been installed for the efficient working of these machines or is an office equipment ? ;