NEW DELHI, JAN 02, 2013: THE issue before the Bench is - Whether a Diagnostic Centre is an industrial undertaking within the meaning of Section 80-IA. And the verdict goes in favour of the Revenue.

Facts of the case

The respondent 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 MRI unit in the A.Y 1995-96. The assessment for the A.Y 1995-96 was completed and deductions u/s 80-IA were allowed to the assessee. The CIT issued an order u/s 263 which found that during the accounting year relevant to A.Y under consideration, the assessee established a new MRI unit and had claimed a deduction u/s 80-IA On 22.03.2002, a fresh assessment order was made by AO u/s 143/ 263 which disallowed the benefit of deduction u/s 80-IA. 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. The Assessee filed its return of income for the A.Y 1999- 2000 on 24.12.1999 declaring an income of Rs.4065110. On 22.03.2002, the AO passed an Assessment order which noticed that Assessee has claimed deduction u/s 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 u/s 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 expansion of existing business, as the assessee’s Radiology and imaging unit was in existence since 1948. On 16.10.2002, the CIT (A) 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.

On Appeal before the HC the Revenue Counsel submitted 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. The assessee Counsel contended that several High Courts have ruled that hospitals are industrial undertakings, and diagnostic centres are also such industrial undertakings. The 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.

Having heard the parties, the HC held that,

++ 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. 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;

++ 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. The question of law answered in favour of the Revenue.

(See 2013-TIOL-07-HC-DEL-IT)