Commissioner of Income Tax vs Shashi Nursing Home Ltd.

The present appeal has been filed under s. 260(A) of the IT Act, 1961 [hereinafter referred to as the ''Act'') against the order dt. 25th Feb., 2004 passed by the income tax Appellate Tribunal, Delhi Bench "E", New Delhi (hereinafter referred to as the ''Tribunal''). The appeal has been admitted vide order dt. 5th Sept., 2007 on the two substantial questions of law said to be arising out of the Tribunal''s order:

"1. Whether on the facts and circumstances of the case, the Hon''ble Tribunal was legally Justified in allowing depreciation on the nursing home building at a higher rate as claimed by the assessee treating it as plant and machinery and holding that the decision in case of Commissioner of Income Tax Vs. Dr. B. Venkata Rao, is applicable in the case, overlooking the later decision of the apex Court in the case of Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, and thereby ignoring the test of functionality?

Whether on the facts and circumstances of the case, the Hon''ble Tribunal was legally Justified in holding that the Department is expected to adopt consistent approach without appreciating the fact that under the tax law every year is independent and the principle or res judicata is not applicable to tax proceedings?"

Briefly stated, the facts giving rise to the present appeal are as follows:

The appeal relates to the asst. yrs. 1995-96. The respondent-assessee is a public limited company and running a nursing home in the name and style of M/s. Shashi Nursing Home Ltd. It had filed its return of income declaring a loss of Income Rs. 4.12.680 which was processed under s. 143(1)(a) of the Act. In response to the notice issued, respondents representative attended the proceedings. The respondent-assessee had claimed depreciation on hospital building @ 25 per cent treating it as a plant and machinery. The AO did not allow the same and held that the depreciation will be allowed to the respondent-assessee as per normal rate applicable to building rather than plant and machinery. Feeling aggrieved the respondent-assessee preferred an appeal before the CIT(A), Meerut, who vide order dt. 28th July, 1999 had accepted the claim of the respondent-assessee and held that the depreciation of 25 per cent is applicable to the plant and machinery be allowed. Feeling aggrieved, Revenue filed appeal before the Tribunal. The Tribunal by the impugned order upheld the order of the CIT(A) and dismissed the appeal by holding as follows:-

"8. We have carefully considered the facts and circumstances relating to this matter and the rival submissions. According to the learned CIT(A), nursing home building fulfilled the conditions as laid down by the Hon''ble Karnataka High Court in the case of Dr. D. Venkata Rao (supra). Thus, the learned CIT(A) has taken the nursing home as plant and machinery and allowed the depreciation accordingly. He has also pointed out that in asst. yr. 1993-94 also the depreciation was allowed by the Department in the assessment which was completed under s. 143(3) and in subsequent years also similar approach has been adopted. The Department has not controverted the findings of fact recorded by the learned CIT(A) and in view of various equipments filled in the hospital building, it fulfils the functional test also. It is not the case of the Deptt. that the hospital building of the assessee is meant merely for housing the patients. If the building is mainly used for diagnosis or treatment of patients and fully equipped with scientific and pathological instruments like X-Ray plant, oxygen plant and sterilization system, etc., then it is covered within the definition of plant and machinery. The learned Departmental Representative could not show us any authority in favour of his submissions that the nursing home/hospital of the assessee is not a plant whereas the claim of the assessee is found to be supported by the decision of Hon''ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Dr. B. Venkata Rao, in which case the Hon''ble apex Court made the following observations:

''We find from the order of the Tribunal as also the assessment order that the assesses nursing home is equipped to enable the sterilization of surgical instruments and bandages to be carried on. It is reasonable to assume in the circumstances, particularly having regard to the Tribunal''s order which states that the sterilization room covers about 250 sq. ft. that the nursing home is also equipped with an operation theatre. In the circumstances, we think that the finding of the High Court should be accepted.''

In view of the above and on going through the entire material we find that the nursing home of the assessee which was equipped with scientific instruments should be treated as plant & machinery and depreciation should be allowed on it accordingly. It may be pointed out that the Department has also treated the nursing home of the assessee as plant in subsequent years and in earlier years and therefore the Department is expected to adopt consistent approach. In view of the above, we do not find any scope to interfere on this issue also. Hence, this ground stands rejected."

We have heard Sri. Shambhu Chopra, learned senior standing counsel for the Revenue. Sri. Krishna Agrawal has appeared for the respondent assessee.

Sri. Chopra submitted that the building of a Nursing Home cannot be treated as a plant & machinery and therefore, normal depreciation as applicable to the building ought to have been allowed treating it as part of plant and machinery and has placed reliance upon a decision of the apex Court in the case of Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, where the apex Court had held that a building of a cinema theatre cannot be treated as plant and machinery and normal depreciation applicable to a building is admissible.

Sri. Agrawal, learned counsel for respondent-assessee further relied the decision of the apex Court in the case of in case of Commissioner of Income Tax Vs. Dr. B. Venkata Rao, wherein the apex Court while considering the case clearly has held that depreciation to the building used for nursing home were plant equipment, sterilisation room has been established is to be treated as plant & machinery and depreciation admissible for plant and machinery is allowable.

In reply Sri. Chopra submitted that subsequent decision of the apex Court in the case of CIT vs. Anand Theatres (supra) ought to be followed.

We have given our thoughtful consideration to the various pleas raised by the learned counsel for the parties. We find that in the case of CIT vs. Dr. B. Venkata Rao (supra), the apex Court upheld the decision of this Court in the case of S.K. Tulsi and Sons Vs. Commissioner of Income Tax, wherein this Court has held that functional test ought to have been applied for claiming depreciation in respect of building structure. The apex Court has held that if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a "plant"; but where the structure played no part in the carrying on of those activities but merely constituted a place wherein they were carried on, the building could not be regarded as a plant. In case of Dr. B. Vankata Rao (supra), the apex Court found that the assesses nursing home is equipped to enable the sterilisation of surgical instruments and bandages to be carried on which covered 250 sq. ft. and that nursing home is also equipped with an operation theatre. Therefore, the plant and nursing home stated as plant and machinery and the depreciation should be allowed on it accordingly. In the present case we find that the nursing home of the respondent is equipped with operation theatre, pathological laboratory, x-ray plant, plant for sterilization of cloths, plant for sterilization of other surgical equipments, an air conditioning plant etc. Thus, the said decision of the apex Court in case of Dr. B. Vankata Rao (supra) would be squarely applicable in the present case. The plea of Sri. Chopra that the decision of the apex Court in the case of Anand Theaters (supra) which is a subsequent decision ought to have been applied cannot be applied for the reason that the case of Anand Theatres (supra) did not relate to nursing home whereas decision of the apex Court in the case of Dr. B. Vankata Rao (supra) directly related to nursing home and therefore the principle laid down in case of Dr. B. Vankata Rao (supra) ought to be applied in the present case. Moreover, we find that in the earlier assessment year and subsequent assessment year the ITO has allowed the depreciation on the building treating it as part of plant and machinery.

In view of the foregoing discussion, we do not find any legal infirmity in the order passed by the Tribunal. The appeal fails and is dismissed.