Natvarlal Ambalal Dave vs Commissioner of Income Tax

Rajesh Balia, J.—This case pertains to asst. yr. 1980-81. The assessee is a doctor and is specialist of radiology. He also operates an x-ray

clinic of his own where the x-ray films are also exposed of the patients for which charges are required to be paid by the persons coming there.

From the profit and loss account it is apparent that the assessee has shown the charges received from customers for exposing x-ray films as ""x-ray

revenue"" by deducting the total expenditure including the raw-films, other materials, salary and emoluments paid to staff and other expenses in

connection with the running of the clinic, including interest on loans etc. It has not been shown as an income from fees. The assessee had, during

that year purchased an x-ray machine. Apart from claiming depreciation thereon, the assessee also claimed investment allowance on the cost of

acquisition of that x-ray machine under s. 32A of the IT Act, 1961, as it stood at the relevant time. The ITO was of the view that s. 32A reveals

that for allowing deduction on account of investment allowance, three preliminary conditions are must namely (1) plant and machinery should be

used in industrial undertakings, (2) it should be manufacturing some article and (3) item manufactured should not be listed in relevant schedule. He

further came to the conclusion that nursing home of a radiologist cannot be treated as an industrial undertaking and it does not produce anything

and therefore, it does not fulfil the conditions Nos. 1 and 2 and rejected the assessee''s claim. This view of the ITO was affirmed by the CIT(A) on

appeal. On further appeal before the Tribunal the assessee brought to the notice of the Tribunal another decision of the Nagpur Bench of the

Tribunal and a decision of the Madras High Court in Laxmichand Hirjibhai Vs. Commissioner of Income Tax, Gujarat-III, for the purpose of

showing that another Bench of the Tribunal has held the exposed x-ray film as a manufactured article entitling investment allowance by fulfilling the

second condition and the Madras High Court has taken the view that a medical practitioner practicing and purchasing an x-ray machine is entitled

to development rebate under s. 33. The Tribunal apparently, as it appears from the order, did not decide the issue of allowability of investment

allowance on investment in x-ray machine, took into consideration arguments advanced by the learned Departmental Representative for the first

time before the Tribunal that investment allowance can be claimed only in respect of business activity and not in respect of professional activity.

The decision of the Gujarat High Court in COMMISSIONER OF Income Tax, GUJARAT Vs. DR. K. K. SHAH (I.T.R. NOS. 193/78 and

113/79) DR. (MRS.) HARIBALA K. SHAH (I.T.R. NO. 154/1978) DR. SUDHABEN D. BHUPTANI (I.T.A. NOS. 158 and 159 OF 1981)

DR. GHANSHYAM R. RAVAL (I.T.A. NO. 167 OF 1981)., was also relied upon.

The two-fold questions that are embraced in the question referred to us are, firstly whether the ITO and CIT(A) were right in holding that two

conditions namely that the assessee is not an industrial undertaking and is not manufacturing anything inasmuch as no new commercial productions

come out in the form of exposed x-ray films to fall within the meaning of manufacture though raised before the Tribunal but were not decided by it

and secondly that the assessee is not carrying on business, but carrying on profession.

So far as the first question is concerned whether the assessee is engaged in manufacturing or producing any article or thing by operating x-ray

machine is concerned or not, in our opinion, the Revenue was not right in taking the view that it does not result in any manufacturing process. The

basic premise on which it was held by the Revenue authorities that the x-ray machine does not produce any thing or article in the sense as used in

s. 32A was that photograph taken of parts of body through x-ray machine are not saleable in open market to anyone else and therefore, it does

not result in production of any commercial article.

It cannot be doubted that the photographs of various parts of the body obtained by an x-ray machine are the resultant product of work of activity

and they are the end results of efforts and activities carried on with the machine by human endeavour and give result in black and white regarding

the internal position of the parts of the body on the exposed film and this end-result is helpful for the proper and efficient diagnosis of the patient.

The photographs or the graphs obtained from x-ray machine which are the result of human efforts and activity, therefore, cannot but be a thing

produced by the use of x-ray machine. It is also to be noticed that in order to treat a product to be saleable it need not be a product saleable in

open market for use of general people. A thing may be produced for being sold to a particular person or for the use of a particular person. In that

sense if we look at the activity it is clear that after producing the photograph of internal part of the body of the person concerned, money is charged

from that patient recovering the cost of such production and the profit which the producer of that photograph desires to obtain out of it. It is not the

requirement of the provision nor it can be read in the context of the provision that in order to fulfil the condition that a machinery or plant must have

been installed in an industrial undertaking for the purpose of manufacturing or production of any article or thing must be related to production of

such article or thing which is saleable in open market as a common marketable commodity only. We are therefore, of the opinion that so far

satisfaction of this condition is concerned that x-ray plant in question was not a machinery or plant through which any article or thing could be

produced for sale stands satisfied.

In our this conclusion we are fortified by a decision of Rajasthan High Court in CIT vs. Trinity Hospital (1996) 87 Taxman 127 (Raj), wherein,

after referring to a large number of decisions and examining the dictionary meaning of ""manufacture"", ""production"", ""produce"", ""article"" and ""things"",

it was opined that the photographs of various parts of the body obtained by these machines are the resultant product of the work or activity. They

are the end result of efforts and activities and give result in black and white regarding the internal position of the parts of the body and are helpful

for the proper and efficient diagnosis. The photographs or the graphs obtained from these machines, which are the result of efforts or activity,

therefore, can be said to be a ''thing'' as used in s. 32A.

We are in respectful agreement with the conclusions and the reasons stated therein.

The next question that arises for our consideration in this regard is whether the assessee can be treated to be an industrial undertaking and

whether it carries on a business. We find from the orders of the Tribunal as well as the lower authorities that the Revenue authorities have sought to

decide this issue on abstract principle whether a doctor can be said to be a professional or a businessman without making an effort to reach

necessary conclusions of fact in this regard. The primary ground for holding that the assessee in the present case cannot be said to carry on

business is on the basis of decision of this Court in CIT vs. Dr. K. K. Shah (supra). In the case of Dr. K. K. Shah, the question which this Court

was called upon to decide was whether provisions of s. 64, sub-s. (1)(i) of the 1961 Act applied to a case where the firm of doctors was carrying

on profession as distinct from carrying on business. This Court by adverting to legislative history of the said provision drew a distinction between

the concept of business and profession for the purposes of s. 64. By noticing that in the Act of 1922 under s. 16(3A)(i) which envisaged clubbing

of income of the wife with the income of husband, provided that such clubbing would take place when the income of the wife was derived directly

or indirectly from a firm of which her husband was a partner. Mere membership in the firm in which husband was also a partner, on the part of wife

attracted the provision. Making a departure from this wide provision, in the 1961 Act, the expression membership in a firm has been replaced by

membership in a firm carrying on business. Noticing this vital difference which legislature has brought about in enacting new provision replacing the

old one, the Court came to the conclusion that expression business has been employed by the legislature in order to emphasise the distinction

between a business and a profession for the purposes of that provision. Thereafter, Their Lordships after looking to the object of the provision

further concluded ""the rison detra for clubbing together the income of non-professionals does not exist in the case of professionals"". However, the

matter was not left at that. It was not held as a matter of abstract proposition of law that a doctor who is a professional by qualification or a firm of

doctors cannot be said in any circumstances to be carrying on a business. The final conclusions reached by their Lordships are reproduced

hereinbelow :

We are, therefore, of the opinion that when professional couples such as a doctor-husband and a doctor-wife or a lawyer-husband and a lawyer-

wife or an architect-husband and an architect-wife form a partnership for the purpose of carrying on a professional activity which would fall within

the scope of the interpretation in Dr. Devendra M. Surti Vs. The State of Gujarat, , their income is not liable to be clubbed together under s. 64(1)

(i). We would, however, add the following riders :

(1) if a doctor-husband and a doctor-wife are also carrying on the activity of a nursing home in the context of their professional activity for the

purpose of treating their own patients, the income from the nursing home can be treated as the professional income of the professional couple and

no question of clubbing together can arise.

(2) If any business activity is carried on by a firm constituted by the doctor-husband or doctor-wife such as of running a drug store for selling drugs

to the patients or to others, the income from such activity can be clubbed together. Such income will not be exempt from being clubbed together

merely because it is an activity which is adjunct to the main professional activity. Similarly, when a doctor-couple carries on the nursing home

activity by admitting patients of other doctors and charging fees such as room fees or fees for services rendered to them, it may amount to a

business activity carried on by the firm and that part of the income can be clubbed together.

(3) Merely because a part of the activity is professional activity, the assessee cannot escape the clutches of the clubbing provision even in respect

of its income which can be said to be an income arising in the context of his business activities as distinguished from professional activities.

Accordingly, we decide the group of references and the group of Income Tax applications in the following manner.

From the aforesaid it can clearly be noticed that merely because a person happens to be professionally qualified doctor, it cannot be said that such

persons''s activity cannot be treated as an activity of carrying on business. This Court nowhere said that in every case where the question arises

whether an activity carried on by doctor can be treated as an activity of business or an activity of profession it could be decided without

considering the various other aspects determining the question whether a person is carrying on business or profession for the purposes of the

provision with which such question arises.

In Devendra Surti''s case (supra) the question was about meaning of a commercial establishment within the meaning of Bombay Shops and

Establishments Act, 1948. The Court was concerned with the issue whether a private dispensary of a doctor can be treated to be a commercial

establishment so as to be subjected to the provisions of the said Act. It may be noticed that, that was a case arising in the context of authority of

inspector appointed under the Commercial Shops and Establishments Act, to visit the commercial establishments, find necessary details about the

requirement of records concerned of the employees etc. and whether any breach of the rules and regulations under the said Act has been

committed by the owner of the establishment. Though in that connection Their Lordships were of the opinion that ordinarily an establishment like a

private dispensary run by a doctor cannot be treated to be a shop and commercial establishment, nonetheless possibility of a profession being

carried on as a business and falling into that category was not ruled out. Their Lordships observed that :

there is a fundamental distinction, therefore, between a professional activity and an activity of a commercial character and unless the profession

carried on by the appellant also partakes of the character of a commercial nature, the appellant cannot fall within the ambit of s. 294 of the Act.

The aforesaid observation by Their Lordships states in no unmistakable terms that a professional activity can also be characterised as an activity of

carrying on business if it is carried on like a commercial activity.

It was vehemently urged by Mr. Divetia, the learned counsel for the assessee, that since the decision of Dr. Surti''s case (supra) the controversy

has been set at rest by the Supreme Court in Bangalore Water Supply & Sewerage Board vs. A. Rajappa AIR 1978 SC 549 where in the context

of finding out the meaning of ''industry'' under s. 2(j) of the Industrial Disputes Act, Their Lordships said ""where there is systematic activity

organised by co-operation between employer and employee (the direct and substantial element is chimerical) for the production and distribution of

goods and services calculated to satisfy human wants and wishes (not spiritual or religious but inclusive of material things or services geared to

celestial bliss e.g. making, on a large scale, prasad or food), prima facie, there is an ""industry"" in that enterprise. Absence of profit motive or gainful

objective is irrelevant, be the venture in the public, joint, private or other sector.

It may be noticed that while deciding the cases of Dr. Surti as well as Bangalore Water Supply, the emphasise to find out the meaning of industry

was with a special reference to employer-employee relations and not with reference to industry as it is understood in any common parlance of

meaning. Nonetheless, one factor which is common to both the decisions referred to above was that it must relate to production and/or distribution

of goods and services calculated to satisfy human wants and wishes. Therefore, though the wide definition of industry in the context of employer-

employee relation under the various industrial laws may not be applicable to the meaning of industrial undertaking under the IT Act, as the

expression used in the context in which the provisions are set, the meaning of industrial undertaking in the set up of IT Act takes its colour from the

activity for which new plant or machinery is set up. The activity is of production of any article or thing. Therefore, any activity which primarily

concerns with the production of any article or thing would fall in the category of industrial undertaking for that purpose; may be that activities

carried on by a trader or any person carrying on any business or profession. The primary object of the provisions of s. 32A is that a person

carrying on business if he installs a new machinery or plant in any relevant previous year is entitled to claim a part of cost as deduction as

investment allowance, provided such plant and machinery is used by him in manufacture or production of any article or thing or in an activity of

construction. The decision in K. K. Shah''s case (supra) does not detract from the aforesaid principle. In this connection, we are amused to notice

that while the Revenue authorities have sought to distinguish the decision of Madras High Court in Laxmichand Hirjibhai Vs. Commissioner of

Income Tax, Gujarat-III, and Dr. P. Vadamalayan Vs. The Commissioner of Income Tax, Madras, on the ground that those cases deal with the

development rebate under s. 33 and are distinguishable, yet have applied the decision of Dr. K. K. Shah without trying to gather the facts and

without noticing that even Dr. K. K. Shah''s decision was not interpreting s. 32A of the Act with which we are concerned, but was in altogether

different context of s. 64 relating to the clubbing of income of the spouses who are members of the same firm. The object of the said provision was

entirely different. On the other hand by reading the provision relating to depreciation, investment allowance and development rebate as far as the

aspect of carrying on business in that regard is concerned, we are of the opinion that the distinction found by the Revenue authorities on the basis

of claim for development rebate and investment allowance is a distinction without substance. So far as the question of giving meaning to the

expression ''carrying on business'' is concerned, s. 32 deals with allowing depreciation as deduction. The expression used is in respect of

depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business or profession. Section 33 was

a provision in the Act from inception, prior to the provisions for investment allowance was made. The expression used is ''in respect of a new ship

or new machinery or plant other than office appliances or road transport vehicles, which is owned by the assessee and is wholly used for the

purposes of the business carried on by him..."" Section 32A was inserted by Finance Act, 1976 replacing the development rebate for the time

being. We are not referring to subsequent history as the same is not relevant for the present purposes.

From the aforesaid provisions, a clear omission of expression ""profession"" used in s. 32, from ss. 33 and 32A, can be noticed. Therefore, to this

extent the Revenue is right in its submission that as income from business, profession and vocation is being charged under the same Act for the

purposes of investment allowance under s. 32A or for that matter for development rebate under s. 33, the same are not used in a generic sense of

a regular activity of earning income simpliciter and in each case where a claim for investment allowance or development rebate is to be made, its

primary condition is that assessee must be carrying on a business as distinct from profession. If he is carrying on business, then the question of a

new machinery or plant being installed for the purpose of manufacture or production of an article or thing giving the establishment a colour of

industrial undertaking would arise, but unless it is found whether the assessee is carrying on a business as distinct from profession the further

questions would not arise. However, the test of whether a person is carrying on a business or the profession for the purposes of ss. 33 and 32A

cannot be different. We are, therefore, of the opinion that decision of Madras High Court referred to by the Revenue authorities and sought to be

distinguished, cannot be distinguished on the ground that they are given in the context of s. 32 and cannot govern the interpretation of s. 32A.

In CIT vs. Dr. V. K. Ramachandran (supra), it was contended by the Revenue that there being a dichotomy between the business and a

profession as the two expressions have been separately used in s. 28, they must be held two distinct activities. The Court rejected the contention

and said ""we consider that this argument does not take him any far. It is possible for a professional man to have a business or for a business man to

have a profession. Therefore, what we have to consider is the nature of the activity rather than any abstract construction of the term ""business"" or

profession"". In saying so, Their Lordships placed reliance in Dr. P. Vadamalayan vs. CIT (supra), wherein it was said once it is found that in an

individual''s professional activity there is inhered in it a trading or business concept as well and is also owned as such by the person, then the

conclusion is irresistible that the totality of the vocation has to gain the statutory allowance of development rebate.

Giving, therefore, a wide connotation to the word ""business"", we are of the view that if activity, though garbed as profession, is really commercial

or, in any event, if the vocation of the assessee is an admixture of both, then the assessee would be entitled to relief for development rebate as

claimed.

We are of the opinion that this principle equally applies to the claim for deduction on account of investment allowance. We also find that this

interpretation of considering an activity whether it is an activity of carrying on a trade or carrying on profession is not at variance with the view

expressed by the Gujarat High Court in K. K. Shah''s case (supra). Both the decisions lay emphasis on the fact to find out the real nature of the

activity in the context of the provisions which are to be applied to the given case and such exercise cannot be obviated with reference to abstract

principle of law whether a doctor can be said to be carrying on a business or profession.

The Tribunal in its order has recorded its conclusion in the following terms :

The words underlined show that the Gujarat High Court did not rule out the possibility of treating the professional activity as commercial activity.

However, it has not laid down any criterion to decide in what circumstances the activity could be termed as commercial activity.

We are, therefore, left only with the test that where skill is applied, the activity is professional.

The Hon''ble Gujarat High Court may in its greater wisdom consider the above aspect regarding the volume, extent and nature of the activity for

deciding the question of professional or business activity, should an opportunity be presented to it. We, however, in this position must bow in

deference to the said decision of the Gujarat High Court and accordingly hold that the activities of the assessee are not business but professional

activities and that, therefore, he is not entitled to the development rebate claimed by him.

From the aforesaid it is abundantly clear that while holding that the Gujarat High Court did not rule out the professional activity as commercial

activity, it abdicated its obligation to dwell on and decide this basic fact. The Tribunal instead of deciding that issue by examining the facts after

giving opportunity to the assessee, if necessary, facts were not on the record for the simple reason that this question had not been considered by

the lower authorities, but jumped to conclusion with reference to decision of the Gujarat High Court in K. K. Shah''s case (supra) that assessee

was carrying on profession and the question whether in the facts and circumstances of present case assessee was carrying on business if occasion

so arises. This is, in our opinion, an obligation of its duty to decide the question of facts by the final fact finding authority. In the absence of basic

facts having been found by the Tribunal, we are unable to decide this question on abstract principles of law and, therefore, we decline to do so and

leave it for the Tribunal to decide when it disposes of the appeal before it under s. 260 of the IT Act after the matter goes back to it, keeping the

observations made above.

We may also notice here that the learned counsel for the Revenue sought to support the disallowance of investment allowance on the ground

that x-ray machines are nothing but photographic apparatus and fall under entry 10 of the 11th Schedule giving the list of ineligible goods for the

benefit of deduction of any sum on account of investment allowance. This has not been the contention of the Revenue at any stage of the

proceedings. It being an independent and separate condition of allowing deduction as investment allowance cannot be said to be just another

aspect of the question arising out of Tribunal''s order and referred to us. We, therefore, are of the opinion that this question does not arise out of

the order of the Tribunal, which alone can be the subject-matter of question that may be referred to High Court and which can be answered by the

High Court. It being a totally new question of fact as well as of law, we decline to entertain it here. However, if the question is raised before the

Tribunal when the appeal is again heard by it after return of reference, the Tribunal may entertain this question if it is permissible to be raised at that

stage under law.

Reference accordingly stands disposed of with no order as to costs.