Ita/1261/2009 Of Moidu's Medicare Pvt. Ltd v. The Commissioner Of Income Tax Appls-I

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU WEDNESDAY, THE 7TH DAY OF SEPTEMBER 2016/16TH BHADRA, 1938 ITA.No. 1261 of 2009 ( ) ------------------------- AGAINST THE ORDER/JUDGMENT IN ITA 49/2008 of I.T.A.TRIBUNAL,COCHINBENCH DATED 19-12-2008 APPELLANT(S)/APPELLANT/ASSESSEE: ------------------------------------------ MOIDU'S MEDICARE PVT. LTD. INDIRA GANDHI ROAD, KOZHIKODE, REP. BY ITS MANAGING DIRECTOR DR. K.MOIDU. BY ADVS.SMT.MEERA V.MENON SRI.MAHESH V.MENON RESPONDENT(S)/RESPONDENTS/REVENUE: ------------------------------------------------- 1. THE COMMISSIONER OF INCOME TAX (APPEALS)-I AAYAKAR BHAVAN NORTH BLOCK, 4TH FLOOR, MANANCHIRA, KOZHIKODE-673 001. KOZHIKODE-673 001. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-(1) AAYKAR BHAVAN, NEW ANNEXE BUILDING NORTH BLOCK, MANANCHIRA, KOZHIKODE-673 001. R1 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-09-2016, ALONG WITH I.T.A.NOS. 1262, 1319 & 1310 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX : 2 : PETITIONER'S ANNEXURES: ANNEXURE A:TRUE COPY OF ASSESSMENT ORDER DATED 29.12.2006ISSUED BY THE 2ND RESPONDENT, FOR THE ASSESSMENTYEAR 2001-2002.ISSUED BY THE 2ND RESPONDENT, FOR THE ASSESSMENTYEAR 2001-2002. ANNEXURE B :TRUE COPY OF COMMON ORDER DATED 24.10.2007 OFTHE 1ST RESPONDENT IN I.T.A. NOS. 114 & 115/R-1/CIT(A)/CLT/06.07.THE 1ST RESPONDENT IN I.T.A. NOS. 114 & 115/R-1/CIT(A)/CLT/06.07. ANNEXURE C:TRUE COPY OF COMMON ORDER DATED 19.12.2008 OFTHE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH INI.T.A. NO. 49 & 50/COCH/2008 FILED BY THE APPELLANTAND IT.A. NOS. 119 &120/COCH/2008 FILED BY THEREVENUE.THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH INI.T.A. NO. 49 & 50/COCH/2008 FILED BY THE APPELLANTAND IT.A. NOS. 119 &120/COCH/2008 FILED BY THEREVENUE. RESPONDENTS' ANNEXURES:NIL //TRUE COPY// P.A. TO JUDGE. ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. ------------------------------------------- I.T.A. Nos. 1261, 1262, 1319 & 1310 of 2009 ------------------------------------------ Dated this the 7[th] day of September, 2016. JUDGMENT Antony Dominic,J. These appeals are filed by the assessee aggrieved by theorders passed by the Income Tax Appellate Tribunal, Cochin Benchin I.T.A. Nos. 49 & 50 of 2008 and 199 and 198 of 2006 pertainingto the assessement years 2001-2002, 2002-2003, 2000-2001 and1999-2000 respectively. 2. The assessee is a hospital. Contending that its hospital building is a plant, the assessee claimed depreciation at the rate of25%. Insofar as the assessment years 1999-2000 and 2000-2001are concerned, the Assessing Officer allowed depreciation at therate of 25% as claimed by the assessee. However, the Commissionerassumed jurisdiction under Section 263 of the Income Tax Act,taking the view that the assessment orders were prejudicial to theinterest of the Revenue. According to the Commissioner, that part ofthe building used for general purposes and that used for specifichospital purposes should be distinguished and depreciation at therate of 25% can be allowed only for such portion of the building used as operation theatre, X-ray rooms etc. and the other portion ofthe building or part of the building used as administrative blocks,patient rooms, visitors' room etc. would be eligible for depreciation atthe rate of 10% only. On that basis, he set aside the orders ofassessment and the Assessing Officer was directed to redo the same.Accordingly, assessment orders were passed and the same wereconfirmed by the first appellate authority and the Tribunal. It is theseorders which are challenged by the assessee in I.T.A. Nos. 1319 and1310 of 2009. used as operation theatre, X-ray rooms etc. and the other portion ofthe building or part of the building used as administrative blocks,patient rooms, visitors' room etc. would be eligible for depreciation atthe rate of 10% only. On that basis, he set aside the orders ofassessment and the Assessing Officer was directed to redo the same.Accordingly, assessment orders were passed and the same wereconfirmed by the first appellate authority and the Tribunal. It is theseorders which are challenged by the assessee in I.T.A. Nos. 1319 and1310 of 2009. 3. Insofar as the assessment years 2001-2002 and 2002-2003are concerned, though the assessee had claimed that the hospitalbuilding being one designed to run a hospital, the building in itsentirety is a plant entitling the assessee for depreciation at the rate of25%, the Assessing Officer allowed 25% only for a portion of thebuilding and the remaining portion occupied by administrative rooms,patient rooms etc. were held to be eligible for depreciation at the rateof 10% also. These orders were confirmed by the first appellateauthority and the Tribunal. It is in these backgrounds, I.T.A. Nos.1261 and 1262 of 2009 are filed. 4. The common questions of law framed in these appeals for the consideration of this Court are the following: 1.Whether, on the facts and in the circumstances of the case,the Appellate Tribunal is justified in law in affirming theorders of the authorities below and in holding that the entirehospital building of the appellant is not eligible to be treatedas a plant for the purpose of granting depreciation under theIncome Tax Act, 1961?the Appellate Tribunal is justified in law in affirming theorders of the authorities below and in holding that the entirehospital building of the appellant is not eligible to be treatedas a plant for the purpose of granting depreciation under theIncome Tax Act, 1961? 2.Whether there were materials for the Appellate Tribunal tohold that the appellant's hospital building has to be classifiedas partly as plant and partly as general building in view of thedecision of the Supreme Court in Dr. B. Venkata Rao's caseand Karnataka Power Corporation's case?hold that the appellant's hospital building has to be classifiedas partly as plant and partly as general building in view of thedecision of the Supreme Court in Dr. B. Venkata Rao's caseand Karnataka Power Corporation's case? 3.Whether there were materials for the Appellate Tribunal toclassify the appellant's hospital building partly as plant andpartly as general in view of the fact that the building is to beused in tandem for the business of running the hospital?classify the appellant's hospital building partly as plant andpartly as general in view of the fact that the building is to beused in tandem for the business of running the hospital? 5. We heard the learned counsel for the assessee and thelearned Senior counsel appearing for the Revenue. 6. Before we deal with the matter on merits, we may deal with a preliminary objection raised by the learned Senior Counsel for theRevenue. According to him, the assessee did not appeal against theorder under Section 263 of the Act passed by the Commissioner inrelation to the assessment years 1999-2000 and 2000-2001 and thesaid order has become final and binding on the Assessing Officer, theassessee and the Department. Therefore, it is not open to theassessee to challenge the assessment order passed in compliance 5. We heard the learned counsel for the assessee and thelearned Senior counsel appearing for the Revenue. 6. Before we deal with the matter on merits, we may deal with a preliminary objection raised by the learned Senior Counsel for theRevenue. According to him, the assessee did not appeal against theorder under Section 263 of the Act passed by the Commissioner inrelation to the assessment years 1999-2000 and 2000-2001 and thesaid order has become final and binding on the Assessing Officer, theassessee and the Department. Therefore, it is not open to theassessee to challenge the assessment order passed in compliance thereof. In support of these plea, the learned Senior Counsel placedreliance on the judgment of the Bombay High Court in HardillaiChemicals Ltd. v. Commissioner of Income Tax[1]. Though it is truethat such a plea is seen to have been accepted by the Bombay HighCourt, we find that an exactly similar plea raised in the context ofKerala General Sales Tax Act was considered and rejected by a FullBench of this Court in the judgment in M. Syed Alavi and others v.State of Kerala[2]. Therefore, respectfully following the dictum laiddown by the Full Bench, we overrule the preliminary objection raisedby the learned Senior Counsel for the Revenue. 7. Turning to the merits of the case, we find that under theIncome Tax Act, the provision for depreciation is contained in Section32 of the Act and if a hospital or part thereof qualifies to be a plant, itwould be eligible for depreciation at the rate of 25%; whereas that partof the hospital which is to be treated as a building shall be eligible fordepreciation only at the rate of 10%. It is true that in Commissionerof Income Tax v. Dr. B. Venkata Rao[3], the Honourable Supreme Courtconsidered the case of a Medical Practitioner running a nursing home.In that case, the Tribunal has held the nursing home to be a plant 1221 ITR 194 21981 KLT 548 3243 ITR 81 and the same was affirmed by the High Court. In the appeals, theSupreme Court held that since the nursing home is equipped toenable the sterilisation of surgical instruments and bandages to becarried on and it was reasonable to assume that nursing home wasequipped with operation theater, the finding of the High Court shouldbe accepted. Subsequently, this Court in the judgment inCommissioner of Income Tax v. Dr. Ganga R Menon, Palghat PolyClinic[4] after making reference to Venkata Rao (supra) and relying onthe judgment of the Apex Court in Commissioner of Income Tax v. H.Link[5] took a different view by holding thus: “We find that both the Tribunal and the High Court decided theissue in favour of the assessee on the basis of sterilization facilityavailable in the hospital to constitute the building also as a part ofthe plant. In a nursing home or hospital, the operation theatre has tobe kept sterilized all through to prevent germs entry, and thereforethe theatre room may be called a plant, and hence it has to betreated differently from other parts of the hospital building whichbuilding has consultation rooms, accommodation for patients,canteen resting place, etc. This may be the position with regard tothe X-ray plant, which is also to be insulated to prevent any kind ofpollution and to prevent X-rays escaping outside. Therefore, whilethe entire building does not constitute plant, some parts of thebuilding may be treated as plant, depending upon its use. It is,therefore, a matter to be claimed and proved by the assessee beforethe Assessing Officer. This issue is not considered by the Tribunal orany other authority in these lines. A blanket order of the Tribunalfollowing some decisions without going into the details is not tenable.We, therefore, set aside the order of the Tribunal and since findings 4259 ITR 661 5244 ITR 93 4259 ITR 661 5244 ITR 93 on facts are required we remand the matter to the Officer fordeciding the matter afresh after calling for details from the assesseeand the officer will decide the matter in the light of the decisionsabove referred and our above observations and grant depreciation atthe rate applicable to plant only to so much of the area qualifying as'plant'.” 8. Subsequently, the Apex Court in Commissioner of Income tax v. Karnataka Power Corporation[6] referred to the judgment in Commissioner of Income Tax v. Anand Theaters [7] and held thatwhere it is found as a fact that the building has been so planned andconstructed so as to serve the assessee's special technicalrequirements, the building will qualify to be treated as a plant.Paragraph 5 and 6 of the judgment reads thus: “5. Our attention has been drawn by the learned counselfor the revenue to the judgment of this Court in CIT v. AnandTheatres [2000] 244 ITR 192/110 Taxman 338. He submits that,in that judgment, this Court has held that, except in exceptionalcases, the building in which the plant is situated must bedistinguished from the plant and that, therefore, the assessee'sgenerating station building was not to be treated as a plant forthe purpose of investment allowance. 6. It is difficult to read the judgment in the case of Anand Theatres (supra) so broadly. The question before the Court waswhether a building that was used as a hotel or a cinema theatrecould be given depreciation on the basis that it was a 'plant' and itwas in relation to that question that the Court considered a hostof authorities of this Country and England and came to theconclusion that a building which was used as a hotel or a cinemetheatre could not be given depreciation on the basis that it was aplant. We must add that the Court said, 'To differentiate a 6247 ITR 2687244 ITR 1927244 ITR 192 building for grant of additional depreciation by holding it to be aplant in one case where a building is specially designed andconstructed with some special features to attract customers andthe building not so constructed but used for the same purpose,namely, as a hotel or theatre would be unreasonable.' Thisobservation is, in our view, limited to buildings that are used forthe purpose of hotels or cinema theatres and will not always applyotherwise. The question, basically, is a question of fact, andwhere it is found as a fact that a building has been so plannedand constructed as to serve an assessee's special technicalrequirements, it will qualify to be treated as a plant for thepurpose of investment allowance.” 9. Similar view has been taken by the Alahabad High Court in its judgment in Commissioner of Income Tax, Ghaziabad v. Shri Shashi Nursing Home Ltd.[8], in which it is held in paragraph 8 thus: 9. Similar view has been taken by the Alahabad High Court in its judgment in Commissioner of Income Tax, Ghaziabad v. Shri Shashi Nursing Home Ltd.[8], in which it is held in paragraph 8 thus: “8. We have given our thoughtful consideration to thevarious pleas raised by the learned counsel for the parties. Wefind that in the case of Dr.B. Vankata Rao (supra), the Apex Courtupheld the decision of this Court in the case of S.K. Tulsi & Sonsv. CIT [1991] 187 ITR 685/54 Taxman 100wherein this Court hasheld that functional test ought to have been applied for claimingdepreciation in respect of building structure. The Apex Court hasheld that if it was found that the building or structure constitutedan apparatus or a tool of the taxpayer by means of which businessactivities were carried on, it amounted to a “plant”; but where thestructure played no part in the carrying on of those activities butmerely constituted a place wherein they were carried on, thebuilding could not be regarded as a plant. In case of Dr B.Vankata Rao (supra) the Apex Court found that the assessee'snursing home is equipped to enable the sterilisation of surgicalinstruments and bandages to be carried on which cover 250 sq. ft.and that nursing home is also equipped with an operation theater.Therefore the plant and nursing home stated as plant andmachinery and the depreciation should be allowed on itaccordingly. In the present case, we find that the nursing home of the respondent is equipped with operation theater, pathologicallaboratory, x-ray plant, plant for sterilization of clothes, plant forsterilization of other surgical equipments, an air conditioning plantetc. Thus the said decision of the Apex Court in case of Dr.BVankata Rao (supra) would be squarely applicable in the presentcase. The plea of Sri. Chopra that the decision of the Apex Courtin the case of Anand Theaters (supra) which is a subsequentdecision ought to have been applied cannot be applied for thereason that the case of Anand Theatres did not relate to nursinghome whereas decision of the Apex Court in the case of Dr. B.Vankata Rao (supra) directly related to nursing home andtherefore the principle laid down in case of Dr. B. Vankata Rao(supra) ought be applied in the present case. Moreover, we findthat in the earlier assessment year and subsequent assessmentyear the Income Tax Officer has allowed the depreciation on thebuilding treating it as part of plant and machinery.” 10. A reading of the above judgments, therefore, show that the question to be examined is whether as held by the Apex Court inKarnataka Power Corporation (supra) the building has been soplanned and constructed as to serve an assessee's special technicalrequirements. On such consideration, if a factual finding has beenarrived at in favour of the assesses, then the building would qualify tobe a plant with consequential depreciation at the applicable rate.Insofar as these cases are concerned, from the assessment orderitself, we find that it was the case of the assessee that the hospitalbuilding is a specifically designed and planned one to meet itsrequirements as a hospital. However, without any further verification,this contention has been brushed aside and the assessment has been completed merely following the principles laid down in Venkata Rao(supra). In the light of the subsequent judgment in Karnataka PowerCorporation (supra), we are unable to sustain such assessments. 11. Therefore, we set aside the assessment orders and theorders of the first appellate authority and the Tribunal and remit thematters to the Assessing Officer to pass fresh orders in the light ofthe principles laid down by the Apex Court in Karnataka PowerCorporation. Answering the questions of law in favour of the assessee andagainst the Revenue, the matters are remitted to the Assessing Officerto pass fresh orders. ANTONY DOMINIC, JUDGE. DAMA SESHADRI NAIDU, JUDGE. Rv