The Commissioner Of Income-Tax, Trichy v. Dr.d.laxmanakumar

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 05-12-2006 Coram The Honourable Mr.Justice P.D.DINAKARANandThe Honourable Mr.Justice P.P.S.JANARTHANA RAJA T.C.(A)Nos.2661 and 2662 of 2006and M.P.No.1 of 2006 in TC.2662/2006. The Commissioner of Income-Tax,Trichy ...Appellant inboth T.Cs. / Respondent. Vs. Dr.D.Laxmanakumar ...Respondent inboth T.Cs. / Appellant. The above T.C.(Appeals) are preferred under Section 260A of theIncome-Tax Act, 1961 against the common order of the Income Tax AppellateTribunal, Madras ‘C’ Bench, dated 25.11.2005 made in ITA Nos.433 and434/Mds/2003 for the assessment years 1998-99 and 1999-2000 against theorder of the Commissioner of Income Tax Appeals, Tiruchirappalli made inITA.No.160 and 161/2001-02 dated 11.12.2002 against the Order of IncomeTax Officer Ward I[1] Thanjavur in PA.No./GIR No.L-774/1[1] TNJ/1999-2000dt. 30.3.2001 against order of Income Tax Officer Ward I [1] Thanjavur inPA.No/GIR No.L.774 1[1] TNJ/1998-1999 dated 30.3.2001. For Appellant: Mr.J.Narayanaswamy J U D G M E N T (Judgment of the Court was made by P.D.DINAKARAN, J.) The above tax case appeals are directed against the common order ofthe Income-tax Appellate Tribunal in ITA.Nos.433 and 434/Mds/2003, dated25.11.2005. 2.1. The Revenue is the appellant. The assessment years involved are1998-99 and 1999-2000. The assessee, who is a medical practitioner,constructed a nursing home during the period February 1996 to October1998. On a survey conducted by the Income-tax department on 3.11.1998, itwas found that the cost of construction as shown by the assessee at https://hcservices.ecourts.gov.in/hcservices/ Rs.19,40,500/- has been underestimated and the assessing officer, based onthe report of the Departmental Valuation Officer, estimated the cost ofconstruction at Rs.37,31,906/- and accordingly, called upon the assesseeto explain as to why the difference amount of Rs.17.92 lakhs should not betreated as unexplained investment. After a detailed enquiry, the assessingofficer completed the assessment and brought to tax a sum of Rs.18 lakhsby treating it as unexplained investment. 2.2. Against the said order of assessment, the assessee preferred anappeal before the Commissioner of Income-tax (Appeals), who, by orderdated 11.12.2002, reduced the cost of construction by Rs.5 lakhs. Onfurther appeal by the assessee, the Income-tax Appellate Tribunal, placingreliance on the decision of the Apex Court in COMMISSIONER OF INCOME-TAXv. Dr.B.Venkata Rao [(2000) 243 I.T.R. 81], held that the cost ofconstruction of the nursing home is entitled for depreciation on theground that it is a plant. 3.Aggrieved by the said decision of the Tribunal, the Revenue haspreferred the present appeal raising the following substantial question oflaw:" In the absence of any application of functional test beingapplied to a building, to determine whether it was constructedspecifically to enable it to perform as a part of the plant whenthe Tribunal is justified in holding that the building which arenursing home even in the absence of any equipment beingimplanted in the building is a plant and would consequentiallybe entitled for depreciation ?" 4. Mr.J.Narayanaswamy, learned counsel appearing for the Revenue,fairly submits that the issue raised in the above question is coveredagainst the Revenue by the decision of the Apex Court in COMMISSIONER OFINCOME-TAX v. Dr.B.Venkata RAO [(2000) 243 I.T.R. 81). The Apex Court, inthe said decision, applying the functional test as held by the AllahabadHigh Court in TULSI (S.K.) AND SONS. v. COMMISSIONER OF INCOME-TAX [(1991)187 I.T.R. 685], affirmed the view of the Karnataka High Court in theassessee's case reported in [(1993) 202 I.T.R. 303] and dismissed theappeal filed by the Revenue by holding as follows:- 4. Mr.J.Narayanaswamy, learned counsel appearing for the Revenue,fairly submits that the issue raised in the above question is coveredagainst the Revenue by the decision of the Apex Court in COMMISSIONER OFINCOME-TAX v. Dr.B.Venkata RAO [(2000) 243 I.T.R. 81). The Apex Court, inthe said decision, applying the functional test as held by the AllahabadHigh Court in TULSI (S.K.) AND SONS. v. COMMISSIONER OF INCOME-TAX [(1991)187 I.T.R. 685], affirmed the view of the Karnataka High Court in theassessee's case reported in [(1993) 202 I.T.R. 303] and dismissed theappeal filed by the Revenue by holding as follows:- "... it was clear from the order of the Tribunal as also theassessment order that the assessee's nursing home was equippedto enable the sterlisation of surgical instruments and bandagesto be carried on. It was reasonable to assume in thecircumstances, particularly having regard to the Tribunal'sorder which stated that the sterlisation room covered about 250sq.ft that the nursing home was also equipped with an operationtheatre. In the circumstancess, the assessee was entitled todepreciation at 10 per cent, on the nursing home building on theground that it was a "plant"." 5. The Allahabad High Court in TULSI (S.K.) AND SONS. v. COMMISSIONEROF INCOME-TAX [(1991) 187 I.T.R. 685], cited supra, described the meaningof "plant" as follows:- ".. In order to find out whether a building or structure or apart thereof constitutes "plant", the functional test must beapplied. If it is found that the building or structureconstitutes an apparatus or a tool of the taxpayer by means ofwhich the business activities are carried on, it would amount to"plant" but where the structure plays no part in the carrying onof those activities but merely constitutes a place within whichthey are carried on, the building cannot be regarded as a plant." 6. Admittedly, in the instant case, the assessing officer and theCommissioner as well as the Tribunal observed that the assessee, who is amedical practitioner, is running a nursing home. Hence, applying theratio laid down by the Apex Court in COMMISSIONER OF INCOME-TAX v.Dr.B.Venkata RAO [(2000) 243 I.T.R. 81), referred supra, we hold that thecost of construction of the nursing home of the assessee is entitled fordepreciation on the ground that it is a plant. In view of the above, we uphold the order of the Tribunal and findingno substantial question of law, the appeals stand dismissed. Sd/- Asst. Registrar. /true copy/ Sub Asst. Registrar. sra To 1.The Assistant Registrar,Income Tax Appellate TribunalRajaji Bhavan, Besant Nagar, Chennai 90.Income Tax Appellate TribunalRajaji Bhavan, Besant Nagar, Chennai 90.2.The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi.3.The Commissioner of Income-Tax (Appeals), Trichy.Tax (Appeals), Trichy. 4.The Income-tax Officer, Ward-I(1), Thanjavur.5. The Commissioner of Income Tax,Tiruchirappalli. + 2 CCs to Mr.N.Murali Kumaran, Advocate SR NO 59902 mj[co]Gp/22.12. T.C.(A) Nos.2661 and 2662 of 2006