Income-tax---

----Exemption---Industrial undertaking--- "Manufacture or processing of goods", meaning of---Assessee, A medical diagnostic centre- --Purchase of scanner from abroad on part payment---Balance to be paid on supplier's credit for five years - payment to carry interest and rate fixed in consultation with Central Government---Diagnostic centre does not process goods as an industrial undertaking when exposing films by use of scanner---Diagnostic centre is engaged in diagnosis of ailments of human body---Interest payable not exempt from tax---Indian Income Tax Act, 1961, S.10(15)(iv)(c).

The petitioner-assessee purchased a nuclear magnetic resonance scanner from abroad on part payment and the balance of the amount was to be paid by the petitioner on supplier s credit for five years. The payment was to carry interest at the rate of 8.1 per cent. per annum which was fixed in consultation with the Central Government. The petitioner claimed that the interest so payable was exempt from tax under sub-clause (iv)(c) of clause (15) of section 10 of the Income Tax Act, 1961. The Central Government rejected the claim for exemption on the ground that the petitioner was a medical diagnostic centre and the same was not processing goods which are sold as such, but the films were to be processed as a tool for making diagnosis and any activity carried on material as a part of a prominently professional activity would not convert the same into an industrial activity. On a writ application, the petitioner contended that although the petitioner was only carrying on a medical diagnostic centre, the scanner machine was actually used by the petitioner for processing of goods as unexposed films were inserted in the scanner and information and status of various parts of the human body were analysed and depicted on such films with the aid of the scanner for making them useful tools in making diagnosis of human body ailments to a considerable depth, that the unexposed films after having been processed underwent change in their character altogether and that, therefore, the petitioner was carrying on processing of goods and, therefore, it is an industrial undertaking within the meaning of section 10(15.)(iv)(c).

Held, that an undertaking .to be an industrial undertaking within the meaning of section 10(15)(iv)(c) must be engaged in processing of goods meaning thereby the very business of the concerned undertaking would be to process goods for the purpose of marketing the goods and sale of such processed goods. The processed films were not sold in the market. Therefore, the medical diagnostic centre could not be said to be engaged in processing of goods, but the same was engaged in diagnosis of human ailments through different processes. Simply because one of such processes requires use of unprocessed films and the same is processed through such scanner, would not make the activity, a business of processing of goods.

Chowgule & Co. (P.) Ltd. v. Union of India (1981) 47 STC 124 (SC); CIT (Addl.) v. A. Mukherjee & Co. (P.) Ltd. (1978) 113 ITR 718 (Cal.); CIT v. Peerless Consultancy Services (Pvt.) Ltd. (1990) 186 ITR 609 (Cal.); CIT v. Upasana Hospital (1997) 225 ITR 845 (Ker.) and J. M. D. Medicare Ltd. v. Union of India (1996) 218 ITR 184 (Cal.) ref.

Sukumar Bhattacharijee and R. N. Saha for Petitioners.

R. N. Mitra and Miss S. Das for Respondents.

JUDGMENT

SAMARESH BANERJEA, J.---In the present writ application, the petitioner-company has prayed for, inter alia, a declaration that petitioner No. l is an industrial undertaking within the meaning of section 10(15)(iv)(c) of the Income Tax Act, 1961. Admittedly, petitioner No. 1 company is a Medical Diagnostic Centre. Petitioner No. 1-company purchased a nuclear magnetic resonance scanner, Siemens Magnetom P-8, from Siemens Aktiengesellcschaft Bmed, D. 8520, Erlangen, Germany, on a part payment and the balance of the amount is to be paid by the petitioner on supplier's credit for five years. The payment is to carry an interest at the rate of 8.1 per cent. per annum. The said rate of interest of 8.1 per cent. per annum was fixed in consultation with the Government of India. Ministry of Finance, Department of Economic Affairs, New Delhi.

It is the contention of the petitioner that the 'interest so payable by petitioner No. 1-company is exempted from income-tax in accordance with the provisions of sub-clause (iv)(c) of clause (15) of section 10 of the Income Tax Act, 1961, and claiming such exemption, the petitioner wrote to the Government of India, Ministry of Finance, Department of Revenue, for approval, the petitioner thereafter was advised to file a formal application on the prescribed form. Accordingly, the petitioner filed the same. On a query made by the Desk Officer, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes (Foreign Tax Division), Government of India, the petitioner replied annexing thereto an opinion of a tax consultant opining, inter alia, that such exemption is liable to be granted under the aforesaid provisions of the Income Tax Act, 1961.

Ultimately, by an order, dated March 21, 1995 (Annexure G to the writ petition), such claim of the petitioner for exemption was rejected, inter alia, on the ground that petitioner No. 1-company is a medical diagnostic centre and the same is not processing goods which are sold as such, but the films are to be processed as a tool for making diagnosis and any activity carried on material as a part of prominently professional activity will not convert the same into an industrial activity.

The petitioner, thereafter, moved a writ application for a declaration that petitioner No. 1 is an industrial undertaking within the meaning of section 10(15)(iv)(c) of the Income Tax Act, 1961, on March 20, 1995. The aforesaid writ application was dismissed by Ajoy Nath Ray, J., after hearing both the parties in limine. Petitioner No. 1-company thereafter preferred an appeal against the said order being F.M.A.T. No. 1697 of 1995 and the said appeal and the said application came up for hearing before the Division Bench presided over by the Chief Justice, K. C. Agarwal (as his Lordship then was). Such appeal was disposed of by their Lordships with liberty to the petitioner to file a fresh writ application with suitable amendment. Thereafter, the present writ application has been filed on the self same ground.

Learned counsel appearing for the petitioner has contended, inter alia, that although the petitioner-company may be a medical diagnostic centre, the aforesaid machine is actually used by the petitioner-company for processing goods, as unexposed films are inserted in the scanner and information and status of various parts of the human body are analysed and depicted on such films with the aid of the scanner for making them useful tools in making diagnosis of human body ailments to a considerable depth. As the said unexposed films after having been processed in the manner aforesaid undergo a change in their character altogether inasmuch as while unexposed films do not carry any information, the said films after the processing give valuable information which would not have been available but for such processing. The petitioner-company is carrying on processing goods and, therefore, is an industrial undertaking within the meaning of the aforesaid provisions of the Income Tax Act, 1961. A number of judgments of different High Court including our High Court as also the Supreme Court of India have been relied upon. .

Learned counsel appearing for the Revenue, on the other hand, has contended inter alia, that the aforesaid prayer of the petitioner-company for such exemption under the aforesaid provisions of the Income Tax Act, 1961, has rightly been rejected, inasmuch as by no stretch of imagination it should be said that petitioner No. 1-company which is really a medical diagnostic centre is carrying on processing of-goods within the meaning of the aforesaid provisions of the said Act of 1961. It has been submitted, inter alia, that although there may be such activity involving such processing, the said company is not processing goods to be sold as such, but the said films are processed as a tool for making diagnosis. Reliance has also been placed by him on certain judgments.

It has further been submitted by Mr. Mitra, appearing for the Revenue, that in any view of the matter, Ajoy Nath Ray, J., already having decided by this aforesaid judgment and order that for such processing, such diagnostic centre would not become' en industrial undertaking within the meaning of the aforesaid provisions of the Income Tax Act, 1961, merely because the appeal Court permitted the petitioner to withdraw the writ application and the appeal, the effect of the said judgment will not stand nullified.

Having heard the learned Advocates for the parties and considering the application, I am unable to accept the contention of the learned Advocate appearing for the petitioners that the medial diagnostic centre, which is using the aforesaid machine, is carrying on the business of processing of goods for which such exemption under the aforesaid provisions of the said Act, 1961, can be claimed.

It appears to this Court that Ajoy. Nath Ray, J. by his aforesaid judgment and order, dated March 29, 19.95 (J. M. D. Medicare Ltd. v. Union of India (1996) 218 ITR 184 (Cal)), has already held that the finding of the Central Board of Direct Taxes that such diagnostic centre cannot be said to be an industrial undertaking within the meaning of the aforesaid provisions of the said Act, 1961, is reasonable. In this connection, the relevant portion of the aforesaid judgment is quoted hereunder (page 186):

"If a medical diagnostic centre were to be classed as an industrial undertaking processing goods being the films within the meaning of the above Explanation, it would become grouped with such other organisations as are concerned with mining, construction of ships, etc. This would appear to be an unnatural construction of the words 'processing of goods'.

Secondly, as emphasised by the Board, the films which are claimed to be the processed goods are not themselves sold to outsiders. It is indeed a weird case of processing of goods undertaken by an industrial undertaking when none of the processed goods is sold to anybody at all.

Thirdly, the purpose of the above relief is obviously to permit industrial undertakings to engage with relief in the activity of manufacture or processing of gods even when such activity requires purchase of foreign machinery. A diagnostic centre is, by no ordinary meaning of the words, an industrial undertaking. It cannot become an industrial undertaking merely by purchase of a machine and only for the purpose of tax relief to be claimed by it as owner of the said machine. The purpose of the relief nowhere appears to be the grant of any benefit for the rendering of any professional services.

Fourthly, an industrial processing of goods has a certain similarity in the case of e4ch of the goods, processed. The products are largely similar or identical to one another. This is usual though not always the case. A scanner machine- will, however, produce photographs which are totally different in the case of different patients and the value of the photographs derives from those differences rather than from their identity to one another.

In short, it is quite clear that the diagnostic centre is not processing goods as an industrial undertaking when it is exposing films by the use of the scanner obtained from Japan. Like most obvious things, it is easier to see and to understand than to explain."

I agree with the aforesaid finding of Ajoy. Nath Ray, J. In my view although the appeal Court in F. M. A. T. No. 1697 of 1995 might have allowed the petitioner to withdraw the appeal and the writ application on the prayer of the writ petitioner and also granted liberty to the petitioner to file a fresh writ application with a suitable amendment, if they are so advised, the appeal Court never set aside the judgment an order passed by Ajoy Nath Ray, J. Such withdrawal of the writ petition, therefore, in my view, will not nullify the effect of the judgment and order of Ajoy Nath Ray, J.

That apart, independent of the judgment and order of Ajoy Nath Ray., after considering all aspects of the matter as also the decisions cited by the parties, I am of the view that the petitioner-company cannot be said to be an industrial undertaking within the meaning of the aforesaid provisions of the Income Tax Act, 1961. It is true that "processing" said provisions of the Income-tax Act and, therefore, as has been held by the Supreme Court, the meaning of the same has to be understood in its common parlance.

In my view, the decision of the Supreme Court in the case of Chowgule & Co. (Pvt.) Ltd. v. Union of India (1981) 47 STC 124 does not help the contention of the petitioner. In the aforesaid case, the Supreme Court of India was considering a situation where the concerned company was carrying on the business of mining iron ore and selling it in the export market after processing the goods.

The Supreme Court while interpreting section 8(3)(b) of the Central Sales Tax, 1956, held, inter alia, that where any commodity is subjected to a process or treatment with a view to its development or preparation for the market, it would amount to processing of the commodity within the meaning of section 8(3)(b) of the said Act and Rule 13. In the said case, the goods which were processed for the very purpose of selling the same in the market as such processed goods.

In the instant case, the petitioner-company is not carrying on the business of processing films, but is a medical diagnostic centre engaged in diagnosis of ailments of human body and in the matter of such diagnosis, the aforesaid machine is being used for which such films undergo the processing. The same, however, would not convert the medical diagnostic centre into an industrial undertaking within the meaning of the aforesaid provisions of the said Act as such processed films as such are not sold for the market as rightly held by the Director of the Revenue. In the instant case the firms are not subjected to any treatment or process with a view to development or preparation for the market, but merely as a tool for diagnosis of ailments of human bodies.

The decisions in the case of Addl. CIT v. A. Mukherjee & Co. (P.) Ltd. (1978) 113 ITR 718 (Cal), the case of CIT v. Peerless Consultancy Services (Private) Ltd. (1980) 186 ITR 609 (Cal) of our High Court would not be applicable. In the case of Addl. CIT v. A. Mukherjee & Co. (P.) Ltd. (1978) 113 ITR 718 (Cal), the business of publication of books was held to be processing of goods as after processing the manuscripts by getting the same printed and bound, the processed goods, namely, the books were sold as such and as the manuscripts were subjected to a treatment or processing with a view to development or preparation for market. In the case of CIT v. Peerless Consultancy Services (Private) Ltd. (1990) 186 ITR 609 (Cal) as the assessee which was carrying on the- business of providing technical and industrial consultancy through electronic data processing and after receiving certain information subjected the same to a treatment or processing with a view to development or preparation for the market and sold to the customers such processed informations. The decision of the Kerala High Court in the case of CIT v. Upasana Hospital (1997) 225 ITR 845 would not also be applicable in the instant case as the Kerala High Court was considering whether any investment allowance under section 32A of the Act can be claimed by a hospital diagnostic centre and, whether running of a hospital where X-Ray machines and other equipment are used can be said to be business activities. The Kerala High Court was, therefore, considering an entirely different situation there. As has been held by the Supreme Court, a decision is an authority for the proposition. which it actually decides, and not what follows from it logically and a judicial decision takes it colour from its context.

In my view, the words used in the aforesaid Explanation to the aforesaid provision of the Income-tax Act, namely, industrial undertaking means any undertaking which is engaged in the manufacture or processing of goods are indeed relevant. Such expression, in my view, connotes that an undertaking to be an industrial undertaking within the meaning of the aforesaid provisions of the Act, must be engaged in the processing of goods meaning thereby the very business of the concerned undertaking would be to process goods for the purpose of marketing the goods and sale of such processed goods. The medical diagnostic centre, therefore, by no stretch of imagination can be said to be engaged in processing of goods, but the same is engaged in diagnosis of human ailment through different processes. Simply because one of such processes requires use of unprocessed films and the same is processed through such scanner, would not make the activity, a business of processing of goods, the scanner being used for diagnosis of human ailments..

For the reasons stated above, the writ application fails and the same is hereby dismissed. There will be no order as to costs. All interim orders, if any stand vacated.

M.B.A./3244/FCApplication dismissed.