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  • J.N Sarma
  • A.K Patnaik, JJ.
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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The respondent is a business operating a hospital. For the assessment year 1994-95 the respondent claimed deductions under Sections 80HH and 80-I of the Income-tax Act, 1961 totalling Rs. 14,85,387. The Assessing Officer (Deputy Commissioner of Income-tax (Assessment), Special Range-I, Guwahati) rejected the claim in an assessment order dated 5 March 1997 under Section 143(3) on the ground that the assessee was not an industrial undertaking.

The respondent appealed to the Commissioner of Income-tax (Appeals), Guwahati, who allowed the claim by following his earlier decision for assessment year 1993-94 and directed the Assessing Officer to allow relief under Sections 80HH and 80-I. The Department appealed to the Income-tax Appellate Tribunal (ITAT), Guwahati Bench, which upheld the Commissioner (Appeals) and rejected the Department's appeal, relying on decisions from Kerala High Court, Rajasthan High Court and the Supreme Court (CIT v. B. Venkata Rao).

The Department filed an appeal under Section 260A of the Income-tax Act, 1961 to the High Court. On admission the High Court formulated three substantial questions of law for determination.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) directing the allowance of deduction under Section 80-I of the Income-tax Act, 1961?
  2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in relying upon the decision of the Supreme Court in CIT v. B. Venkata Rao [2000] 243 ITR 81, when that decision did not relate to the application of Sections 80HH and 80-I of the Income-tax Act, 1961?
  3. Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) and the Tribunal were justified and correct in law in holding the assessee to be an industrial undertaking and entitled to claim deduction under Sections 80HH and 80-I of the Income-tax Act, 1961?

Arguments of the Parties

Income-tax Department (Appellant) — Mr. U. Bhuyan

  • The Supreme Court decision in CIT v. B. Venkata Rao was under Section 32 (depreciation) and not under Sections 80HH or 80-I; the decision therefore does not establish that a hospital is an industrial undertaking for the purpose of those sections.
  • The Rajasthan and Kerala High Court decisions relied upon by the Tribunal were decisions under Section 32A (investment allowance) and thus are not applicable to determine eligibility under Sections 80HH and 80-I.
  • Sections 80HH(2) and 80-I(2) apply only to industrial undertakings engaged in "manufacture" or production of articles/things; hospitals do not manufacture or produce such articles, and hence are not industrial undertakings for the purpose of these deductions.
  • If the Legislature intended Section 80HH to apply to hospitals, it would have expressly included hospitals as it did for hotels; no such express inclusion exists.

Respondent (Assessee) — Mr. G. N. Sahewalla

  • Relied on the Supreme Court decision in Dr. B. Venkata Rao [2000] 243 ITR 81 to contend that if a nursing home building can be a "plant" for Section 32 purposes, the nursing home/hospital should be treated as an industrial undertaking for Sections 80HH and 80-I.
  • Relied on Trinity Hospital (Rajasthan), Upasana Hospital (Kerala) and M. L. Agarwalla (Gauhati) decisions that allowed investment allowance under Section 32A for hospital diagnostic equipment, to support the contention that hospitals or nursing homes can qualify for tax reliefs relating to industrial activity.
  • Referred to the language of Section 32A(2) concerning machinery/plant installed in small scale industrial undertakings for manufacture or production of any article or thing.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Upasana Hospital [1997] 225 ITR 845 (Ker) Investment allowance under Section 32A for x-ray plant: whether resulting x-ray photograph is a production of a new article or thing. The Court noted Upasana held that exposing and processing raw x-ray film produces a distinct new article (x-ray photographs) and thus the x-ray unit fell within Section 32A(2)(b)(ii); the Court distinguished this as relating to specific machines producing a new article, not to allowance for an entire hospital under Sections 80HH/80-I.
CIT v. Trinity Hospital [1997] 225 ITR 178 (Raj) Investment allowance under Section 32A on x-ray, ultrasound, foetal monitor, air-conditioning equipment. The Court recorded that Trinity allowed investment allowance for specified equipment under Section 32A(2)(b)(ii); the High Court treated the activity as falling within Section 32A. The present Court treated Trinity as a Section 32A case and distinguished it from Sections 80HH/80-I claims concerning the whole hospital.
CIT v. B. Venkata Rao [2000] 243 ITR 81 (SC) Whether a building used as a nursing home can be treated as "plant" for depreciation under Section 32. The Court observed the Supreme Court held the building was a plant for Section 32 (depreciation) because it housed equipment and instruments used to treat patients; but the present Court held that decision contains no discussion on whether a hospital is an industrial undertaking for Sections 80HH/80-I and thus is not helpful for that question.
CIT v. M. L. Agarwalla [1999] 238 ITR 603 (Gauhati) Investment allowance under Section 32A in respect of ultrasound diagnostic equipment and related items. The Court noted the Division Bench allowed investment allowance for ultrasound equipment because the processed output produced a new product; it used this to illustrate that these were Section 32A machine-specific cases, not a basis for general hospital entitlement under Sections 80HH/80-I.
Union of India v. Delhi Cloth & General Mills Co. Ltd., AIR 1963 SC 791 Judicial definition and discussion of the word "manufacture". The Court relied on this authority for the proposition that "manufacture" involves transformation resulting in a new and different article with a distinctive name, character or use.
Allenbury Engineers P. Ltd. v. Ram Krishna Dalmia, AIR 1973 SC 425; (1973) 1 SCC 7 Meaning of "manufacturing purposes" — transformation into a different article or material. The Court cited this decision to reinforce that manufacture requires transformation into a different article or material with distinctive name, character or use.
Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 Distinction between processing and manufacture (pineapple slices example). The Court relied on this to show that some processing, although involving change, may not amount to "manufacture" if the commodity retains original identity.
Sati Prasanna Mukherjee v. Md. Fazel, AIR 1952 Cal 320 Construction of "manufacture" in popular sense — production of a new or different article. The Court accepted this succinct definition and stated agreement with it when considering the meaning of "manufacture" in the present context.
CIT v. N. C. Budharaja & Co. [1993] 204 ITR 412 (SC) Whether construction of a dam amounts to "manufacture" for the purpose of Section 80HH. The Court cited Budharaja for the principle that construction of a dam is not "manufacture"; used as precedent to illustrate that absence of production of new articles or things will disqualify claims under Section 80HH.
Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 (SC) Procedural principle: scope of High Court's role when legal basis of Tribunal is unsustainable (reference under Section 256). The Court considered this authority but expressed doubt about its applicability to appeals under Section 260A; observed that even if applicable the decision would not help the respondent because it supports leaving factual re-determination to the Tribunal.
Commissioner of Income Tax, Lucknow v. U.P. Forest Corporation [1998] 230 ITR 945 (SC) High Court should not decide factual issues not raised before income-tax authorities; remand to Tribunal or assessing authority is the proper course. The Court noted this decision but distinguished it on the basis that the present appeal is under Section 260A and the powers of the High Court on such appeals are circumscribed; the Court declined to remand because there were no relevant materials before it to decide the factual question of manufacture.

Court's Reasoning and Analysis

The Court examined the orders below and the authorities relied upon by the Tribunal and the parties. It proceeded in the following analytical steps, based on the materials contained in the opinion:

  1. Distinction of statutory context: The Court observed that the Supreme Court's decision in B. Venkata Rao concerned Section 32 (depreciation) and treated a nursing home building as a "plant" for depreciation purposes because it housed equipment and instruments. The Court held this did not address whether a hospital is an industrial undertaking for Sections 80HH and 80-I and therefore found that decision of no assistance on that point.
  2. Distinction of Section 32A cases: The Court analysed the Rajasthan and Kerala High Court decisions and the Division Bench decision of this Court (Trinity, Upasana, M. L. Agarwalla) and noted these were cases concerning investment allowance under Section 32A in respect of specific machines or plant (x-ray, ultrasound, foetal monitor, air-conditioning, ICCU, ECG equipment) where the courts found that specific machines produced a new article or output (e.g., x-ray photographs) qualifying under Section 32A.
  3. Scope of the respondent's claim: The Court emphasised that in the present case the respondent had not claimed deduction in respect of any particular machine or plant but sought relief generally for the entire hospital under Sections 80HH and 80-I.
  4. Definition and legal meaning of "manufacture": The Court reviewed authorities (Union of India v. Delhi Cloth; Allenbury Engineers; Deputy Commissioner v. Pio Food Packers; Sati Prasanna Mukherjee) to restate the legal principle that "manufacture" requires transformation resulting in a new and different article having a distinctive name, character or use, and that mere processing which leaves the original identity intact may not amount to manufacture.
  5. Application of the "manufacture" principle to Sections 80HH and 80-I: The Court referred to the express statutory language in Sections 80HH(2) and 80-I(2) that reliefs apply to industrial undertakings which "manufacture" or produce articles or things, and concluded that, in the absence of a clear factual finding by the Tribunal that articles or things were being manufactured or produced in the respondent's hospital, relief under Sections 80HH and 80-I could not be granted.
  6. On remand: The Court refused the respondent's request to remand for rehearing because an appeal under Section 260A is confined to substantial questions of law and subsection (6) restricts the High Court's role; further, the Court found there were no relevant materials before it to make factual determinations on whether manufacturing occurred — materials that the respondent should have adduced before the Tribunal when claiming those reliefs.
  7. Procedural authorities considered: The Court considered but distinguished authorities concerning remand and the scope of the High Court (Anantharam Veerasinghaiah; U.P. Forest Corporation), indicating doubt as to their applicability in the Section 260A context and concluding remand was not appropriate in the present circumstances.

Holding and Implications

Holding: The High Court answered the three substantial questions as follows: Question No.1 — answered in the negative (in favour of the Department and against the respondent); Question No.2 — answered in the affirmative (in favour of the Department and against the respondent); Question No.3 — answered in the negative (in favour of the Department and against the respondent). The Court set aside the impugned orders of the Appellate Tribunal and the Commissioner of Income-tax (Appeals), Guwahati, insofar as they related to reliefs under Sections 80HH and 80-I of the Income-tax Act, 1961. The appeal was allowed.

Implications: The direct effect is that the respondent's claim for deductions under Sections 80HH and 80-I for the assessment year 1994-95, insofar as it was allowed by the lower authorities, is set aside and the Department's appeal is allowed. The Court did not record or lay down any expanded proposition treating hospitals generally as industrial undertakings for Sections 80HH/80-I; rather, it required factual findings that articles or things were manufactured or produced in the hospital before such reliefs could be granted. The opinion does not purport to create a new precedent extending Sections 80HH or 80-I to hospitals absent factual proof of manufacture or production.

Show full summary ...

    Commissioner Of Income-Tax v. Down Town Hospital Ltd.

    1. This is an appeal under Section 260A of the Income-tax Act, 1961 (hereinafter referred to as

    "the Act, 1961"
    ).

    2. The respondent herein carries on the business of a hospital. For the assessment year 1994-95, the respondent claimed a deduction under Section 80HH and Section 80-I of the Act of 1961, amounting to Rs. 14,85,387. The Assessing Officer, namely, the Deputy Commissioner of Income-tax (Assessment), Special Range-I, Guwahati, in his assessment order under Section 143(3) of the Act of 1961, dated March 5, 1997, held that since the assessee-company was not an industrial undertaking, it was not eligible for deduction under Sections 80HH and 80-I of the Act of 1961. Against the said order of assessment, the respondent filed an appeal before the Commissioner of Income-tax (Appeals), Guwahati. The Commissioner of Income-tax (Appeals) held that the issue as to whether the respondent was entitled to deduction under Sections 80HH and 80-I of the Act of 1961, had been decided by him in favour of the respondent by order dated May 8, 1998, in Appeal No. Guwa-101 of 1996-97 relating to the assessment year 1993-94 and since the facts for the assessment year 1994-95 were identical, the Commissioner held following his earlier decision that the respondent was an industrial undertaking and directed the Assessing Officer to allow relief as per the provisions of Sections 80HH and 80-I of the Act of 1961. Aggrieved by the said order of the Commissioner of Income-tax (Appeals), the Income-tax Department went up in appeal before the Income-tax Appellate Tribunal, Guwahati Bench. The Income-tax Appellate Tribunal observed in its order dated August 17, 2000, that running of a hospital by the assesses was an industrial undertaking following the decision of the Kerala High Court in the case of CIT v. Upasana Hospital [1997] 225 ITR 845, the decision of the Rajasthan High Court in the case of CIT v. Trinity Hospital [1997] 225 ITR 178, and also the decision of the apex court in CIT v. B. Venkata Rao [2000] 243 ITR 81, and accordingly, rejected the appeal of the Department. Aggrieved by the said order of the Appellate Tribunal, the Department has filed this appeal under Section 260A of the Act of 1961.

    3. At the time of admission of this appeal, this court by order dated January 19, 2001, formulated the following substantial questions of law :

    "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) directing to allow the deduction under Section 80-I of the Income-tax Act, 1961 ?

    2. Whether, on the facts and in the circumstances of the case, the Tribunal did not err in relying upon the order of the Supreme Court reported in CIT v. B. Venkata Rao [2000] 243 ITR 81, when the issue dealt with by the apex court in the said decision did not relate to the application of Sections 80HH and 80-I of the Income-tax Act, 1961 ?

    3. Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) and the Tribunal were justified and correct in law in holding the assessee to be an industrial undertaking and entitled to claim deduction under Sections 80HH and 80-I of the Income-tax Act, 1961 ?"

    4. At the time of hearing of this appeal, Mr. U. Bhuyan, learned counsel appearing for the Income-tax Department, submitted that the decision of the Supreme Court in the case of CIT v. B. Venkata Rao [2000] 243 ITR 81 was not under Sections 80HH and 80-I of the Act of 1961, but was under Section 32 of the Act. The Supreme Court held in that case that as the building or structure constituted an apparatus of the nursing home of the assessee in that case and by means of such apparatus the business activities were carried on, it amounted to a plant Mr. Bhuyan submitted that in the said decision of the Supreme Court, the Supreme Court nowhere held that a hospital is an industrial undertaking and, therefore, the said decision is of no relevance to the present case and is not applicable for the purpose of deciding whether or not a hospital is an industrial undertaking for grant of relief under Sections 80HH and 80-I of the Act of 1961. Mr. Bhuyan further submitted that the decisions of the Rajasthan High Court in the case of CIT v. Trinity Hospital [1997] 225 ITR 178 and the Kerala High Court in the case of CIT v. Upasana Hospital [1997] 225 ITR 845, on which great reliance has been placed by the Tribunal in the order under appeal were also the decisions under Section 32A of the Act of 1961, and, therefore, were not applicable for the purpose of determining whether relief under Sections 80HH and 80-I of the Act was available to hospitals. Mr. Bhuyan referred to the bare provisions of Section 80HH and in particular Sub-section (2) thereof to show that the section applies only to an industrial undertaking in a backward area in which the activities of "manufacture" and producing of articles take place. He also referred to the similar provisions in Sub-section (2) of Section 80-I of the Act of 1961, to show that the said section is also applicable to an industrial undertaking in which the activities of "manufacture" or producing of articles take place, and not otherwise. Mr. Bhuyan contended that since no article or thing is produced or "manufacture"d in the hospital of the respondent-assessee, the hospital of the respondent-assessee cannot be considered to be an industrial undertaking, and the provisions of Sections 80HH and 80-I of the Act of 1961, are not applicable to such hospital. He further argued that if the intention of the Legislature was to make the provisions of Section 80HH applicable to hospitals, then a provision would have been made therein as has been done in the case of hotels expressly stating that the provisions of the said Section 80HH would also be applicable to hospitals besides industrial undertakings and hotels. But no such provision has been made in Section 80HH of the Act of 1961.

    5. Mr. G. N. Sahewalla, learned counsel appearing for the respondent-assessee, on the other hand, relied on the aforesaid decision of the Supreme Court in the case of Dr. B. Venkata Rao [2000] 243 ITR 81, and submitted that if it has been held therein that the building of the nursing home was a plant within the meaning of Section 32 of the Act, the nursing home or the hospital should be treated as an industrial undertaking for the purpose of relief under Sections 80HH and 80-I of the Act of 1961. He also relied on the decision of the Rajasthan High Court in Trinity Hospital's case [1997] 225 ITR 178 and the Kerala High Court in Upasana Hospital's case [1997] 225 ITR 845 and the decision of a Division Bench of this court in CIT v. M. L. Agarwalla [1999] 238 ITR 603, in which the court has held that nursing homes or hospitals are entitled to investment allowance under Section 32A of the Act. He referred to the provisions of Section 32A and in particular Sub-section (2) thereof which provides that deduction shall be allowed under Sub-section (1) in respect of machinery or plant installed in a small scale industrial undertaking for the purposes of business of "manufacture" or production of any article or thing.

    6. We have perused the aforesaid decisions of the Supreme Court and different High Courts relied on by the Tribunal as well as learned counsel for the respondent-assessee. In the case of Dr. B. Venhata Rao [2000] 243 ITR 81 (SC), the question for consideration was whether a building used as a nursing home was to be treated as plant for the purpose of determining the depreciation that was allowable on such building, and the Supreme Court held that since the building was used not only to house patients and nurse them, but also to treat them, for which various kinds of equipment and instruments were installed, such building or nursing home was a plant and would be entitled to depreciation as such plant under Section 32 of the Act. In the said decision of the Supreme Court, there is no discussion on the point as to whether a hospital or nursing home is an industrial undertaking. Hence, the said decision is of no assistance to the respondent-assessee in deciding the question as to whether a nursing home or a hospital is an industrial undertaking for the purpose of relief under Sections 80HH and 80-I of the Act of 1961. In Trinity Hospital's case [1997] 225 ITR 178 (Raj), the question for decision was whether investment allowance could be allowed on machines and equipment (x-ray machines, ultra sound scanner, foetal monitor and air conditioning equipment) installed in a nursing home under Section 32A of the Act, and the Rajasthan High Court decided the question in favour of the assessee and against the Department by holding that the Tribunal was justified in directing that the investment allowance may be allowed on the x-ray machine, ultrasound scanner, foetal monitor and the air-conditioning equipment under Section 32A(2)(b)(ii) read with Section 32A(1) of the Act of 1961. Similarly, in the case of Upasana Hospital [1997] 225 ITR 845 (Ker), the question for decision before the Kerala High Court was whether the assessee-firm was entitled to investment allowance under Section 32A of the Act of 1961 in respect of x-ray plant, ICCU and ECG equipment, and the Kerala High Court decided the said question in favour of the assessee and against the Revenue by holding that when raw x-ray film is exposed and processed, the resulting x-ray photograph is a production of a new article or thing, and the article produced is a distinct and different article from raw film, and that the. assessee's unit of x-ray machine and accessories is a small-scale industrial undertaking for the production of x-ray photographs coming within the ambit of Section 32A(2)(b)(ii) of the Act of 1961. Similarly, in the case of M. L. Agarwalla [1999] 238 ITR 603 (Gauhati), the question before the Division Bench of this court was whether the assessee in that case was entitled to investment allowance under Section 32A of the Act of 1961, in respect of ultra-sound medical diagnostic electrical equipment, air-conditioner and servo-voltage stabiliser, and the Division Bench has held that a special type of film or material is to be fed which is obviously blank, but after the processing it is obtained with the photographs/prints of the organs and the data related to such organs, and that such product is not the same thing, as fed, into the machine as raw material, and, therefore, the Deputy Commissioner of Income-tax (Appeals) was right in allowing investment allowance in respect of ultrasound medical diagnostic electrical equipment. But from the reading of the facts of the present case as determined finally by the Appellate Tribunal, we do not find that deduction under Section 80HH and Section 80-I of the Act of 1961, is claimed in respect of any particular machine, such as x-ray machine, ultra-sound medical diagnostic electrical equipment, foetal monitor, etc., and the claim of deduction by the assessee-respondent under Section 80HH and Section 80-I of the Act of 1961, is generally in respect of the entire hospital of the respondent-assessee. In the absence of clear finding on materials to show that any new article or thing is "manufacture"d or produced out of some raw materials, it is difficult to hold that the respondent-assessee is an industrial undertaking entitled to relief under Sections 80HH and 80-I of the Act of 1961. Sub-section (2) of Section 80HH expressly states that Section 80HH applies to any industrial undertaking which fulfils all the conditions mentioned therein and one of the conditions mentioned therein is that it has begun or begins to "manufacture" or produce articles after the date mentioned therein in any backward area. Thus, unless a clear finding is recorded by the Tribunal on the materials before it that some articles were "manufacture"d or produced in the hospital of the respondent-assessee, in our considered opinion, reliefs under Section 80HH of the Act of 1961, cannot be granted to the respondent-assessee. Similarly, Sub-section (2) of Section 80-I also provides that the section applies to any industrial undertaking which fulfils all the conditions mentioned therein, and one of the conditions mentioned therein is that it "manufacture"s or produces any article or thing. Unless therefore a clear finding is recorded by the Tribunal that the respondent-assessee was producing or manufacturing any article or thing in its hospital, in our considered opinion, the respondent-assessee cannot be held to be entitled to deduction under Section 80-I of the Act of 1961.

    7. In this context, we would like to refer to the decision of the Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791, in which the Supreme Court discussed at length the authorities on the point of what amounted to

    "manufacture"
    and cited Permanent Edi-

    tion of Words and Phrases, volume 26, from an American judgment, the following passage (page 795) :

    "'Manufacture' implies a change, but every change is not "manufacture" and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation ; a new and different article must emerge having a distinctive name, character or use."

    8. Similarly, in Allenbury Engineers P. Ltd. v. Ram Krishna Dalmia, AIR 1973 SC 425 ; [1973] 1 SCC 7, the Supreme Court after discussing at length the meaning of the expression ""manufacture"" including the aforesaid passage from the Permanent Edition of Words and Phrases, volume 26, and the decision of the Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791, held (page 428):

    "The expression 'manufacturing purposes' in Section 106, thus, means purposes for making or fabricating articles or materials by physical labour, or skill, or by mechanical power, vendible and useful as such. Such making or fabricating does not mean merely a change in an already existing article or material, but transforming it into a different article or material having a distinctive name, character or use or fabricating a previously known article by a novel process."

    9. Again, in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63, the Supreme Court took note of the aforesaid meaning of the word ""manufacture"" as laid down by judicial authorities and made a distinction between "processing" and ""manufacture"" and held that although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it and, therefore, the activity of cutting pineapple into slices and putting the same in sealed cans does not amount to "manufacture" but may amount to processing. In Sati Prasanna Mukherjee v. Md. Fazel, AIR 1952 Cal 320, the Calcutta High Court examined the word ""manufacture"" occurring in Section 106 of the Transfer of Property Act, and held (page 321) :

    "The word '"manufacture"' must in this context in my opinion be construed in a popular sense. The popular concept is that there must be production of a new or a different article or the process must be such as converts one kind of article into another kind . . ."

    10. The aforesaid decision of the Calcutta High Court succinctly defines the word ""manufacture"" with which we respectfully agree.

    11. In view of the aforesaid authorities on the question as to what amounts to ""manufacture"" of an article, a finding has to be recorded on the basis of the materials by the Tribunal that the activities carried on in the hospital of the respondent-assessee are or are not of the nature as described in the aforesaid decisions, and amount or do not amount to "manufacture" for the purpose of deciding whether an assessee was entitled to relief under Section 80HH and Section 80-I of the Act of 1961. In CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412, the question before the Supreme Court was as to whether the assessee in that case was entitled to relief under Section 80HH of the Act of 1961, in respect of its activity of construction of a dam, and the Supreme Court referred to the provision of Sub-section (2) of Section 80HH of the Act, and after considering the judicial pronouncements on the meaning of the word ""manufacture"" held that a dam was constructed, it was not "manufacture"d or produced and, therefore, the assessee was not entitled to the relief under Section 80HH of the Act of 1961. The Supreme Court in particular held (page 424) :

    "It may be that the respondent is himself manufacturing some of the articles like gates, windows and doors which go into the construction of a dam but that makes little difference to the principle. The petitioner is not claiming the deduction provided by Section 80HH on the value of the said "manufacture"d articles but on the total value of the dam as such. In such a situation, it is immaterial whether the "manufacture"d articles which go into the construction of a dam are "manufacture"d by him or purchased by him from another person. We need not express any opinion on the question what would be the position if the respondent had claimed the benefit of Section 80HH on the value of the articles "manufacture"d or produced by him which articles have gone into/consumed in the construction of the dam."

    12. In the present case also as we have already indicated that the respondent-assessee is not claiming deduction under Section 80HH and Section 80-I of the Act of 1961, for undertaking "manufacture" of articles in its x-ray and other diagnostic machines, but is claiming deduction generally in respect of the entire hospital or nursing home under Sections 80HH and 80-I of the Act of 1961, and as we have held that in the absence of a finding by the Tribunal on the materials before it that the activities carried on in the hospital or nursing home of the respondent-assessee amount to "manufacture" or production of any article, the order of the Tribunal to the effect that the respondent-assessee is entitled to relief under Sections 80HH and 80-I of the Act of 1961, is not sustainable.

    13. At this stage, Mr. Sahewalla, learned counsel appearing for the respondent-assessee, submitted that the appeal should be remanded to the Tribunal for rehearing on the question as to whether any article or thing is "manufacture"d in the hospital of the respondent-assessee. We are afraid, we cannot allow such indulgence to the respondent-assessee at this stage because an appeal under Section 260A of the Act of 1961, to the High Court is confined to only substantial question of law and sub-section (6) of the said section 260a provides that the High Court may determine any issue which is either not determined by the Tribunal or has been wrongly determined by reason of a decision on the substantial question of law. But there are no relevant materials before this court to show that as a matter of fact manufacturing or production of articles or things was undertaken in the hospital of the respondent-assessee. Since the respondent-assessee was claiming the reliefs under Sections 80HH and 80-I of the Act, the respondent-assessee should have adduced all relevant materials to establish that it was an industrial undertaking manufacturing or producing articles or things during the previous year relevant to the assessment year 1994-95. We, however, make it clear that it will be open for the respondent-assessee to adduce materials in support of its claim of deduction under Sections 80HH and 80-I of the Act of 1961, for the subsequent assessment years before the appropriate authority, and if such materials are adduced by the respondent-assessee, we have no doubt in our mind that the same will be considered by the appropriate authority under the Act, and a decision will be recorded as to whether things or articles are in fact "manufacture"d or produced in the hospital of the respondent-assessee, and depending upon the findings given therein the question of reliefs under Sections 80HH and 80-I of the Act of 1961, will be determined by the authority.

    14. Mr. Sahewalla next cited the decision of the Supreme Court in Anantharam Veerasinghaiah and Co. v. CIT [1980J 123 ITR 457, in which it has been held that the High Court having found that the legal basis underlying the order of the Appellate Tribunal was not sustainable, the High Court should have limited itself to answering the question raised by the reference in the negative, leaving it to the Appellate Tribunal to take up the appeal again and redetermine it in the light of the law laid down by the High Court. The said decision of the Supreme Court was in respect of a reference made under Section 256 of the Act on a question of law to the High Court, and we have great doubt as to whether the said decision will at all apply to an appeal on certain substantial questions of law under Section 260A of the Act. Even if the said decision applies and holds good after the substitution of the provisions for reference under Section 256 by an appeal on substantial question of law under Section 260A of the Act, the said decision instead of going in favour of the respondent-assessee is actually against the respondent-assessee. In the present case, we have found that the order of the Appellate Tribunal was not sustainable on the facts as found by the Appellate Tribunal, and all that we are required to do is to answer the substantial questions of law arising in this appeal against the respondent-assessee and in favour of the Department.

    15. Mr. Sahewalla next relied on the decision of the Supreme Court in Commissioner Of Income Tax, Lucknow v. U.P Forest Corporation. [1998] 230 ITR 945, wherein the Supreme Court has held that in the absence of a contention having been raised before the income-tax authorities, the High Court ought not to have itself embarked upon examining the issue for the first time and then come to a conclusion in favour of the respondent, and if the High Court had wanted the issue to be decided, the proper course would have been to have remanded the case to the Tribunal or to the assessing authority for a decision. Mr. Sahewalla submitted that in view of the said law laid down by the apex court, the proper course in this case is to remand the case to the Tribunal or to the assessing authority for a decision. This decision again was a decision of the Supreme Court in respect of the power of the High Court under article 226 of the Constitution as it appears from a reading of the facts of the said decision that in a petition under article 226 of the Constitution the High Court had decided certain factual issues, and the Supreme Court had taken a view that such factual issue ought not to have been decided by the High Court. But so far as the present case is concerned, it is an appeal on certain substantial questions of law under Section 260A of the Act of 1961, and the powers of the High Court in an appeal under Section 260A of the Act are circumscribed by the provisions of the said Section 260A of the Act of 1961. We are afraid, we cannot resort to the course suggested by Mr. Sahewalla, namely, to remand the matter to the Tribunal for a fresh decision in the light of the answer given by us to the substantial questions of law in this appeal.

    16. For the foregoing reasons, we answer question No. 1 in the negative, i.e., in favour of the Department and against the respondent-assessee ; question No. 2 in the affirmative, in favour of the Department and against the respondent-assessee ; and question No. 3 in the negative, in favour of the Department and against the respondent-assessee, and set aside the impugned orders of the Appellate Tribunal and the Commissioner of Income-tax (Appeals), Guwahati, in so far as they relate to reliefs under Sections 80HH and 80-I of the Act of 1961.

    17. The appeal stands allowed.

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    Commissioner Of Income-Tax v. Down Town Hospital Ltd.
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