Commissioner of Income Tax vs Kovai Medical Centre and Hospitals Limited

Prabha Sridevan, J.—The assessee is a hospital and it claimed depreciation on furniture and fittings at the rate of 15 per cent. applying old Appendix I of the Income Tax Rules. The Commissioner of Income Tax (Appeals) came to the conclusion that the assessing authority was wrong in not accepting that the hospital is a "welfare centre" and that in view of Section 32(1)(iv) of the Income Tax Act, as it then stood, concluded that the "welfare centre" would include hospital. The Tribunal also accepted the decision. Against that the Revenue is before us and raises the following substantial question of law:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee is entitled to depreciation at the rate of 15 per cent. on the furniture and fittings in the hospital on the view that the hospital comes within the term "welfare centre" as appearing in Appendix I, Part II(2) of the Income Tax Rules, 1962?

The assessee has been served but has not chosen to appear.

Mr. N. Muralikumaran, learned senior standing counsel for the appellant submits that Section 32(1)(iv) of the Income Tax Act, 1961, before its omission was not a definition clause and it did not define "welfare centre" to include hospitals. On the other hand, it only dealt with depreciation in the case of buildings which has been newly erected and it categorised such of those buildings which would be eligible for depreciation and the section only stated that buildings which are used for the welfare of the persons such as hospital, creches, etc., but that section cannot be read or construed to mean that the term "welfare centre" would include hospitals, creches, schools or canteens.

Learned Counsel for the appellant also relied on the judgment reported in Commissioner of Income Tax Vs. Upasana Hospital and Nursing Home, where the Kerala High Court had considered an identical question and held against the assessee and in favour of the Revenue. The assessee before the Kerala High Court was a partnership firm running a hospital and nursing home. Like the assessee before us, they too claimed depreciation on furniture and fittings at 15 per cent. and the Tribunal allowed it on the ground that "it is not difficult to see that a hospital qualifies as a welfare centre". The High Court held otherwise as follows (page 79):

Under Appendix I, Part I(1), the rate applicable to furniture and fittings not covered by sub-item (2) is 10 per cent. For item (2) furniture and fittings used in hotels, restaurants and boarding houses, schools, colleges and other educational institutions, libraries, welfare centres, meeting halls, cinema houses, theatres and circuses, and furniture and fittings let out on hire for use on the occasion of marriages and similar functions, the depreciation allowance is 15 per cent. According to the Tribunal, a hospital will come within the meaning of ''welfare centre''. According to us, the interpretation given by the Tribunal is not correct. It is one of the principles of interpretation in the taxation law that words of ordinary use should be given the meaning which is given by common people. A hospital is a place where the sick are taken care of. When a person is taken to a hospital, nobody will say that he is taken to a welfare centre. A welfare centre is a centre for the well-being of the community. Hence, a hospital will not come under item (2). If that be so, only 10 per cent. depreciation is available.

Learned Counsel therefore submits that this question has to be answered in favour of the Revenue.

Section 32(1)(iv) of Income Tax Act, 1961, reads as follows:

32.(1) In respect of depreciation of buildings, machinery, plant or furniture owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of Section 34, be allowed.

(iv) in the case of any building which has been newly erected after the 31st day of March, 1961, where the building is used solely for the purpose of residence of persons employed in the business and the income of each such person chargeable under the head ''Salaries'' is ten thousand rupees or less, or where the building is used solely or mainly for the welfare of such persons as a hospital, creche, school, canteen, library, recreational centre, shelter, rest room or lunch room, a sum equal to forty per cent. of the actual cost of the building to the assessee in respect of the previous year of erection of the building.

This was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1988. This section cannot be interpreted to mean that the definition of "welfare centre" include hospitals. Then libraries will be welfare centre, schools will be welfare centre, etc., whereas schools and libraries are separately mentioned in the Appendix which is extracted below:

-------------------------------------------------------------------------------- Depreciation allowance as Block of assets percentage of written down value -------------------------------------------------------------------------------- (1) (2) -------------------------------------------------------------------------------- Part-A

Tangible assets I. Buildings (1) Buildings other than those covered by sub-item (3) 5 below which are used mainly for residential purposes.

(2) Buildings which are not used mainly for residential 10 purposes and which are not covered by sub-item (3) below

(3) (i) Buildings used as hotels 20

(ii) Buildings with dwelling units each with plinth area not exceeding 80 square metres

(iii) New buildings, other than the buildings covered 40 under entry (ii) of this item, with dwelling units each with plinth area not exceeding 80 square metres acquired on or after the 1st day of April, 1999, but before the 1st day of April, 2002

(4) Purely temporary erections such as wooden structures 100

II. Furniture and fittings

(1) Rate applicable to furniture and fittings not 10 covered by sub-item (2) below

(2) Furniture and fittings used in hotels, restaurants and 15 boarding houses, schools, colleges and other educational institutions, libraries, welfare centres, meeting halls, cinema houses, theatres and circuses and furniture and fittings let out on hire for use on the occasion of marriages and similar functions. --------------------------------------------------------------------------------

Further, we find that in various sections like Sections 56, 143(3) and 134(4)(c), the Act refers to hospital or other medical institutions. Therefore, the word "hospital" would be used if it was intended that furniture and fittings in the hospitals are entitled for depreciation at 15 per cent.

In interpretation of taxing statutes by the honourable Mr. Justice Markandey Katju, judge, Supreme Court of India, we find the following words:

In taxing statute particularly it is not the dictionary meaning which has to be seen but the meaning as understood in common parlance specially in commercial circles.

and that, "in interpreting words and phrases in taxing statutes it is the popular meaning which has to be followed. The popular meaning is that meaning which people conversant with the subject-matter with which the statute is dealing would attribute to it". It is also well settled that "exemptions under taxing statutes must be strictly construed". This is a case of depreciation and there is no definition for either "welfare centre" or "hospital". However, the word "hospital" has been used in several places in the Act itself. If we employ the above rule of interpretation then as rightly observed by the Kerala High Court no one refers to a "hospital" as a "welfare centre" and no one would include "hospital" in the term "welfare centre" normally. We are, however, unable to understand why furniture and fittings used in hospital are not given a higher rate of depreciation when such rates are applied to hotels, cinema theatre and circuses, etc., as mentioned in the Appendix. But, the fact remains that if "hospitals" are not included in the above Appendix, we cannot do so.

Under these circumstances, we are inclined to accept the stand of the 10 Revenue and answer the question in favour of the Revenue. The tax case appeals are allowed.