While setting aside the orders of first appellate authority and the Income Tax Appellate Tribunal, Kochi, the division bench of Kerala High Court has observed that, under the Income Tax Act, the provision for depreciation is contained in Section 32 and if a hospital or part thereof qualifies to be a plant, it would be eligible for depreciation at the rate of 25%; whereas that part of the hospital which is to be treated as a building shall be eligible for depreciation only at the rate of 10%.
The assessee Moidu’s Medicare Pvt. Ltd is a hospital claimed depreciation at the rate of 25% contending that its hospital building is a plant. The Assessing Officer allowed depreciation at the rate of 25% as claimed by the assessee.
Despite of assessing officer view, the Commissioner assumed jurisdiction under Section 263 of the Income Tax Act, taking the view that the assessment orders were prejudicial to the interest of the Revenue. According to the Commissioner, that part of the building used for general purposes and that used for specific hospital purposes should be distinguished and depreciation at the rate of 25% can be allowed only for such portion of the building used as operation theatre, X-ray rooms etc. and the other portion of the building or part of the building used as administrative blocks, patient rooms, visitors’ room etc. would be eligible for depreciation at the rate of 10% only. On that basis, he set aside the orders of assessment and the Assessing Officer was directed to redo the same.
The division bench comprising of Justice Antony Dominic and Justice Dama Seshadiri Naidu relied case Income Tax v. Dr. B. Venkata Rao, the Apex Court considered the case of a Medical Practitioner running a nursing home. In that case, the Tribunal has held the nursing home to be a plant and the same was affirmed by the High Court. In the appeals, the Supreme Court held that since the nursing home is equipped to enable the sterilisation of surgical instruments and bandages to be carried on and it was reasonable to assume that nursing home was equipped with operation theater, the finding of the High Court should be accepted.
While deciding in favour of the assessee the bench had cited bunch of decisions and observed that, the question to be examined is whether as held by the Apex Court in Karnataka Power Corporation (supra) the building has been so planned and constructed as to serve an assessee’s special technical requirements. On such consideration, if a factual finding has been arrived at in favour of the assesses, then the building would qualify to be a plant with consequential depreciation at the applicable rate. Insofar as these cases are concerned, from the assessment order itself, we find that it was the case of the assessee that the hospital building is a specifically designed and planned one to meet its requirements 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).
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