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`Company in business has no brains or skills'

D. Murali

Chennai , Aug. 6

WE are told that we live in a knowledge economy where learning organisations do knowledge management. So, it may come as a surprise that the tax tribunal in Amritsar held that a company cannot possess skill. The case was about Dr Daljit Singh Eye Hospital P Ltd, a company engaged in running a nursing home. It bought an Excimer Laser machine and claimed the benefit of Section 35 of the Income-Tax Act, available for expenditure on `scientific research'.

For starters, Excimer derives from `excited' and `dimer'. "The development of the Excimer laser is the key element that has made laser eye surgery possible," explains "Created by IBM, Excimer lasers use reactive gases, such as chlorine and fluorine, mixed with inert gases such as argon, krypton or xenon. When electrically stimulated, a pseudo molecule (dimer) is produced that, when lased, produces light in the ultraviolet range."

The Assessing Officer (AO) dismissed the claim saying that the machine was used in professional practice; it was just normal work and no scientific research. "Professional activity was merely renamed as scientific research," he opined. At the stage of first appeal before the Commissioner (Appeals), the AO submitted that the doctors associated with the company were able to reduce the refractive error in eyes and improve vision, but "that was mainly because of their experience in the field and not because of any research made by them."

However, the hospital received a benign treatment from the Commissioner. Not resting, the Department took the case to the tribunal. There, the assessee's counsel argued that the activities of the hospital were `business', rather than `profession'. On the other side, the Department contended that the hospital was in a profession, and that whatever statistical records the hospital produced were more because the machine was new; they were no research leading to some new finding.

The tribunal looked into cases on similar issues, and cited the ruling in the Natvarlal Ambalal Dave case that a professional activity can also be characterised as "an activity of carrying on business if it is carried on like a commercial activity". Thus, the hospital was involved in business, ruled the tribunal.

"Moreover, the word `profession' involves labour, skill, education and special knowledge and implies a vocation requiring higher education and learning. All these qualities can be possessed by an individual and not a person who is not a living being." The assessee-company, a private limited one, is a person in the eyes of law, conceded the tribunal. "But individually it has no brain having the senses, as such it cannot possess skill which is a basic requirement for doing a profession."

The decision went in favour of the assessee - that it could claim the benefit it had sought. However, it could pain to know that before conferring a bounty the law had to dethrone the company from the professional pedestal that the AO had deemed appropriate for it. Would it then be paradoxical for forward-looking companies to talk of any vision statements when corporate form has life only in law but no brains whatsoever?

More Stories on : Courts/Legal Issues | Medical Institutions & Hospitals | Income Tax

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