Hotel food preparation is not manufacture for investment allowance; disputed luxury tax still accrues when the taxable event occurs.

Hotel food preparation does not amount to manufacture or production for investment allowance under section 32A, so the allowance was unavailable. Under the mercantile system, luxury tax liability for earlier years accrued when the taxable event occurred and the liability became determinable, even though the assessee contested the levy. The provisional assessment in a later year did not shift accrual of the earlier tax liability. Both issues were decided against the assessee.

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Issues: (i) Whether preparation of food in a hotel amounts to manufacture or production of articles or things so as to qualify for investment allowance under section 32A of the Income-tax Act, 1961; (ii) Whether luxury tax liability relating to earlier years accrues in the accounting year in which the provisional assessment is made when the assessee follows the mercantile system of accounting and contests the levy.

Issue (i): Whether preparation of food in a hotel amounts to manufacture or production of articles or things so as to qualify for investment allowance under section 32A of the Income-tax Act, 1961.

Analysis: The claim for investment allowance depended on whether the hotel business involved manufacture or production within the meaning of section 32A. The court followed its earlier decision in the assessee's own case and held that the hotel activity did not satisfy that requirement. The allowance was therefore not available merely because food was prepared for service to customers.

Conclusion: The question was answered in the negative and against the assessee.

Issue (ii): Whether luxury tax liability relating to earlier years accrues in the accounting year in which the provisional assessment is made when the assessee follows the mercantile system of accounting and contests the levy.

Analysis: The liability under the West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972 was treated as determinable and crystallised when the taxable event occurred, since the rate and subject-matter of tax were known. Applying the principle governing statutory tax liabilities under the mercantile system, the fact that the assessee disputed the levy did not postpone accrual. The liability therefore arose in the relevant earlier years and not in the year of provisional assessment.

Conclusion: The question was answered in the negative and against the assessee.

Final Conclusion: The assessee was denied investment allowance on the hotel activity and was also not allowed to shift the luxury tax liability of earlier years to the later accounting year; both references were decided against it.

Ratio Decidendi: Under the mercantile system, a statutory tax liability accrues when the taxable event occurs and is determinable, even if the assessee disputes the levy; for investment allowance, hotel food preparation does not amount to manufacture or production unless the statutory requirement is met.

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