1998 (6) TMI 585 - HC - Income Tax

Hotel Not Considered Industrial Undertaking for Investment Allowance under Income-tax Act

COMMISSIONER OF INCOME-TAX Versus VRINDAVAN HOTELS (P.) LTD.

The High Court ruled in favor of the Revenue, denying the assessee's claim for investment allowance on the grounds that a hotel did not qualify as an ... - Issues:1. Entitlement to investment allowance on plant and machinery in the hotel business.2. Classification of a hotel as an industrial undertaking for investment allowance under section 32A of the Income-tax Act.Issue 1: Entitlement to Investment AllowanceThe primary issue in this case revolved around the entitlement of the assessee, engaged in the hotel business, to claim investment allowance on the plant and machinery used in the course of their operations. The Income-tax Appellate Tribunal had to determine whether the assessee could avail investment allowance on the building housing the kitchen, store room, and equipment used in producing food materials. The Tribunal relied on a previous order where it was established that there is indeed production of food materials in a hotel. Consequently, the Tribunal concluded that the conditions of section 32A(2)(b)(iii) were met, thereby granting the investment allowance to the assessee for the relevant assets.Issue 2: Classification of Hotel as an Industrial UndertakingThe crux of the matter lay in whether a hotel could be classified as an industrial undertaking for the purposes of claiming investment allowance under section 32A of the Income-tax Act. The Tribunal deliberated on the term 'industrial undertaking,' emphasizing that if there is an organization of labor and capital for the production and distribution of goods and services to satisfy human needs, it could be considered an industrial activity. The Tribunal concluded that the organized activities in a hotel, such as food production, could be viewed as industrial activities, meeting the criteria for an industrial undertaking. However, the Revenue contested this classification, citing precedents where courts had ruled against considering hotels as industrial companies due to the nature of their operations not aligning with traditional manufacturing or processing activities.In a comprehensive analysis, the High Court referred to past judgments, notably the case of Casino (Pvt.) Ltd., where the court had discussed whether food preparation in a hotel constituted manufacturing or processing of goods. The court highlighted that in common parlance, the activity of preparing food in a hotel did not align with the traditional understanding of manufacturing or processing. Subsequently, the court had ruled against considering hotels as industrial companies eligible for concessional tax rates based on similar reasoning in subsequent cases.Considering the precedents and the interpretations of relevant provisions, the High Court ruled in favor of the Revenue, denying the assessee's claim for investment allowance on the grounds that a hotel did not qualify as an industrial undertaking engaged in the production of goods. The court's decision was based on the established jurisprudence that hotels, despite engaging in food production, did not meet the criteria of industrial activities for the purposes of investment allowances under the Income-tax Act.