1986 (8) TMI 97 - AT - Income Tax

Tribunal rules hotel business not eligible for investment allowance under IT Act section 32A

The Tribunal ruled in favor of the Revenue, dismissing the claim of investment allowance for a hotel business under section 32A of the IT Act. It held ... - Issues:Claim of investment allowance on plant and machinery under section 32A of the IT Act for a hotel business.Analysis:Issue 1: Claim of Investment AllowanceThe case involved an appeal and cross-objection against the order of the AAC regarding the claim of investment allowance on plant and machinery for a hotel business. The assessee, a registered firm, claimed investment allowance under section 32A of the IT Act for the assessment year 1984-85. The ITO initially disallowed the claim, specifically for an Airconditioning plant. However, the AAC allowed the claim, stating that investment allowance is admissible for machinery owned by the assessee and wholly used for business purposes. The Revenue contended that the assessee did not meet the conditions under section 32A(2)(b) to qualify as an industrial undertaking or small scale industrial undertaking producing articles. The Revenue relied on court decisions to support its argument. The assessee, on the other hand, argued that the ITO had already allowed investment allowance for other plant and machinery, indicating the eligibility of the assessee. The Tribunal analyzed various court decisions, including those from the Madras and Kerala High Courts, to determine that a hotel business does not qualify as an industrial undertaking producing articles, hence not entitled to investment allowance. The Tribunal upheld the Revenue's appeal, dismissing the cross-objection of the assessee.Issue 2: Interpretation of 'Manufacture'The Tribunal referred to various court decisions to interpret the term 'manufacture' in the context of the IT Act. It cited judgments from the Madras and Kerala High Courts, emphasizing that the business of running a hotel is considered a trading activity, not manufacturing. The Tribunal highlighted that the preparation of eatables in a hotel does not constitute the manufacture of goods. The case law discussed by the Tribunal clarified that for investment allowance eligibility, the assessee must be engaged in manufacturing or producing articles, which a hotel business does not entail. The Tribunal concluded that the assessee, in this case, did not meet the criteria laid down in section 32A of the IT Act for claiming investment allowance on plant and machinery used in the hotel business.ConclusionThe Tribunal, based on the analysis of relevant legal provisions and court decisions, ruled in favor of the Revenue, disallowing the claim of investment allowance for the hotel business. The judgment emphasized the distinction between trading activities and manufacturing processes, concluding that a hotel business does not qualify as an industrial undertaking eligible for investment allowance under section 32A of the IT Act. The appeal of the Revenue was allowed, and the cross-objection of the assessee was dismissed, upholding the order of the ITO overruling the AAC's decision.