2000 (8) TMI 5 - SC - Income Tax

Hotel business distinct from industrial undertaking; investment allowance under s.32A and s.80J deduction denied proviso s.33(1)(b)(B)(ii) not extending benefits

SC held that hotel business and industrial undertaking are distinct for purposes of investment allowance under s.32A and deduction under s.80J. Machinery ... Claim for benefit of investment allowance under section 32A - industrial undertaking engaged in manufacturing activity - activity pertaining to the flight kitchen is hotel activity Or Not - entitlement to deductions under section 80J - Whether under the aforesaid provisions it can be held that the assessee's hotels manufacture or produce foodstuffs ? - HELD THAT:- The business of hotel and that of industrial undertaking is considered to be distinct and separate for the purpose of grant of investment allowance under section 32A or for grant of deduction under section 80J. Under proviso (c) to section 32A deduction of investment allowance is not to be made in respect of any ship, machinery or plant to which the deduction of development rebate is allowable under section 33. For the machinery and plant installed by an assessee being an Indian company in premises used by it as a hotel, specific provision for grant of deduction of development rebate is made under section 33(1)(b)(B)(ii). Similarly, under section 80J for the business of hotel and industrial undertaking separate provisions are prescribed for making the section applicable, namely, sub-sections (4) and (6). The conditions which are required to be satisfied by such assessees are different. Therefore, an assessee who is carrying on a trading activity of business of a hotel cannot claim the benefit granted to an industrial undertaking by contending that it also produces foodstuff or food packets. Issues Involved:1. Whether the flight kitchen operated by the assessee-Indian Hotels Company Ltd. qualifies as an industrial undertaking entitled to deductions under section 80J of the Income-tax Act, 1961.2. Whether the assessee, Hotel and Allied Traders Pvt. Ltd., is entitled to investment allowance under section 32A of the Income-tax Act.3. Whether the assessee, Hotel Shashi Private Ltd., is entitled to investment allowance under section 32A of the Income-tax Act.Issue-wise Detailed Analysis:1. Flight Kitchen as Industrial Undertaking:Under article 139A of the Constitution, the appeals pending before the Income-tax Appellate Tribunal were transferred to the Supreme Court. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee that Taj Flight Kitchen is a separate industrial undertaking engaged in the production of food packages for international airlines and not part of the hotel activity. The Commissioner directed the Income-tax Officer to allow deductions under section 80J in respect of the capital employed in the flight kitchen. The assessee argued that the flight kitchen is not a hotel activity but an industrial undertaking entitled to the benefit of section 80J. The Revenue contended that the flight kitchen is part of the hotel business and requires approval under section 80J(6)(d) of the Act. The Supreme Court held that the business of the assessee is that of a hotel, which is a trading activity and not an industrial undertaking. The court concluded that the flight kitchen does not qualify as an industrial undertaking and is not entitled to the benefit of section 80J.2. Investment Allowance for Hotel and Allied Traders Pvt. Ltd.:The assessee sought the benefit of investment allowance under section 32A for the assessment year 1978-79, contending that it was an industrial undertaking engaged in manufacturing activity. The Tribunal rejected the claim, holding that the assessee cannot be considered an industrial company engaged in manufacturing or processing of articles. The Kerala High Court upheld this decision. The Supreme Court referred to the relevant provisions of the Act and concluded that the business of a hotel is a trading activity and not an industrial undertaking. The court held that the preparation of foodstuffs in a hotel does not constitute manufacturing or production of goods and dismissed the appeal.3. Investment Allowance for Hotel Shashi Private Ltd.:The assessee, engaged in the business of running a hotel, claimed the benefit of investment allowance under section 32A. The Tribunal rejected the claim, and the Bombay High Court upheld this decision. The Supreme Court held that the business of a hotel is a trading activity and not an industrial undertaking. The court referred to the decision in CIT v. N. C. Budharaja and Co., which held that the term 'manufacture' implies the production of a new article or commodity. The court concluded that the preparation of foodstuffs in a hotel does not constitute manufacturing or production of goods and dismissed the appeal.Conclusion:The Supreme Court allowed the appeals filed by the Revenue and held that the flight kitchen operated by the assessee-Indian Hotels Company Ltd. is not entitled to the benefit of section 80J. The court dismissed the appeals filed by the assessee-Indian Hotels Company Ltd., Hotel and Allied Traders Pvt. Ltd., and Hotel Shashi Private Ltd., holding that the business of a hotel is a trading activity and not an industrial undertaking, and therefore, not entitled to deductions under section 80J or investment allowance under section 32A. There was no order as to costs.