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 and plant used in a hotel fall within the proviso to s.32A because development rebate is allowable under s.33(1)(b)(B)(ii), and s.80J contains separate, different conditions for hotels in subs. (4) and (6). An entity carrying on hotel/trading activity cannot claim benefits available to industrial undertakings merely by arguing it produces foodstuffs or food packets; the claimed s.32A/ s.80J relief was not allowable.

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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.

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