TaxTMI 
TaxTMI 
TaxTMI 
1999 (12) TMI 831
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....n a perusal of the assessment records, the Commissioner of Income-tax observed that the assessee did not satisfy the conditions for being charged at the rate of tax applicable to the industrial company, that is, at 60 per cent., and hence issued notice to the assessee to show cause as to why it should not be taxed at the rate applicable to non-industrial company, that is, at the rate of 65 per cent. The contention of the assessee before the Commissioner of Income-tax was that its income from flight kitchen constituted more than 51 per cent. and whereas its income from hotel business was not an income from industrial income, its income from flight kitchen was, and therefore, it was rightly taxed at 60 per cent. by the Assessing Officer. The Commissioner of Income-tax referred to the definition of the term "industrial company" as defined in section 2(6)(d) of the Finance Act, 1968, which, according to him, did not apply to the assessee's case. The Commissioner of Income-tax placed heavy reliance on the decision of the Kerala High Court in the case of CIT v. Casino (P.) Ltd. [1973] 91 ITR 289 in which it was held that preparation of food articles from various raw materials like veget....
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.... the customers as in hotel and there was no element of trading like people coming and going to buy. There was no element of hospitality involved. The flight kitchen involved more high speed and mechanised production. Smt. Jagtiani then referred to the only decision directly on the subject by the Calcutta High Court in the case of CIT v. East India Hotels Ltd. [1994] 209 ITR 854. The said decision, though in the context of section 80J, was relevant as it held that exclusive catering unit of the assessee supplying to international airlines eatables of specifications in bulk for consumption of air passengers was the benchmark of what was merchandise. Therefore, the assessee's claim for relief under section 80J was allowed. Referring to the history in the assessee's own case, it was submitted that from the assessment year 1975-76 onwards, the assessee had started maintaining separate books of account. In the assessment year 1974-75, the Commissioner of Income-tax (Appeals) did hold that the activities of the assessee as far as flight kitchen was concerned, have to be considered as manufacturing or processing activities. However, since separate books of account were not maintained, it....
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.... same thing, however, what was relevant was the context in which the words are used. If the context changes, the meaning also undergoes a change. As an illustration, it was submitted that one makes a painting but does not manufacture a painting. Similarly, one makes tea or food but one does not manufacture tea or food to eat. Supplementing these arguments, the learned Departmental Representative referred to Roget's Pocket Thesaurus. According to the said Thesaurus, the word "make" assumed different hues as : constitute, render, produce, form, complete, compel, create, demonstrate, etc. Hence, the word had to be used as the context required and it should be understood in the context in which it is used. Similar reference was also made to the word "produce", which, as per the Thesaurus, had different hues like perform, operate, do, make, form, construct, fabricate, frame, contrive, manufacture, build, raise, rear, etc. In short, the thrust of the learned Departmental Representative's argument was that the word has to be used in the most acceptable meaning and should also be understood the same way. The learned Departmental Representative referred to note No. 4 in the notes on flight ....
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.... whether food is manufactured, and (b) whether food prepared are goods. In his opinion, reply to both these questions have to be in the negative. Coming to the facts of the present case, the learned Departmental Representative drew our attention to the profit and loss account of the assessee-company. Specially drawing our attention to the expense details, it was submitted that not a single expenditure related to industrial activity. Referring to the details of plant and machinery, it was submitted that major items consisted of cooking range, cream separator, etc., which could hardly be considered as manufacturing plants. Further, plant for flight kitchen was hardly worth Rs. 3,53,053 (page 30 of paper book, volume 4). Again, referring to the separate profit and loss account of the flight kitchen unit, it was submitted that not a single expenditure indicated direct manufacturing expense. The contention that there was no manufacturing was also borne out from the menu, e.g., chicken remained chicken after cooking. Thus, according to the learned Departmental Representative there was no manufacturing activity at all. Responding to some of the specific arguments of learned counsel, the ....
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.... rendered in the context of the provisions of section 2(12) of the Employees' State Insurance Act, 1948, and hence the ratio laid down there could not be applied here. Thus, summing up his arguments as narrated above, the learned Departmental Representative vehemently stated that the activities of the flight kitchen carried out by the assessee cannot be considered to be a manufacturing or processing activity and hence it was not an industrial undertaking eligible for concessional rate of tax. Replying to the arguments of the learned Departmental Representative, Smt. Jagtiani, learned counsel for the assessee, submitted that with the change in times, many home activities are converted into industrial activities, e.g., once upon a time shirts were made at home, which now is a huge garment industry. Similarly, food industry has become one of the largest industries as is evident from the varieties one finds at the fast food joints or in the supermarkets. Therefore, the term "manufacturing and processing" is used as an umbrella phrase. To say that the case of Casino (P.) Ltd. [1973] 91 ITR 289 (Ker) is only a case of restaurant is to say something different than what is said in the jud....
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.... to consider, besides the Tribunal decisions on the issue, also the decision of the Kerala High Court in the case of Anjali Hotels (P.) Ltd. v. CIT [1988] 170 ITR 419. This order of the Bombay High Court in the assessee's case is reported in CIT v. Narang Hotels (P.) Ltd. [1988] 41 Taxman 241. Secondly, in the case of Indian Hotels Co. Ltd. v. IAC [1989] 34 TTJ 526 (Bom) the following issue had come up before the Tribunal in I.T.A. No. 6909/Bom of 1987 for the assessment year 1979-80 : "On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in holding that the flight kitchen doing the business of preparing food for supply to airlines was an industrial undertaking eligible for investment allowance, extra shift allowance and relief under section 80J". The Tribunal observed that similar issue had arisen in respect of the assessment year 1978-79 and the matter was pending before the Supreme Court in the assessee's (Indian Hotels Co. Ltd.) own case. Under the circumstances, the Tribunal set aside the orders of the income-tax authorities and restored the matter to the file of the Inspecting Assistant Commissioner (Asst.) wi....
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....h Court, we agree with the learned Departmental Representative has been dissented from by the Bombay High Court in the case of CIT v. Sterling Foods (Goa) [1995] 213 ITR 851 in which the assessee was engaged in the activity of processing prawns. Moreover, the said decision of the Bombay High Court has been approved by the Supreme Court in the case of CIT v. Relish Foods [1999] 237 ITR 59. It may be pertinent to note that in both the cases, the two High Courts were primarily considering the activity of processing of shrimps and prawns. Hence, in our opinion, in that context, it would be quite farfetched to directly apply the decision in East India Hotels Ltd.'s case [1994] 209 ITR 854 (Cal). However, it may be worth considering the following observations in the case of East India Hotels Ltd. [1994] 209 ITR 854 (Cal) given at (page 864) : "Even otherwise, where the food prepared by caterer for supply to parties, whosoever may order for the supply, can as well be said to be merchandise. In fact, the exclusive catering unit of the assessee supplies to international airlines eatables of specifications in bulk for consumption of air passengers. These facts are the benchmark of what is....
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.... Co. (I.) Ltd. [1995] 213 ITR 517. At pages 520-521 of the report, the High Court observed as follows : "It is evident from the above definition that in order to be an industrial company, it should 'manufacture or produce articles'. The word 'processing' is conspicuous by its absence in the above definition. As against this, the expression used in the definition of 'industrial company', in clause (c) of section 2(8) of the Finance Act, 1975, is 'engaged in the manufacture or processing of goods'. The use of different expressions by the Legislature in the definition of the same expression for different purposes is not accidental. It rather appears to be a deliberate act of the Legislature intended to extend the benefit of the particular provisions also to companies which are engaged in the business of processing of goods which in the ordinary course would not tantamount to or be regarded as 'manufacture'. The word 'processing' has not been defined in the Income-tax Act. or the relevant Finance Act. According to the New Webster's Dictionary of the English Language (Encyclopaedic Edition), 'process' means 'to treat or prepare by some particular process ; to convert an agricultural co....
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....at the assessee is supplying and what is the marketable form in which it is supplied. It is undisputed that the assessee supplies the food prepared by it. Like a hotel or restaurant, it does not cater to the individual taste of the consumer. But depending upon the contract with the respective airlines, there is a pre-set menu as per which the food is prepared. Broadly speaking, all the menus put together will cover a wide range of variety like Indian, Continental, Mexican and other cuisines. The important point to be noted is that the flight kitchen unlike a hotel, caters as per the contract with each airline and not as per individual taste of the ultimate consumer. The next important factor to be taken note of is that after processing the food, it is packed in trays and supplied in bulk to the airlines. In other words, the flight kitchen may prepare several items like bakery items, vegetables, chicken, etc., but what it supplies is a fixed meal in trays and that, too, we repeat, to the airlines. On the other hand, in a hotel chicken may be prepared, but it will be served only if a customer wants it. There is no prior contract to prepare it in bulk, as is the case with airline cus....
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....e need not go into the scope of the term 'processing' in the circumstances of the case, as the contention of the assessee is that there has been a material change or alteration in the goods resulting in the production of a commercially different article, and if we find that notwithstanding this to be the case, it does not amount to manufacture, naturally the question as to the scope of the term 'processing' need not be gone into further." The Bombay High Court, on the other hand, at page 521 (of ITR 213) in London Star Diamond Co. (I.) Ltd.'s case [1995] 213 ITR 517 observed as follows : "Processing is much wider than 'manufacture'. It includes activities which may not tantamount to 'manufacture'. Cutting and polishing of rough diamonds is definitely a process which amounts to 'processing of goods' to convert them into marketable form, if not 'manufacture' of goods". The Bombay High Court, therefore, laid stress on conversion of goods into marketable form. Thus, in the case before us, after preparing various food items, the assessee packed it in trays to make a complete meal and supplied it in that form to its customers-the airlines. This is not to suggest that merely assembling ....
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.... of a hotel. That is why the court, at page 300, observed as follows : "A hotel, according to us, is one such as it is mainly intended for trading and not for production or manufacture. The various items of foodstuffs and beverages produced in a hotel are intended for the trading and the conversion of the raw materials into foodstuffs is only a process in trading". As against this, the intention of the flight kitchen is to produce meals and supply them to the airlines. It is not an activity incidental to any other activity carried out by the assessee. In the words of the Kerala High Court itself, any manufacturing concern must also normally engage in trading activity in the sense it must also sell. But, for that reason alone, it does not become a trading concern, as the main object of the concern is manufacture and the sale of goods manufactured is incidental. The main object of the flight kitchen is to produce meals/breakfasts and sale of foodstuffs made by it to the airlines is incidental to its main object. This is also borne out from the fact that one of the yardsticks applied to gauge the performance of a flight kitchen would be in terms of number of meals/breakfasts produced....
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....n the merits, hence the ground was out of place here. None the less, it was submitted that the issue was largely consequential to the outcome of the first ground. At the most, if the building in which the flight kitchen was housed is considered as a godown, then depreciation at 2.5 per cent. was applicable. We have considered the rival contentions. Firstly, we have already held the activity of the flight kitchen to be an industrial activity. Secondly, besides using high tension power, it also has a boiler, a high grade oven to make bakery items and other electrical gadgets. Thirdly, the Tribunal has in its order dated November 17, 1984, in the assessee's case for the assessment years 1971-72 to 1973-74 held that the flight kitchen premises are not used as hotel but it is a place where processing of goods takes place. For these reasons, we are inclined to hold that the flight kitchen building as well as roads in its vicinity are entitled to depreciation at five per cent. We direct accordingly. The last ground in the appeal relates to the allowability of bad debts. Out of the total bad debts of Rs. 2,08,298 claimed by the assessee, the Assessing Officer disallowed the same to the e....