2001 (3) TMI 42 - HC - Income Tax

Summary

Issues Involved:
1. Whether the hotel business qualifies as an industrial undertaking.
2. Whether the hotel building can be considered a plant.
3. Eligibility for investment allowance under section 32A of the Income-tax Act, 1961.

Detailed Analysis:

1. Whether the hotel business qualifies as an industrial undertaking:
The Tribunal held that the hotel business qualifies as an industrial undertaking, thereby making the assessee eligible for investment allowance under section 32A of the Income-tax Act. However, the High Court disagreed, emphasizing that the hotel business is primarily a service-oriented activity and not engaged in the "manufacture or production of any article or thing." The court referenced the Supreme Court's decision in Indian Hotels Co. Ltd. v. ITO [2000] 245 ITR 538, which clarified that hotel businesses, even if they process food materials, are engaged in trading activities and not industrial manufacturing or production.

2. Whether the hotel building can be considered a plant:
The assessee argued that the hotel building should be considered a plant based on the functional test applied in previous cases such as CIT v. Taj Mahal Hotel [1971] 82 ITR 44 and CIT v. Dr. B. Venkata Rao [2000] 243 ITR 81. However, the court referred to the Supreme Court's ruling in Anand Theatres' case [2000] 244 ITR 192, which held that buildings, even if designed for specific business purposes, do not qualify as plants. The court emphasized that buildings serve primarily as shelters for business activities and do not perform functions akin to machinery or plant.

3. Eligibility for investment allowance under section 32A:
Section 32A of the Act allows investment allowance for specific types of machinery or plant used in industrial undertakings. The High Court noted that the language of section 32A is distinct and more restrictive than section 32, which deals with depreciation. Section 32A specifically requires the plant or machinery to be used in the business of "construction, manufacture or production of any article or thing." The court concluded that a hotel business does not meet these criteria, as it is not involved in the production of tangible goods but rather in providing services.

The court also referenced the Karnataka High Court's decision in CIT v. Woodlands Hotel Private Limited [1998] 233 ITR 224, which supported the view that hotel buildings do not qualify for investment allowance under section 32A. Moreover, the court highlighted that the provisions of section 32A are not applicable to hotel buildings, as they do not fulfill the requirement of being used for the business of manufacturing or producing tangible articles or things.

Conclusion:
The High Court concluded that the Tribunal erred in treating the hotel business as an industrial undertaking and the hotel building as a plant for the purposes of section 32A. The court answered the referred question in the negative, ruling in favor of the Revenue and against the assessee, thereby denying the investment allowance claim for the hotel building.