1996 (9) TMI 109 - HC - Income Tax

Concessional Rate Industrial Undertaking Investment Allowance Manufacture Or Processing Of Goods

Summary

Issues Involved:
1. Whether the assessee is an industrial undertaking entitled to investment allowance under section 32A of the Income-tax Act, 1961.
2. Whether the assessee should be assessed to income-tax at the rate applicable to an industrial undertaking or a trading company.

Detailed Analysis:

Issue 1: Industrial Undertaking and Investment Allowance under Section 32A
The primary question was whether a hotel qualifies as an industrial undertaking eligible for investment allowance under section 32A of the Income-tax Act, 1961. The assessee, a company running a hotel, claimed this status based on the preparation and supply of food articles using machinery and plant.

Arguments by Revenue:
- The Revenue contended that the hotel is a trading concern and that preparation of food is merely incidental to its business.
- Cited cases:
- CIT v. Casino (Pvt.) Ltd. [1973] 91 ITR 289 (Ker), where it was held that a hotel does not qualify as an industrial undertaking.
- CIT v. S. P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 179 (Cal) and CIT v. Sky Room Pvt. Ltd. [1992] 195 ITR 763 (Cal), which discussed the incidental nature of food preparation in hotels.
- Fariyas Hotels Pvt. Ltd. v. CIT [1995] 211 ITR 390 (Bom), which stated that hotel activities are essentially trading activities.

Arguments by Assessee:
- The assessee argued that the preparation of food constitutes manufacturing, thus qualifying the hotel as an industrial undertaking.
- Distinguished the cases cited by the Revenue, particularly noting that CIT v. Casino (Pvt.) Ltd. dealt with a different legislative context.

Court's Analysis:
- The court examined the definition of "manufacture" and concluded that transforming raw materials into food constitutes manufacturing.
- Referenced CIT v. S. P. Jaiswal Estates (P.) Ltd. and CIT v. Sky Room Pvt. Ltd., which supported the notion that food preparation is a manufacturing process.
- Emphasized that section 32A does not explicitly require the primary business to be manufacturing; it suffices if the machinery is used for business purposes.

Conclusion:
- The court held that the assessee's hotel qualifies as an industrial undertaking and is entitled to investment allowance under section 32A.
- The preparation of food in the hotel is considered a manufacturing process, thus meeting the criteria for investment allowance.

Issue 2: Applicable Income-tax Rate
The second issue was whether the assessee should be assessed at the rate applicable to an industrial undertaking or a trading company. This was contingent on the resolution of the first issue.

Court's Analysis:
- Given the determination that the hotel is an industrial undertaking, the court concluded that the income-tax rate applicable to industrial undertakings should apply.

Conclusion:
- The assessee should be assessed at the rate applicable to industrial undertakings, not as a trading company.

Final Judgment:
The court answered both questions in the affirmative, in favor of the assessee and against the Revenue. The assessee's hotel was recognized as an industrial undertaking entitled to investment allowance under section 32A, and it should be taxed at the rate applicable to industrial undertakings. A copy of the judgment was ordered to be transmitted to the Income-tax Appellate Tribunal, with no order as to costs.