1994 (6) TMI 3 - HC - Income Tax

Accounting Year, Building Tax, Business Expenditure, Concessional Rate, Hotel Building, Income Tax Act, Industrial Company, Investment Allowance, Manufacture Or Production, Mercantile System, Municipal Corporation, Taxing Statutes

Issues Involved:
1. Classification of hotel building as "plant" for depreciation calculation.
2. Entitlement to depreciation and extra-shift depreciation on the building.
3. Classification of the company as an industrial company engaged in manufacturing.
4. Applicable rate of income tax for the company.
5. Treatment of preparation of food in the hotel as manufacture or production under section 32A.
6. Deduction of municipal corporation tax and multi-storeyed building tax for earlier years under mercantile system.

Detailed Analysis:

1. Classification of Hotel Building as "Plant" for Depreciation Calculation:
The primary issue was whether the hotel building owned by the company and used for hotel business could be classified as "plant" for the purpose of calculating depreciation. The Tribunal initially held that the hotel building was not a "plant". However, the High Court disagreed, referencing the Supreme Court's decision in Scientific Engineering House P. Ltd. v. CIT and CIT v. Taj Mahal Hotel, which established that "plant" includes apparatus used in business activities. The Court concluded that the hotel building, being integral to the company's business operations, should be treated as "plant". Therefore, the first question was answered in the negative and in favor of the assessee.

2. Entitlement to Depreciation and Extra-Shift Depreciation on the Building:
The Tribunal had denied the company's claim for higher depreciation rates applicable to "plant" and extra-shift depreciation. The High Court, however, ruled that since the hotel building qualifies as "plant", the company is entitled to the corresponding depreciation benefits. Thus, this question was also answered in favor of the assessee.

3. Classification of the Company as an Industrial Company Engaged in Manufacturing:
The Tribunal had held that the company was not an industrial company primarily engaged in manufacturing goods, which affected its tax rate. The High Court, referencing its own decision in S. P. Jaiswal Estates P. Ltd. v. CIT (No. 1), determined that the company should be classified as an industrial company. Consequently, the third question was answered in favor of the assessee.

4. Applicable Rate of Income Tax for the Company:
Following the classification of the company as an industrial entity, the High Court ruled that the rate of income tax applicable should be that for industrial companies, not non-industrial ones. Thus, the fourth question was also resolved in favor of the assessee.

5. Treatment of Preparation of Food in the Hotel as Manufacture or Production:
The Tribunal had ruled that the preparation of food in the hotel did not constitute manufacturing or production under section 32A. The High Court acknowledged conflicting judgments on this matter, noting that in CIT v. Sky Room Pvt. Ltd., preparation of food was considered manufacturing, whereas CIT v. S. P. Jaiswal Estates (P.) Ltd. suggested otherwise. Given this conflict, the High Court referred the question to a larger bench for resolution.

6. Deduction of Municipal Corporation Tax and Multi-Storeyed Building Tax for Earlier Years:
The Tribunal allowed the company's claim for deductions of municipal corporation tax and multi-storeyed building tax, even though these liabilities pertained to earlier years but were recognized in the current year. The High Court upheld this decision, affirming that the liabilities, although for previous years, arose and were recognized in the current assessment year, thereby justifying the deductions.

Conclusion:
The High Court's judgment primarily favored the assessee on most issues, recognizing the hotel building as "plant" for depreciation purposes, classifying the company as an industrial entity, and allowing tax deductions for recognized liabilities. The issue of whether food preparation constitutes manufacturing was deferred to a larger bench due to conflicting precedents.

← Previous Next →