1992 (11) TMI 66 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement of investment allowance u/s 32A for new machinery installed by a hotelier.

Summary:

Entitlement of Investment Allowance u/s 32A:
The primary issue was whether the assessee, a hotelier, is entitled to investment allowance u/s 32A of the Income-tax Act, 1961, for new machinery installed in the assessment year 1981-82. The Income-tax Officer and the Appellate Assistant Commissioner denied the claim, but the Appellate Tribunal held that a hotel is an industry entitled to investment allowance.

Arguments and Precedents:
The Revenue's counsel relied on the Kerala High Court decision in CIT v. Casino (Pvt.) Ltd. [1973] 91 ITR 289, which held that a hotel is a trading concern, not an industrial undertaking. The court discussed whether a hotelier produces goods by manufacturing or processing them and concluded that the term "manufacture" must be understood in the context of the enactment. The Madras High Court in CIT v. Buhari Sons Pvt. Ltd. [1983] 144 ITR 12 also held that hotel activities are trading, not manufacturing.

Analysis of Section 32A:
Section 32A(1) grants investment allowance for machinery used in an industrial undertaking. The term "industrial undertaking" is not defined in the Income-tax Act, unlike in various Finance Acts. The court noted that the dominant activities of the undertaking must be considered. The Calcutta High Court in CIT v. S. P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 179 held that hotel activities, including the production of food, are ancillary to hotel keeping and do not constitute manufacturing.

Conclusion:
The court concluded that the hotel business is a trading concern and not an industrial undertaking. Therefore, the installation of machinery in a hotel does not qualify for investment allowance u/s 32A. The Appellate Tribunal's decision to grant relief was not justified.

Final Decision:
The question was answered in the negative, in favor of the Revenue. The reference was answered accordingly.