2014 (5) TMI 193 - HC - Income Tax

Allowability of claim of investment allowance u/s 32A of the Act Whether the preparation of food articles in a hotel may be treated as manufacturing of goods Held that - Following Commissioner of Income-Tax Versus Anand Theatres 2000 (5) TMI 4 - SUPREME Court - a hotel cannot be held to be a plant - a hotel building remains a building even when constructed to a luxury specification and also a hospital building for infectious diseases which might require special lay-out and other features was not held to be a plant by observing that a purpose-built building is no more than the premises in which the business is conducted. For each and every business, trade or industry, a building is required to carry on such activity - the building plays some role and its function is to shelter the business, but it has no other function except in some rare cases such as dry dock where it plays an essential part in the operations which take place in getting a ship into the dock, holding it securely and then returning it to the river - the Tribunal has committed error in treating the hotel building as a plant Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 32A of the Income Tax Act regarding investment allowance for hotel operations.
2. Determining whether the preparation of food articles in a hotel constitutes manufacturing of goods for claiming investment allowance under Section 32A.

Analysis:
1. The case involved a dispute regarding the eligibility of a hotel operator for investment allowance under Section 32A of the Income Tax Act. The respondent, a hotel operator, claimed that the preparation of food articles in the hotel should be considered as manufacturing of goods, entitling them to the investment allowance.

2. The Assessing Officer initially rejected the claim, stating that the preparation of food articles did not qualify as a manufacturing activity under Section 32A. This decision was upheld by the CIT (A) upon appeal by the assessee.

3. The matter was then brought before the Income Tax Appellate Tribunal, Jaipur, which ruled in favor of the assessee based on a precedent set by the Income Tax Appellate Tribunal, Bangalore Bench in a similar case. The Tribunal's decision was challenged before the High Court.

4. The High Court considered various legal precedents, including judgments by the Hon'ble Apex Court, to determine the nature of hotel operations and the eligibility for investment allowance. The court emphasized that a hotel building should not be considered as a plant, as highlighted in previous rulings.

5. Referring to the judgments in cases such as Anand Theatres and Indian Hotels Co. Ltd., the court reiterated that the activity of preparing food articles in a hotel does not amount to manufacturing or production of goods. It was emphasized that hotel operations primarily constitute trading activity rather than manufacturing or production.

6. Ultimately, the High Court concluded that the Tribunal erred in considering the hotel building as a plant and allowing the investment allowance claim. The court ruled in favor of the Revenue and against the assessee, highlighting that hotel operations, including food preparation, do not qualify as manufacturing activities under Section 32A. The reference application was thus disposed of with no costs awarded.