1987 (2) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Classification as "Industrial Company" under Section 2(7)(c) of the Finance Act, 1982.
2. Addition of Rs. 84,95,504 as Hotel Receipts tax collected by the assessee.
3. Rejection of investment allowance under Section 32A of the IT Act, 1961.

Issue-Wise Detailed Analysis:

1. Classification as "Industrial Company":
The assessee did not press this ground during the hearing, considering it of academic interest. Consequently, no relief was granted in respect of this ground.

2. Addition of Rs. 84,95,504 as Hotel Receipts Tax:
The IAC (Assessment) added Rs. 84,95,504 collected by the assessee as Hotel Receipts tax to the income for the assessment year 1982-83, treating it as trading receipts. The IAC relied on the Supreme Court decision in Chowringhee Sales Bureau P. Ltd., which held that amounts collected as sales tax formed part of trading receipts if not paid to the government or refunded to customers. The assessee argued that the amount should not be treated as trading receipts and cited the Supreme Court decision in CIT vs. Bijli Cotton Mills (P) Ltd., which held that amounts collected for specific purposes and earmarked for charity were not trading receipts. However, the Tribunal found that the Hotel Receipts tax collected by the assessee did not qualify for exclusion as it was not collected for a specific purpose like charity. The Tribunal upheld the inclusion of the amount as trading receipts but allowed a corresponding deduction of the same amount, recognizing the liability under the mercantile system of accounting. The Tribunal concluded that the liability to pay Hotel Receipts tax existed despite the stay order from the Supreme Court, as the stay only postponed the payment date.

3. Rejection of Investment Allowance under Section 32A:
The assessee claimed an investment allowance on various items of plant and machinery, including sanitary installations, air conditioning plants, kitchen equipment, miscellaneous plant and machinery, and music instruments. The IAC (Assessment) rejected the claim, stating that the assessee's main activity of hiring rooms did not involve manufacturing or production of goods, and the running of a restaurant was an allied service. The IAC cited the Kerala High Court decision in Casino Private Ltd., which held that a hotel is a trading concern and does not qualify as an industrial company. The CIT(A) upheld this rejection, referencing his earlier decision for the assessment year 1980-81, where he denied the investment allowance on similar grounds. The Tribunal found that the CIT(A) had not adjudicated asset-wise on the admissibility of the investment allowance for the assessment year under consideration. The Tribunal set aside the CIT(A)'s finding and remanded the matter for fresh adjudication, directing the CIT(A) to consider the submissions of the assessee and the Revenue with reference to various court decisions and to decide the issue asset-wise, assuming there was no general bar to the grant of investment allowance.

Conclusion:
The Tribunal allowed the appeal in part, directing the CIT(A) to re-examine the investment allowance claim asset-wise and allowing the deduction of the Hotel Receipts tax liability against its inclusion as trading receipts. The ground related to the classification as an "Industrial Company" was not pressed and thus no relief was granted.