1995 (3) TMI 142 - AT - Income Tax

Summary

Issues:
1. Eligibility for investment allowance under section 32A of the Act for a hotel under construction.
2. Interpretation of the term "production of any article or thing" in the context of claiming investment allowance.
3. Consideration of restaurant income in determining eligibility for investment allowance.
4. Application of relevant case laws in determining the eligibility of a hotel business for investment allowance.

Analysis:

1. The appeal pertained to the assessment year 1987-88 for a hotel still under construction, with a part commissioned during the year. The assessee claimed 25% of the cost of plant and machinery as investment allowance. The Assessing Officer did not allow the allowance without discussion.

2. The CIT (A) held that the assessee did not qualify for investment allowance based on decisions of Kerala and Madras High Courts, stating that the assessee was not engaged in the production of any article or thing. The first ground of appeal was against this finding.

3. The assessee's counsel argued that the requirement for investment allowance was different from being classified as an industrial company. Referring to relevant case laws, it was contended that hotels qualified for relief under section 32A. The counsel also highlighted the significant income from the restaurant in subsequent years to support the claim for investment allowance.

4. The Departmental Representative (D.R.) contended that a hotel's main business is trading, not manufacturing, citing relevant case laws. It was argued that the preparation of food in a hotel is incidental to its service, making it ineligible for investment allowance on plant and machinery.

5. The Tribunal agreed with the D.R., emphasizing that hotels do not produce any article or thing, thus not qualifying as an industrial undertaking for investment allowance. The Tribunal rejected the alternative submission regarding the significant income from the restaurant, stating that the entire hotel operation must be for production or manufacture to qualify for the allowance.

6. The Tribunal referenced decisions from various High Courts, including Bombay, Karnataka, and Calcutta, reaffirming that hotel businesses are trading activities and do not involve manufacturing or production of goods. These decisions supported the denial of investment allowance for plant and machinery in hotel businesses.

7. Ultimately, the Tribunal concluded that the assessee was not entitled to investment allowance for the plant and machinery used in the hotel business. Since the restaurant was an integral part of the hotel, the machinery used therein could not be separated for the purpose of claiming the allowance under section 32A. Both the main and alternative submissions of the assessee were rejected based on the interpretation of relevant legal precedents.