1985 (7) TMI 158 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to Investment Allowance u/s 32A for a hotel.
2. Disallowance of expenses u/s 40A(5).

Summary:

1. Entitlement to Investment Allowance u/s 32A:

The primary issue was whether the assessee, a company running a five-star deluxe hotel, qualifies for the investment allowance u/s 32A on new plant and machinery. The IAC and the Commissioner (Appeals) denied the claim, arguing that a hotel is a service industry, not an industrial undertaking engaged in the manufacture or production of any article or thing. They relied on the Kerala High Court's decision in CIT v. Casino (P.) Ltd. and the Madras High Court's decision in CIT v. Buhari Sons (P.) Ltd. The assessee contended that these decisions were misapplied and argued that the hotel industry should be considered an industrial undertaking as it produces articles (food and beverages) for sale. The Tribunal considered various definitions and judicial interpretations of "industrial undertaking" and "production," and concluded that the hotel qualifies as an industrial undertaking engaged in the production of articles or things. The Tribunal distinguished the language and context of section 32A from the Finance Act, 1968, and held that the assessee is entitled to the investment allowance.

2. Disallowance of Expenses u/s 40A(5):

The second issue concerned the disallowance of Rs. 3,782 u/s 40A(5) for perquisites provided to employees. The ITO disallowed this amount, and the Commissioner (Appeals) confirmed the disallowance. The Tribunal referred to its earlier decision in ITO v. ESPI Agricultural Machineries Ltd., where it held that only the ceiling of Rs. 72,000 u/s 40(c) and the first proviso to section 40A(5) applies to a director, whether an employee or not. Following this precedent, the Tribunal directed the deletion of the disallowance of Rs. 3,782.

Conclusion:

The Tribunal allowed the appeal in part, deciding in favor of the assessee on both issues.