Investment allowance u/s 32A with respect to new plant & machinery in the business of a hotel. - Income Tax - 1681/CBDT

INSTRUCTION NO. 1681/CBDT Dated: January 7, 1986 A question has been raised whether the investment allowance u/s 32A of the Income-tax Act, 1961 is admissible in respect of new machinery and plant installed in the business of a hotel. 2. Sub-Clause (iii) of Clause (b) of sub-section (2) of section 32A provides for investment allowance in respect of new machinery and plant installed after 31.3.1976 in any industrial undertaking for the purpose of business of construction, manufacture or production of an article or thing not specified in the list in the Eleventh Schedule. Sub-Clause (ii) of this an article or taking Clause (b), however, makes the new machinery and plant installed in a small scale industrial undertaking for the purpose of business of manufacture or production of any article or thing eligible for investment allowance. A doubt may arise in regard to both these clauses as to whether the business of running a hotel can be treated as industrial undertaking involving the manufacture or production of any article or thing. A claim may be made by the hotels particularly in respect of their restaurant units that they are industrial undertaking involved in the manufacture or production of an article or thing and are, therefore, entitled to investment allowance. 3. The matter was examined by the Board in consultation with the Ministry of Law. The Board are of the view that the hotels including restaurants do not qualify for investment allowance u/s 32A of the Income-tax Act. From the scheme of the Income-tax Act, 1961, it is clear that the business of running a hotel does not constitute an industrial undertaking. Wherever some relief has been provided to the business of hotel, it has been distinctly mentioned along with 'industrial undertaking' such as in section 80-J and 80HH. This makes it clear that business of hotel does not ordinarily fall within the ambit of the term 'industrial undertaking' in the Income-tax Act, 1961. 4. In the case of CIT Vs. Casino Pvt. ltd. (1973) 91 ITR 286, the Kerala High Court had an occasion to consider whether a company carrying on business of a hotel was covered by the definition of 'industrial company' laid down in Section 2(6) (d) of the Finance Act 1968 and held that a hotel was mainly a trading concern and the preparation of articles of food from raw materials did not constitute manufacture or processing of goods within the meaning of Section 2(6) (d) of the Finance Act, 1968 and, therefore, a company running a hotel could not be treated as industrial company. In the definition of industrial company in Section 2(6)(d) of the Finance Act, 1968, the word 'processing' which is admittedly of wider connotation was also used along with 'manufacture' whereas this word has not been used in Section 32A. Thus, the scope of Section 32A of the Income-tax Act is narrower than that of Section 2(6) (d) of the Finance Act, 1968. 5. The business of a hotel, therefore, cannot qualify for investment allowance u/s 32A of the Income-tax Act, 1961. Apart from disallowing such claims in pending and future assessments, suitable remedial action may also be taken u/s 263 or, on the basis of aforesaid decision of Kerala High Court, u/s 147(b) in cases of completed assessments within the permissible time limit. 6. These instructions may be brought to the notice of all the officers working in your charge.