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TMI Blog1986 (2) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... was not considered by the ITO. Thus, the ITO did not capitalise Rs. 9,54,507 and Rs. 8,77,736 totalling to Rs. 18,32,243. On appeal, the Commissioner (Appeals) directed the ITO to capitalise to the extent of 80 per cent in respect of expenditure of Rs. 9,54,507 which the ITO did not capitalise and in respect of the expenditure which he capitalised to the extent of 60 per cent only. 3. The learned counsel for the assessee strongly urged that the Commissioner (Appeals) should have allowed capitalisation of 100 per cent instead of restricting it to 80 per cent. The learned departmental representative justified the order of the Commissioner (Appeals). 4. We have considered the rival submissions. We agree with the finding of the Commissioner (Appeals) in capitalising only 80 per cent of the expenditure. In respect of the administrative expenses they cannot be capitalised as that is not an expenditure incurred for the purpose of setting up or erection of machinery or in connection with the acquisition of it. So that cannot be added to the cost of the machinery or plant. Similarly, in respect of audit and licence fee it cannot be added to the cost of the machinery or plant. In respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee submitted that the assessee is an industrial undertaking. It carries on the activity of manufacture or production of an article or a thing. Out of the raw materials the assessee produces foodstuffs which are articles or things different from the raw materials. Thus, the assessee satisfies all the conditions required for allowing investment allowance. He placed reliance on orders of the Tribunal in Orient Express Co. (P.) Ltd. v. IAC [1985] 23 Taxman 98 (Delhi - Trib.), ITO v. Elite Sea Foods [1983] 3 ITD 348 (Coch.), Naveen Mechanised Construction Co. (P.) Ltd. v. First ITO [1983] 3 ITD 456 (Bang.), First ITO v. Dr. P. Vittal Bhat [1983] 6 ITD 560 (Bang.) (SB) and also on CIT v. Ajay Printery (P.) Ltd [1965] 58 ITR 811 (Guj.). The learned departmental representative relied on the orders of the lower authorities. 8. We have considered the rival submissions. Under section 32A(1) investment allowance will be allowed in respect of a ship or an aircraft or machinery or plant specified in sub-section (2). Sub-section 2(b)(iii) which is relevant for our purpose reads as under: "(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icates that the reference in regard to companies manufacturing or processing of goods is to manufacturing concerns and not to trading concerns...." The above decision was followed by the Madras High Court in CIT v. Buhari Sons (P.) Ltd. [1983] 144 ITR 12. It was observed as under : "... Manufacture of eatables cannot be taken to be manufacture of goods. We are of the view that the word 'goods' has been used here in the sense of merchandise, that is, articles for sale. The expression 'goods' if understood in a commercial sense will not include the eatables prepared in a hotel. In addition to the reasoning given by the Kerala High Court in CIT v. Casino (P.) Ltd. [1973] 91 ITR 289, that the expression 'manufacture' in section 2(6)(d) of the Finance Act, 1968, will not denote a trading activity, the use of the word 'goods' is another reason for holding that the definition of 'industrial company' will not include a trading activity such as the one being carried on by the assessee. We also find that the Income-tax Act has drawn a distinction between industrial undertakings and a hotel and, therefore, when the statute refers to an industrial company, it cannot be taken to refer to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 is in favour of the assessee wherein it was held that the hotel building is a plant. He urged that the order of the Madras Bench of the Tribunal should be followed. If that is not followed then the matter should be referred to the Special Bench of the Tribunal. 11. We have considered the rival submissions. Identical issue was considered by the Hyderabad Bench 'B' of the Tribunal in the case of Hotel Emerald (P.) Ltd. In that case the question that was considered was whether the hotel building consisting of rooms which are to be let out should be considered as a building or plant for the purpose of section 32 of the Act for allowing depreciation. The Tribunal by its order dated 15-11-1985 held that the hotel building cannot be considered as a plant and depreciation should be allowed only at the general rate applicable for the building but not at the general rate applicable for the plant. In this order the Tribunal followed an earlier order of the Tribunal, Hyderabad Bench 'A' in Progressive Hotels (P.) Ltd. [IT Appeal No. 846 (Hyd.) of 1984]. In both the above orders, the order of the Tribunal, Madras Bench in the case of Hotel Srilekha (P.) Ltd was not followed. We prefer to fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned departmental representative submitted that the business has commenced only after 15-7-1979 but not earlier. So the expenses incurred prior to that date is not allowable as revenue expenditure The learned counsel for the assessee strongly urged that by 29-3-1979 the hotel was ready in all respects and the trial run of the hotel was started on that date. Thus, business has been set up on 29-3-1979 and the expenditure incurred from that date till 15-7-1979 is allowable as revenue expenditure. He supported the order of the Commissioner (Appeals). 14. We have considered the rival submissions. By 29-3-1979, the hotel was ready for use in all respects. The building was completed and the plant and machinery were installed before that date. All the infrastructure for running the hotel was ready by that date. In fact, the trial run of the hotel was done on 29-3-1979 which is described as soft opening by inviting staff members, VIP guests, etc. Thereafter, staff members were provided with the necessary training in preparation of food items and customer services, etc. As the hotel was ready for use by 29-3-1979, it has to be held that the business was set up by that date. Once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. On this point there is no discussion in the assessment order. On appeal, the Commissioner (Appeals) held that on a perusal of sub-items (iii) and (iv) of Item III it is evident that these allowances are not alternative and are cumulative. There is no mention in Part I of Appendix I that the grant of allowance under sub-item (iii) would forbid the allowance under sub-item (iv). The word 'concern' used in sub-item (iv) would take in a hotel also. He held that the hotel had worked in three shifts throughout 24 hours and the plant and machinery was being used during that period. Thus, the assessee would be entitled to triple shift allowance equal to the normal depreciation allowance admissible under section 32(1) in addition to the extra shift depreciation allowance allowable to approved hotels in sub-item (iii). 16. The learned departmental representative urged that in the case of hotel only extra allowance under sub-item (iii) is allowable and no triple shift allowance could be allowed. He placed reliance on a Board circular. The learned counsel for the assessee strongly urged that, the grant of extra allowance under sub-item (iii) would not forbid the triple shift allowance un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. For this purpose, the normal number of working days during the previous years shall be deemed to be--- (a) in the case of a seasonal factory or concern, the number of days on which the factory or concern actually worked during the previous year or 180 days, whichever is greater ; (b) in any other case, the number of days on which the factory or concern actually worked during the previous year or 240 days, whichever is greater." It is clear from the above items that extra depreciation allowance is allowable for approved hotels. In our view extra shift depreciation allowance under sub-item (iv) is not allowable in the case of approved hotels as extra allowance alone is allowable for such approved hotels. Item (iii) is a specific provision for the approved hotels and item (iv) is a general provision for other concerns. Hence, extra shift depreciation allowance is not allowable in the case of approved hotels. when there is a specific provision in respect of approved hotels, the general provision applicable to other concerns cannot be applied to the hotel. It cannot be said that a hotel has worked double or triple shift. It is for that reason a specific provision in sub-ite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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