VERY IMPORTANT POINTS
1. An assessee who is carrying on a trading activity of business of a hotel cannot claim the benefit granted to an industrial undertaking by contending that it also produces foodstuff or food packets.
2. The Flight Kitchen operated by the assessee-Indian Hotels Company Ltd. is not entitled to get the benefit of Section 80J.

Headnote:(i) Income Tax Act, 1961-Section 80-J-Deductions-In respect of profits and gains from newly established industrial undertakings or ship or hotel business-Flight Kitchen operated by assessee-Is ancillary to its hotel business and not a separate industrial undertaking-In case of preparing food packages or selling same or preparing food stuff in hotel there is no question of manufacture or production-Assessee carrying on a trading activity of business of hotel-Cannot claim benefit granted to industrial undertaking.
       From the Sections quoted above, i.e. Sections 80J(1) proviso, 80(J)(4), 80(J)(6), and Section 32A, for getting benefit of deduction or investment allowance, the requirement is - assessee - company must be engaged in the business of manufacture or production of any article or thing. In case of preparing food packages or selling the same or preparing foodstuffs for serving in the hotel there is no question of manufacture or production. The raw material is at the most processed so as to make it eatable. The word "manufacture" has various shades of meaning but unless defined under the Act it is to be interpreted in the context of the object and the language used in the Sections. In the context of the provisions which deal with grant of investment rebate or deduction under Section 80J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. It would not be applicable in cases where only processing activity is carried out. Further, such production activity must be by an industrial undertaking and not by the assessee having mainly trading activity. In case of a hotel business there is no question of manufacturing or producing pulses, wheat, rice, meat or such other items but what is done is -from such raw materials eatable food stuff is prepared. The foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables meat or the like cannot be regarded as commercially distinct commodity and it cannot be held that such foodstuff is manufactured or produced. (Paras 15 and 17)
       Further, the Legislature has differentiated industrial undertaking and trading activity of the assessee who deals in business of hotel by making different provisions. The business of hotel and that of industrial undertaking is considered to be distinct and separate for the purpose of grant of investment allowance under Section 32A or for grant of deduction under Section 80J. Under proviso (c) to Section 32A deduction of investment allowance is not to be made if in respect of any ship, machinery or plant to which the deduction of development rebate is allowable under Section 33. For the machinery and plant installed by an assessee being an Indian company in premises used by it as a hotel, specific provision for grant of deduction of development rebate is made under Section 33(1)(b)(B)(ii). Similarly, under Section 80J for a business of hotel and industrial undertaking separate provisions are prescribed making Section applicable namely sub-sections (4) and (6). Conditions which are required to be satisfied by such assessee are different. Therefore, an assessee who is carrying on a trading activity of business of a hotel cannot claim the benefit granted to an industrial undertaking by contending that it also produces foodstuff or food packets. Therefore the Flight Kitchen operated by the assessee-Indian Hotels Company Ltd. is not entitled to get the benefit of Section 80J. (Paras 18 and 21)
       (ii) Income Tax Act, 1961-Section 32-A-Investment allowance-Hotel-Cannot be considered to be an industrial company engaged in manufacturing or producing article or things-Not entitled to investment allowance. (Paras 15, 17, 19 and 21)

JUDGMENT

Shah, J.-T.C. Nos. 20 to 24 of 1989 :

Under Article 139A of the Constitution, the appeals which were pending before the Income Tax Appellate Tribunal were transferred to this Court and numbered as Transferred Cases No. 20-24 of 1989. Transferred Cases No. 20-21 and 24 of 1989 are filed by assessee - the Indian Hotels Co. Ltd. and others, which pertain to the Assessment Years 1977-78, 1978-79 and 1976-77 respectively. Transferred Cases No. 22 and 23 of 1989 are filed by the Revenue and pertain to Assessment Years 1977-78 and 1978-79. At the outset, we may point out that at the time of hearing of these cases, learned counsel for the parties confined their submissions to the Flight Kitchen operated by the assessee - Indian Hotels. Hence, other contentions raised in these cases are not required to be dealt with.

2. In the appeals, the Commissioner of Income Tax (Appeals) accepted the contention of the assessee that Taj Flight Kitchen cannot be considered as a hotel as it is a separate industrial undertaking which is engaged in the production of food packages on a large organized and mechanized basis for the use of various international airlines. After considering the contention, he arrived at the conclusion that the Flight Kitchen of the appellant was engaged in the manufacture or production of articles within the meaning of Section 80J(4)(iii) of the Income Tax, 1961 (hereinafter referred to as "the Act") and it was not part of the hotel activity of the assessee. Hence, it would not come within the purview of Section 80J(6) which provides for approval by the Central Government. He, therefore, directed the ITO to allow deductions under Section 80J in respect of the capital employed in the Flight Kitchen.

3. It is the contention of Dr. Gouri Shanker, learned Senior Counsel for the assessee that the activity pertaining to the Flight Kitchen is not a hotel activity. The Flight Kitchen is a separate industrial undertaking which is engaged in manufacture or production of food packages on a large organised and mechanized basis for the use of various international airlines and, therefore, is entitled to get the benefit of Section 80J of the Act. As against this, learned Solicitor General Mr. Salve, on behalf of the revenue submitted that the activity of Flight Kitchen carried on by the assessee is part of the hotel business and for getting the benefit of Section 80J(1), it is required to obtain approval as provided under Section 80J(6)(d) of the Act.

Civil Appeal No. 1774 of 1992

4. In this appeal, M/s. Hotel and Allied Traders Pvt. Ltd. - the assessee sought benefit of investment allowance under Section 32A of the Act for the assessment year 1978-79 by contending that assessee-company was an industrial undertaking engaged in manufacturing activity. That claim was finally rejected by the Tribunal by holding that assessee cannot be considered to be an industrial company engaged in manufacturing or processing of articles and hence was not entitled to get benefit under Section 32A of the Act. Further the Tribunal relied upon the decision in C.I.T., Kerala v. Casino Pvt. Ltd.1 of the High Court. Against that order petition under Section 256(2) of the Act was filed before the High Court of Kerala which was rejected by order dated 7.1.1985. That order is challenged in this appeal.

SLP (C) No. 324/1998

5. Leave granted.

6. In this appeal also, the assessee - Hotel Shashi Private Ltd., a company engaged in the business of running a hotel named the Valley View Resort situated at Mahableshwar, claimed the benefit of investment allowance under Section 32A of the Act. Finally, that claim was rejected by the Tribunal. The application for reference by the Tribunal was also rejected as the issue involved was covered by the decision of the Bombay High Court in Fariyas Hotels Pvt. Ltd. v. Commissioner of Income Tax2. For the said reason, the Bombay High Court also rejected the reference application vide its order dated 3.9.1997. That order is challenged

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2000 Supreme(SC) 1279

Cases Referred (3)