The central legal point established in the judgment is that a hotel is not considered an 'industrial undertaking' for the purposes of investment allowance under section 32A of the Income Tax Act, 1961, based on the interpretation of relevant provisions and the nature of hotel business as primarily trading and not manufacturing or production.

K. Shivashankar Bhat, J.—In respect of the assessment year 1981 - 82, the following question has been referred for our consideration under section 256(1) of the Income Tax Act, 1961 :

"Whether on the facts and in the circumstances of the case, the assessee which is doing business of running a hotel is entitled to investment allowance under section 32A in respect of the new machinery installed in the previous year relevant to the assessment year 1981-8 ?"

2. The assessee is a hotelier. In respect of certain new machinery installed, the assessee claimed investment allowance under section 32A of the Act. The claim of the assessee was not accepted by the Income Tax Officer and the said view was affirmed by the Appellate Assistant Commissioner. However, the Appellate Tribunal followed its view expressed in another case and held that hotel is an industry entitled to investment allowance.

3. Mr. Raghavendra Rao, learned counsel for the Revenue, strongly relied on the decision of the Kerala High Court to contend that the hotel is a trading concern and not an industrial undertaking. The said decision of the Kerala High Court in Commissioner of Income Tax Vs. Casino (Pvt.) Ltd., (1973) 91 ITR 289 Ker The High Court started the discussion by posing the question as to whether it could be said that a hotelier produces the goods for serving its customers in the restaurant by manufacturing or processing them. On this aspect, the Bench held after some discussion, at page 298, thus;

"The result of our discussion can be summed up in these terms; Manufacture is a process which results in an alteration or change in the goods which are subjected to such manufacture. A commercially new different article is produced. May be that it is produced by manual labour or mechanical force or even by nature's own process such as drying by heat of the sun as in a salt pan (Ardeshir H. Bhiwandiwala Vs. State of Bombay, 1961 (20) FJR 113 (SC) ) or fermentation of toddy (Thomas Vs. District Judge Alleppey, 1965 KarLJ 487 ). The essential question is whether a commodity which, in a commercial sense, is different from the raw materials, has resulted.

Notwithstanding what we have said above every case where the court is called upon to consider the meaning of the term 'manufacture' has to be considered with reference to the context of the enactment. The mere fact that the definition is satisfied does not necessarily mean that there is manufacture."

4. Thereafter, the Bench opined that it was unnecessary to go into the scope of the term "processing" in the circumstances of the case as the contention of the assessee was that there has been a material change or alteration in the goods resulting in the production of a different commodity. It was observed thereafter at page 299 :

"The assessee's contention that the foodstuffs produced in its hotel using raw materials such as pulses, meat, wheat and the like, are commercially different from such raw materials is a matter on which there cannot be any scope for controversy. It is for this reason that the assessee urges that it is an 'industrial company' as, according to it, the accepted test stands satisfied. But, we have to remember that the term must be understood in the context of the enactment. We will have to see whether persons concerned, the customers of the hotel and the employees, would employ the term in the sense in which it is sort to be construed. The particular provision of the Finance Act with which we are concerned here prescribes specific rates of tax and the assessee seeks to be included within the definition of the term 'industrial company', so as to get the benefit of the lesser rate of taxation. This benefit is given only to industrial companies which satisfy certain requirements. The four categories of companies which are included in the scope of the term are those mainly engaged in the business of generation or distribution of electricity or any other form of power or mainly engaged in the cons