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High Court Of Calcutta
SUBHAS CHANDRA SEN, BHAGAWATI PRASAD BANERJEE
S.P.JAISWAL ESTATES (P.) LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 297 Of 1986
Decided On : 05/19/1994
INCOME TAX - Depreciation - Whether hotel building owned by assessee and used for hotel business is 'plant' for depreciation calculation - Whether assessee entitled to depreciation and extra-shift depreciation on building applicable to plant - Whether assessee is industrial company mainly engaged in manufacture of goods - Whether assessee entitled to investment allowance under Section 32a of Income-tax Act, 1961 - Whether preparation of food in hotel constitutes manufacture or production of any article or thing within meaning of Section 32a.
Fact of the Case:
The assessee, a five-star hotel, claimed investment allowance on plant and machinery, depreciation on hotel building, and deduction of municipal corporation tax and multi-storeyed building tax. The Income-tax Officer disallowed the investment allowance and charged tax at 65% treating the assessee as a non-industrial company. The Commissioner of Income-tax (Appeals) confirmed the disallowance and depreciation rate but allowed the deduction of taxes. The Tribunal held that the hotel building was not a 'plant', the assessee was not entitled to depreciation and extra-shift depreciation on the building, the assessee was not an industrial company, and the assessee was entitled to deduction of taxes.
Finding of the Court:
The Court held that the hotel building was a 'plant' for the purpose of depreciation calculation, the assessee was entitled to depreciation and extra-shift depreciation on the building, the assessee was an industrial company, and the assessee was entitled to deduction of taxes. The Court also referred the question of whether preparation of food in a hotel constitutes manufacture or production of any article or thing within the meaning of Section 32a of the Income-tax Act, 1961 to a larger Bench.
Issues: 1. Whether hotel building owned by assessee and used for hotel business is 'plant' for depreciation calculation? 2. Whether assessee entitled to depreciation and extra-shift depreciation on building applicable to plant? 3. Whether assessee is industrial company mainly engaged in manufacture of goods? 4. Whether assessee entitled to investment allowance under Section 32a of Income-tax Act, 1961? 5. Whether preparation of food in hotel constitutes manufacture or production of any article or thing within meaning of Section 32a?
Ratio Decidendi: 1. The Court held that the hotel building was a 'plant' for the purpose of depreciation calculation, relying on the principles laid down in Scientific, Engineering House P. Ltd. v. CIT and CIT v. Taj Mahal Hotel. The Court distinguished the case of J. Lyons and Co. Ltd. v. Attorney-General, holding that the hotel building was not a setting or a canopy under which the assessee carried on its business, but rather a tool of the assessee's trade. 2. The Court held that the assessee was entitled to depreciation and extra-shift depreciation on the building, following the judgments of the Court in CIT v. India Foils Ltd. and Avery India Ltd. v. CIT. 3. The Court held that the assessee was an industrial company, relying on its own decision in S. P. Jaiswal Estates P. Ltd v. CIT (No. 1). 4. The Court declined to answer the question of whether the assessee was entitled to investment allowance under Section 32a of the Income-tax Act, 1961, and referred the question to a larger Bench.
Final Decision: 1. The first two questions are answered in the negative and in favour of the assessee. 2. Question No. 2 is answered in the affirmative and in favour of the assessee. 3. Questions Nos. 3 and 4 are answered in favour of the assessee. 4. Question No. 1 raised by the Revenue is referred to a larger Bench.
( 1 ) THE Tribunal has referred the following questions of law under Section 256 (1) of the Income-tax Act, 1961 :
( 2 ) THE questions, at the instance of the assessee, arising out of Income-tax Appeal No. 1298/ (Cal) of 1983 filed by the assessee are :" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the hotel building owned by the company and used for the purposes of carrying on hotel business was not a 'plant' for the purpose of calculation of depreciation ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the company was not entitled to depreciation and extra-shift depreciation on building applicable in the case of plant ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the company was not an industrial company mainly engaged in the manufacture of goods ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the rate of income-tax applicable to the company will be that applicable to a non-industrial company ?"2. The question, at the instance of the Department, arising out of Income-tax Appeal No. 1298/ (Cal) of 1983 is :" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that preparation of food in the hotel constituted manufacture or production of any article or thing within the meaning of Section 32a of the Income-tax Act, 1961 ?"
( 3 ) THE question, at the instance of the Department, arising out of Income-tax Appeal No. 1575/ (Cal) of 1983 filed by the Department is :" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to deduction of the amounts relating to municipal corporation tax and multi-storeyed building tax for the earlier years notice of which the assessee received in the instant previous year, while the assessee maintained accounts in the mercantile system ?"
( 4 ) THE year of assessment involved is 1980-81. The assessee is a resident company. It runs a five-star hotel in Calcutta styled as Hotel Hindusthan International. It maintained accounts in mercantile system. Its previous year relevant to the assessment year 1980-81 ended on Diwali of 1979 corresponding to October 19, 1979. The relevant facts out of which the questions arise are these : (A) The assessee claimed investment allowance of Rs. 2,28,886 on plant and machinery said to have had been installed during the previous year. The Income-tax Officer did not allow investment allowance under section 52a of the Act, since, according to him, the business of the hotel which was being carried on by the assessee was not in the nature of industrial undertaking as it did not manufacture or produce any article or thing. (B) The Income-tax Officer allowed depreciation on the hotel building at 2. 5 per cent. (C) The Income-tax Officer charged tax at 65 per cent. treating the assessee-company as a non-industrial company. (D) There was fresh assessment by the Municipal Corporation, Calcutta, with retrospective effect from the fourth quarter of 1975-76. Consequently, a notice for the additional liability of Rs. 6,57,867 was served upon the assessee on October 15, 1979. The assessee made provision for the said additional liability of municipal tax and claimed deduction thereof. The Income-tax Officer did not entertain the claim made by the assessee on the ground that the liability for the said taxes related to the earlier years. The West Bengal Multi-Storeyed Building Tax Act, levying a tax on mutli-storeyed buildings, was enacted in the instant previous year, but it created the liability to pay the tax with retrospective effect from July 1, 1975. The assessee, therefore, made a provision of Rs. 95,837 on account of multi-storeyed building tax and claimed deduction therefor. The claim was turned do
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