AJIT K. SENGUPTA , J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the following question of law has been referred to this court for the assessment year 1981-82 :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law 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, and, in that view, the assessee was entitled to get investment allowance under that section ?"

( 2 ) SHORTLY stated, the facts are that the assessee-company runs a five star hotel in Calcutta under the name and style of Hotel Hindusthan International. Before the Income-tax Officer, the assessee-company claimed investment allowance under Section 32a of the Income-tax Act, 1961, amounting to Rs. 5,78,500 on plant and machinery installed during the accounting year.

( 3 ) A reserve of Rs. 3,75,000 was created for this purpose. The Income-tax Officer was of the view that the hotel was not entitled to investment allowance and, for the reasons discussed in the last year's assessment order, the Income-tax Officer disallowed the assessee's claim for investment allowance.

( 4 ) BEING aggrieved, the assessee appealed to the Commissioner of Income-tax (Appeals) who confirmed the action of the Income-tax Officer on the point. The matter then went to the Tribunal. The Tribunal, following the assessee's own case for the earlier year set aside the order of Commissioner of Income-tax (Appeals) remanded the matter to the Income-tax Officer with a direction to reconsider the assessee's claim for investment allowance in accordance with the earlier direction given by the Tribunal. In respect of the earlier assessment order, the Tribunal directed the Income-tax Officer to examine the claim of the assessee and to allow investment allowance only on such machinery and plant as are required for manufacturing or processing of goods. Before us, the same contentions have been reiterated.

( 5 ) UNDER Section 32a, investment allowance will be allowed to an assessee if the machinery or plant is installed in an industrial undertaking for the purpose of business of manufacturing or production of any article or thing not being an article or thing specified in the Eleventh Schedule to the Act. The question, therefore, is whether the assessee in the instant case is an industrial undertaking engaged in the production of any article or thing.

( 6 ) OUR attention has been drawn to an unreported decision of this court in I. T. Ref, No. 114 of 1981 (CIT v. Sky Room Pvt. Ltd. since reported in [1992] 195 ITR 763), where the judgment was delivered on March 7, 1989, to which one of us is a party. In that case, the question was whether the asses-see could be treated as an industrial company. The assessee in that case was engaged in business wholly in processing goods, rendering them edible and then selling them in its restaurants as foodstuff and eatables. In that case, it was held that the assessee was engaged in processing of goods and accordingly, the court held that the Sky Room Private Ltd. was an industrial company within the meaning of Section 2 (7) (c) of the Finance Act, 1978. There the court held that the word "processing" is broad enough to take in the activity of purchasing of goods and rendering them edible and selling them to its customers or the guests of the hotel as foodstuff and eatables.

( 7 ) OUR attention has been drawn to a decision of the Kerala High Court in CIT v. Casino (Pvt.) Ltd. , where the Kerala High Court held that a hotel was mainly a trading concern. It would not be appropriate in the ordinary sense to refer to the production of the food materials in a hotel as manufacture. This case was distinguished by this court in Sky Room Pvt. Ltd. [1992] 195 ITR 763, where the court observed that, before the Kerala High Court, the categorical finding was that hotel activity was the main acti

Click Here to Read the rest of this document