Income Tax Appellate Tribunal - Chandigarh
Grewal Hotels (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 24 March, 1995
Equivalent citations: [1995]54ITD32(CHD)
ORDER
J. Kathuria, Judicial Member
1. This appeal by the assessee pertains to assessment year 1987-88. This is the case of a hotel which was still under construction during the period though a part of it was commissioned during the year under consideration and the inauguration took place on 31-5-1986. The assessee claimed 25% of the cost of plant and machinery as investment allowance. The details of the machinery were as under :
Rs.
Sanitary Fittings 1,60,888.01 Air-conditioning & installations 10,71,470.24 Electrical fittings & equipments 2,66,103.97 Musical equipment 8,091.09 Kitchen equipments 1,30,207.12 Water pump 8,637.65 Generator 1,49,442.99 Neon sign 4,745.00 Intercom systems 17,519.77 Vacuum cleaner 3,742.13 Boiler 11,462.38 ------------ 18,32,310.36
The Assessing Officer did not allow any investment allowance but made no discussion either.
2. The learned CIT(A), following the decisions of Kerala High Court in the case of CIT v. Casino (P.) Ltd[l973]9\ ITR 289 and of Madras High Court in the case of CIT v. Buhari Sons (P.) Ltd. [1983] 144 ITR 12 and certain decisions of the Tribunal, held that the assessee was not engaged in the production of any article or thing and hence did not qualify for investment allowance. First ground of appeal is against this finding of the learned CIT(A).
3. Shri S.R. Chhabra, the learned Counsel for the assessee, submitted that the controversy before the Kerala High Court in the case of Casino (P.) Ltd. (supra) was of a different nature and that the said Court was to decide whether the assessee was industrial company or not. It was submitted that for the purposes of a company being an industrial company, the requirement of law was that it should be engaged in the manufacture or processing of goods. It was submitted that so far as investment allowance was concerned, the requirement of law was that the assessee should be engaged in the production of any article or thing. As regards the Madras High Court decision in the case of Buhari Sons (P.) Ltd. (supra), it was again submitted that in that case also the controversy was whether the assessee was an industrial company or not and hence that case was distinguishable on facts. It was submitted that the Delhi Bench of the Tribunal in the case of Orient Express Co. (P.) Ltd. had considered the question of admissibility investment allowance under Section 32A and had come to the conclusion that hotels were industries qualifying for relief under Section 32A of the Act. It was pointed out that the decisions of the Kerala and Madras High Courts referred to above were duly considered by the Tribunal and distinguished. He accordingly strongly relied on the said order and submitted that the assessee was entitled to investment allowance on the plant and machinery installed in the hotel.
4. In the alternative, it was submitted that for the year under consideration, the total income of the assessee was Rs. 2,31,253 which included room rent of Rs. 22,185 only but a considerable amount of Rs. 1,63,846 from the restaurant. It was also pointed out that for assessment years 1988-89, 1989-90, 1990-91 and 1991-92, the restaurant income was Rs. 18,82,148, Rs. 22,77,188, Rs. 18,87,083 and Rs. 22,53,823 respectively as against the total receipts of Rs. 39,60,892, Rs. 51,39,370, Rs. 53,81,375 and Rs. 73,18,604 respectively. It was, therefore, submitted that since a major portion of the assessee's income not only for the year under consideration but even for the subsequent years was from the restaurant, the assessee qualified for investment allowance under Section 32A of the Act. Reliance in this regard was placed on the Calcutta High Court decision in the case of CIT v. Sky Room (P.) Ltd. [1992] 195 ITR 763.
5. The learned D.R. submitted that the main business of the assessee was hotel business and that the business from restaurant in the initial year was more because the hotel was still coming up and it had not been completed. It was pointed out that much water had flowed since the decision of the Tribunal in the case of Orient Express Co. (P.) Ltd. (supra) because that decision was rendered on 26-7-1985 almost a decade ago. It was submitted that though the decision of the Kerala High Court in the case of Casino (P.) Ltd. (supra) was in the context of an industrial company, the observations of the High Court were very relevant even for the present controversy. It was submitted that the High Court had clearly laid down that a hotel was mainly a trading concern and it would not be appropriate in the ordinary sense to refer to the production of food materials in a hotel as manufacture. Similarly, it was pointed out that the observations of the Madras High Court in Buhari Sons (P.) Ltd's case (supra) though in the context of an industrial company were also pertinent because it had been held that a hotel was carrying on only a trading activity. Relying on the Calcutta High Court decision in the case of CIT v. S.P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 179, it was submitted that the business of a hotel was essentially a non-manufacturing or non-producing concern and was a trading concern. It was pointed out that the basic ingredients of hotel-keeping is providing lodging or maintaining a building consisting of many rooms for overnight accommodation which had nothing to do with any manufacturing or producing any article or thing. It was submitted that the said decision was in the context of an industrial undertaking and the High Court held that the ultimate nature of the business of hotel-keeping which is determinative of the issue was that it was not an industrial undertaking and hence did not qualify for relief under Section 32A. It was also submitted that if the assessee had exclusively run a restaurant, then perhaps it could have claimed deduction under Section 32A of the Act but in the present case, the restaurant also was part of hotel and hence no machinery had been exclusively used for purposes of production of any article or thing.
6. Reliance was also placed on the Karnataka High Court decision in the case of CIT v. Hotel Ayodya [1993] 201 ITR 1002 for the proposition that the preparation of food articles in a hotel is incidental to rendering of service at a hotel, whether it is restaurant or a lodging house. It was, therefore, submitted that the assessee was not entitled to any investment allowance on the plant and machinery and even the alternative submission of the learned Counsel for the assessee deserved to be rejected.
7. We have carefully considered the submissions of both the sides. We agree with the learned D.R. that much water has flowed after the decision of the Delhi Bench of the Tribunal in the case of Orient Express Co. (P.) Ltd. (supra) which was rendered about 10 years ago. It is true that the controversy before the Kerala High Court in the case of Casino (P.) Ltd. (supra) was whether the assessee was manufacturing or processing goods and hence an industrial company but some of the observations of the High Court are very relevant for the present controversy as well. The High Court for instance held that hotel is mainly a trading concern and it would not be appropriate in the ordinary sense to refer to the production of food materials in a hotel as manufacture. The decision of the Calcutta High Court in the case of S.P. Jaiswal Estates (P.) Ltd. (supra) is regarding the deduction of investment allowance under Section 32A. It has been held by the High Court that under Section 32A, the industrial undertaking is to be wholly manufacturing or producing goods or things whereas for purposes of determining whether an assessee is an industrial company or not, it should be mainly manufacturing or processing goods. It has further been held by the High Court that though a hotel also produces eatables from raw materials, such manufacturing or production of goods that may be involved therein is only incidental or ancillary to the business of hotel-keeping. According to the High Court, the basic ingredient of hotel-keeping is providing lodging or maintaining a building consisting of many rooms for overnight accommodation which has nothing to do with any manufacturing or producing article or thing. The High Court has further gone on to observe that the industrial undertaking as a whole has to carry on its business of producing or manufacturing article or thing and there is no scope for separation of the integrated activity of the industrial undertaking and treating any part thereof as an activity of the nature referred to in Section32A. It is the end result of the purpose of the business which is to determine whether the undertaking is an industrial undertaking and as such qualifies for the benefit of Section 32A. This case is a complete answer to the arguments of the learned Counsel for the assessee because a hotel does not produce any article or thing. So a hotel is not an industrial undertaking. Whatever may be the position of a hotel under the Factories Act but so far as the general meaning is concerned, it does not manufacture or produce any article or thing and hence is outside the purview of Section 32A. The alternative submission of the assessee's learned Counsel is also met by this decision because the entire undertaking has to be for the purposes of production or manufacture of article or thing. The mere fact that in the initial years the assessee had more income from restaurant or considerable income from restaurant does not serve the purpose because essentially the assessee is running a hotel and the running of restaurant is an ancillary part of the hotel-keeping. Moreover, the machinery used for the preparation of eatables consumed in the restaurant is the same machinery used for purposes of preparation of meals supplied in the hotel rooms, and that too of the order only of Rs. 1,30,207 being kitchen equipment. This equipment is also not used exclusively for purposes of the restaurant and the restaurant in the scheme of things is also a part and parcel of the hotel. There is thus no justification for allowing deduction to the assessee under Section 32A of the Act.
8. It may also be mentioned that the Bombay High Court in the case of CIT v. Berry's Hotels (P.) Ltd. [ 1994] 207 ITR 615, though in the context of an industrial company, has held that a hotel is a trading concern and not a manufacturing concern. This view has been reiterated by the same High Court in Fariyas Hotels (P.) Ltd. v. CIT[ 1995] 211 ITR 390 which is in respect of investment allowance. It has been clearly held that the business of running a hotel is essentially a trading activity and no manufacture or production of any goods or article is involved in carrying out this activity and the machinery or plant installed in the hotel business cannot be termed machinery or plant specified in Section 32A(2) of the Act and hence investment allowance under Section 32A cannot be claimed in respect of machinery or plant installed in hotel business.
9. In view of the above decisions, the sole decision of the Appellate Tribunal relied on by the learned Counsel for the assessee cannot be said to hold the field today. For allowing relief under Section 32A, not only has the undertaking to be an industrial undertaking but that industrial undertaking has also to manufacture or produce any article or thing. As discussed above, the various High Courts have held that the hotel does not produce any article or thing and hotel business is only a trading business. We, therefore, hold that the assessee was not entitled to investment allowance on the plant and machinery used in the hotel business and since the restaurant was a part and parcel of the hotel, the machinery used therein could not be separated for purposes of allowance under Section 32A. So both the main and the alternative submissions of the learned counsel for the assessee are rejected.
10. to 14. [These paras are not reproduced here, as they involve minor issues.]