TMI Blog1993 (2) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings it was noticed that the assessee company failed to declare dividends on the distributable profits under section 104 of the Income-tax Act. Therefore, the Assessing Officer had issued notice to the assessee company on 2-2-1988 requiring it to show cause why action for levy of additional tax should not be initiated under section 104 of the IT Act. The assessee-company gave its reply dated 9-2-1988 stating that it is an industrial undertaking and has been allowed relief under section 80J which itself would justify its claim of being treated as an industry and, therefore, the provisions of section 104 would not have any application. However, this contention was negatived by the assessing authority since in view of the decision of the Kerala High Court in CIT v. Casino (P.) Ltd. [1973] 91 ITR 289 and of the Madras High Court in CIT v. Buhari Sons (P.) Ltd. [1983] 144 ITR 12, the hotel business carried on by the assessee cannot be considered as anything other than trading activity in which no manufacturing activity is involved and as such the argument that the assessee is an industry for which 80J relief was given cannot be accepted. The Assessing Officer held that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was submitted that their hotel is recognised as an industrial undertaking by the Government of India, Department of Tourism in its Letter No. 7/TH-111(2) dated 10-1-1984 for purposes of section 32(1)(v) and section 80J and both the reliefs have actually been allowed for all these years. Under section 104(4)(a), an Indian Company whose business consists of manufacturing or processing of goods is exempted from the liability under that section. No doubt the Income-tax Officer had followed the decision of the Kerala High Court in Casino (P.) Ltd.'s case and the Madras High Court's decision in Buhari Sons (P.) Ltd.'s case to reject the plea of the assessee and holding that no manufacturing activity is involved while running the business of hotel. However, those decisions are distinguishable. Firstly our attention is drawn to the A. P. High Court's decision rendered in P. Laxmanrao Sons v. Addl. Inspector of Factories AIR 1959 AP, 142 in which the question whether establishments preparing articles of food and drinks can be said to be engaged in manufacturing process and so should be considered as, a factory was involved. The A.P. High Court thus considering the question under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the question would arise whether this industrial undertaking is engaged in the manufacture or production of any article or thing ? Even if a hotel could not be said to manufacture any article or thing. the question one has to then ask is whether it is engaged In production of any article or thing. According to the disctionary, the expression 'production', inter alia, means (a) something produced, (b) the creation of utility. e.g., making of goods available for human wants. A hotel certainly produces articles of utility for the satisfaction of human wants. All the food-stuffs that it sells along with beverages are articles or things produced out of raw materials. It produces a commodity which. in a commercial sense, is different from the raw material used. Hence, it cannot be said that a hotel does no produce the eatables and beverages it serves by offering for sale to its customers. Preparation of food-stuffs in a hotel amounts to production of articles or things. In this view of the matter, the assessee was an industrial undertaking and was producing articles namely, the food-stuffs, and beverages for sale and these were not articles or things specified in the list in Eleventh S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect is the decision in LMB Hotel's case . In Hotel Navrathna's case it is held that investment allowance is allowable towards hotel business. It was further held that it is not necessary that there shall be manufacturing or processing of goods for claiming investment allowance. Even if there is production of an article in the hotel, the assessee is entitled to the benefit. It cannot be denied that the assessee is engaged in the business of producing eatables. The claim of the assessee for investment allowance was therefore accepted. Thus it is argued that the impugned order of the learned Commissioner (Appeals) that no manufacturing activity is carried on in a hotel which prepares foodstuffs and beverages for being sold to customers who may visit them cannot be said to be merely carrying on trading activity and they do not carry on any manufacturing process or they do not process any article or thing is not correct under law and application of the ratio of the decisions of the Kerala High Court in Casino (P.) Ltd.'s case and of the Madras High Court in Buhari Sons (P.) Ltd.'s case to this case cannot be said to be correct. We accept this argument of the assessee. We hold that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant was not taxable under the Act and this was so whether a charge was imposed for the meal as a whole or according to the dishes separately ordered." However, this view appears to have been reversed by the Hon'ble Supreme Court by a later decision rendered in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1980] 45 STC 212, a copy of which is provided at page 56 of the paper compilation in Northern India Caterers (India) Ltd.'s case . By this decision, their Lordships of the Supreme Court appeared to have shifted from their earlier decision in Northern India Caterers (India) Ltd.'s case . They took the view that the services rendered by serving food to the customers in a hotel or restaurant is liable for sales-tax. At page 213, in the headnote, their Lordships of the Supreme Court held the following: "Held further, that where food is supplied in an eating-house or restaurant, and it is established upon the facts that the substance of the transaction, evidence by Its dominant object, is a sale of food and the rendering of services is merely incidental, the transaction would undoubtedly be exigible to sales-tax. In every case it will be for the taxing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that such retrospective salestax demands also would be made against the assessee was explained to the Inspecting Asstt. Commissioner at pages 45 to 47. It Is stated that although they were not debited in the Profit and Loss account, the following S.T. Liabilities have accrued and hanging on as Democleus's word which were not allowed in the respective assessments : Assessment year S.T. Liability 1980-81 Rs. 8,645 1981-82 Rs. 43,664 1982-83 Rs. 68,319 1983-84 Rs. 1,15,322 1984-85 Rs. 1,21,829 ------------------------- Rs. 3,57,779 ------------------------- It was stated that liability with regard to levy of sales-tax on hotel was amended with retrospective effect permitting levy from 1978 onwards only in the accounting year relevant to assessment year under consideration Le. February 1983. Immediately the assessee-company worked out the S.T. Liabilities and keeping the same in view they dared not declare any dividend for the year. However, they received a demand for a total of Rs. 5,62,947 pertaining to the following years : Financial year Amount 1981-82 Rs. 1,20,723 1982-83 Rs. 41,393 1983-84 Rs. 1,74,766 1984-85 Rs. 2,26,065 It is also explaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to in sub-section (1) would be unreasonable. According to him for the assessment years 1980-81, 1981-82, 1982-83 and 1983-84 losses were incurred which were ordered to be carried forward in the case of the assessee. So also 80J relief were admitted to be adjusted from out of the profits of the subsequent years but for want of profits they are carried from year to year. The particulars of those losses, unabsorbed depreciation and 80J deductions are the following : Assessment year Business loss Unabsorbed Relief depreciation under section 80J : 1980-81 - - Rs. 60,000 1981-82 - Rs. 19,188 Rs. 31,126 1982-83 - - Rs. 41,951 1983-84 - - Rs. 51,661 In view of the above losses, unabsorbed depreciation and 80J reliefs, one should come to the conclusion that declaration of dividend in assessment year 1984-85 is quite unreasonable. This aspect also was highlighted in the submissions made at pages 45 to 48 of the first paper book filed on behalf of the assessee. 6. After hearing both sides on this aspect of the matter, we are of the view that in view of the losses incurred in the previous years, we hold that the payment of dividend would be unreasonable. 7. The third m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be borne in mind. In Director of Inspection of Income-tax v. Pooran Mall Sons [1974] 96 ITR 390 (SC), firstly there was an order of the Income-tax Officer dated 12-1-1972 under section 132(5) in which he held that all the assets seized and 114 silver bars belonged to P. Against that order P as well as the firm in which he was a partner, namely, P Sons filed Writ Petitions in the High Court challenging the order dated 12-1-1972 and on April 6, 1972, by consent of parties the High Court quashed the order and permitted the Department to make a fresh enquiry after giving an opportunity to the petitioner and pass a fresh order within 2 months. After fresh enquiry the Income-tax Officer passed an order dated 5-6-1972 again holding that the silver bars belonged to P, the Individual, and not to the firm P Sons. Thereupon the firm and P again filed Writ Petitions challenging the second order in which the High Court held that the Income-tax Officer had no jurisdiction to pass that order beyond the period prescribed in section 132(5), set aside the order and directed the return of 114 bars of silver. The matter went in appeal to the Supreme Court and the Hon'ble Supreme Court rever ..... X X X X Extracts X X X X X X X X Extracts X X X X
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