TMI Blog1991 (3) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... 982, under which investment allowance of Rs. 55,661 was allowed to the assessee. For the asst. yr. 1983-84 the original assessment was passed on 11th Oct., 1983. Under which a sum of Rs. 1,01,360 was allowed as investment allowance. After completion of the original assessment for the asst. yr. 1982-83 the ITO addressed two letters dt. 21st Nov., 1984 and 26th Dec.,1984,wherein the ITO called for the explanation of the assessee as to why investment allowance, previously granted under the original assessment for the year, should not be revised. The assessee submitted its reply dt. 7th June, 1985 to those notices. A copy of the reply is found at pages 9 to 11 of the paper book No. 1 filed by the assessee. Thereupon the ITO issued a statutory notice under s. 148 dt. 28th March, 1985 reopening the original assessment for 1982-83 and requiring the assessee to file a revised return. The assessee submitted its reply dt. 30th April, 1985 objecting the reopening. A copy of the reply is found furnished at page 15 of the paper book No. 1 filed by the assessee. It may here itself be mentioned that the original assessment was passed by Shri P.K.R. Nair, ITO, Companies Circle IV (1), Madras, Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the Revenue the reopening of assessment of is sought to be justified on the following grounds. Though the internal audit party is not entitled to pronounce upon law, it has got every authority to bring to the notice of the ITO, the relevant law and ask him to follow it. Under Explanation 2(c) to s. 147 whenever excessive relief is granted under the Act it should be deemed to be a case where income chargeable to tax had escaped assessment. In CIT vs. Casino Pvt. Ltd. (1973) 91 ITR 289 (Ker) the question whether conversion of raw material into food stuff in a hotel business amounts to manufacture or processing of goods was considered. It is held in that case that food stuff produced in a hotel cannot be said to have been manufactured. In that case it was also held that hotels are mainly trading concerns rather than manufacturing concerns. The above decisions of the Kerala High Court was also followed by the Madras High Court in CIT vs. Buhari Sons (P) Ltd. (1984) 38 CTR (Mad) 88. (1983) 144 ITR 12 (Mad). In that case it was held that all the definitions given for the terms in one statute cannot automatically be imported for the interpretation of the same words in another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it involves only a mere trading activity. In fact the learned Commissioner by the direction contained in his letter, dt. 21st March, 1985 sent to the IAC instructed the ITO, to reopen the assessment for 1982-83 based on the decision of the Madras High Court in 144 ITR 12. A copy of the letter dt. 21st March 1985 is already furnished by the learned departmental representative to the Tribunal. This Tribunal, "B" Bench in the case of M/s Geetha Hotels Pvt. Ltd., Madras by its order dt. 27th Oct., 1987 in ITA Nos. 2694 to 2698 (Mds)/1985 relating to the asst. yrs. 1979-80 to 1982-83, held that the plant and machinery employed in a hotel do not qualify themselves to get investment allowance under s. 32A. For the asst. yr. 1982-83 the previous year ended on 30th June, 1981. In that year investment allowance was allowed on air conditioners, which were purchased under bill dt. 17th Jan., 1982. The said bill would clearly reveal that the air conditioner was purchased not in the accounting year relevant to the asst. yr. 1982-83. In those circumstances granting of investment allowance on the written down value of air conditioner was a mistake and it would amount to giving excess relief that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration or distribution of electricity or any other form of power of in the construction of ships or in the manufacture or processing of goods or in mining, if the income attributable to any of the aforesaid activities included in its total income for the previous year is not less than fifty-one per cent of such total income." However, the wording of s. 32A is quite different and distinct from the definition of industrial company dealt with by the Kerala and Madras High Court mentioned above. Sec. 32A (1) deals with grant of investment allowance inter alia, on newly purchased plant and machinery in the previous year in which they were first put to use and the investment allowance thus available was stated to be 25 per cent of the actual cost of the said plant and machinery to the assessee. Sub-s. (2) of s. 32A describes the plant and machinery on which investment allowance is allowed. Sec. 32A(2)(b)(iii) as far as relevant for our purposes is an follows: "32A(2) The ship or aircraft or machinery or plant referred to in sub-s. (1) shall be the following; namely; (b) any new machinery or plant installed after the 31st day of March, 1976, (iii) in any other industrial underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act (15 of 1963) in which the word 'produce' appears fell for consideration of the Hon'ble Supreme Court. In that connection the Hon'ble Supreme Court held: "Dealer can only mean to bring forth, bring into being or existence-to bring (a thing) into existence from its raw material or elements. The intentions in employing the word 'produced' obviously was to introduce an element of volition and effort involving the employment of some process for bringing into existence the goods". The difference and distinction between manufacture' and 'processing' was noticed by the Kerala High Court itself in Casion's case. At page 298 it held : "In our view, the word 'manufacture' has various shades of meaning, and in the context of sales-tax legislation, if the goods to which some labour is applied remain essentially the same commercial article it cannot be said that the final product is the result of manufacture". The word 'processing' has been explained at page 299 as follows: "In other words, activities of a nature in regard to goods which may not amount to manufacture but which would result in the doing of something to the goods to change or alter their form may be taken in by the term "pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. If we carefully read the decision of the Kerala High Court it did make a distinction between processing and production. The producing of goods, it was held, does not amount to processing of goods e.g. while discussing the case of North Bengal Stores Ltd. vs. Board of Revenue, Bengal 1 STC 157 it was observed that the Calcutta High Court held that process of dispensing by mixing the medicines, according to the prescription is one of producing the goods for sale. It also referred to the meaning of the expression 'manufacture' which meant in common parlance to bring into being or to produce something in a form in which it is capable of being sold or supplied in the course of business". So also in the definition of 'industrial company' what is found essential is processing of goods, whereas in order to earn investment allowance an industrial undertaking should produce an article or a thing not being an article or thing mentioned in the Eleventh Schedule. There is difference and distinction between goods on the one hand and article or thing on the other. In the case of Buhari Sons Pvt. Ltd. the Madras High Court held that manufacture of eatables cannot be taken to be manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied for the disposal of this case before us we have to find out whether there was any other material which formed the basis of information, which would justify reopening under s. 147(b). In the notice dt. 21st Nov., 1984, seeking to revise the assessment for 1982-83, the ITO merely stated that the bill under which the air conditioner was purchased was dt. 17th Jan., 1982 which falls outside the accounting year and also because the deep freezer had been purchased on 30th June, 1981, which is the last day of the accounting year and there was no evidence that it had been installed on the same day and used wholly for the assessee's business, no further explanation was given as to why the ITO wanted to withdraw the investment allowance of Rs. 50,004 on the plant and machinery, whose particulars were given in the said notice, worth Rs. 2,00,014. It is already stated that the assessee filed its reply for the said notice on 7th Jan., 1983. It is clearly stated that the bill date under which the air conditioner was purchased was actually 17th Jan., 1981; but it was a typographical error to mentioned the date as 17th Jan., 1982. A certificate from Air Fridge, from whom the air conditione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that no reasons for disallowance of the investment allowance were mentioned. However, he felt that the audit objection can be justified since in his opinion the grant of investment allowance is not proper. Para No. 2 of his letter dt 15th Feb., 1985 is as follows: "In its objection, memo the audit has not specified the reasons for calling for such disallowances. Mostly the objections are centred round the absence of evidence regarding the installation and use of the assets for the purpose of assessee's business during the relevant account year. On these counts, the assessee has furnished sufficient evidence to show that the allowances were very much in order. However, I feel even if the installation and use of the assets in the assessee's business during the accounting year is not questioned, still the validity of granting investment allowance remains questionable. This is because the assessee deals in hotel business and as such does not qualify to be a manufacturing concern". Then he cited Casino's case as well as Buhari's case and stated that in the light of those decisions it is clear that his predecessor officer had wrongly allowed investment allowance to the assessee eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much in order. But even then he found justification for withdrawal of investment allowance. The question is whether on a mere change of opinion reopening can be made. In this connection the assessee counsel very much relied on the decision of the Hon ble Supreme Court in the case of Indian and Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190: (1979)119 ITR 996 (SC), in which it is stated that opinion of an internal audit party of the IT Department on a point of law cannot be regarded as 'information', within the meaning of s. 147(b) of the IT Act for the purpose of reopening an assessment. Even though the opinion of an audit party on a point of law is not 'information', it is argued that if upon receipt of the audit note the ITO discovers or realises that a 'mistake' has been committed in the original assessment, the discovery of the mistake would be 'information' within the meaning of s. 147(b) and from the facts and circumstances of the case, the letter dt. 15th Feb., 1985 addressed by the successor ITO to the Commissioner, should be deemed to have resulted in realisation of mistake in pursuance of the audit note and therefore the contents of the letter dt. 15th Feb., 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent allowance was allowed. Under the reopened assessments made by the successor ITO the investment allowance already allowed was sought to be withdrawn. The reopening of assessment under s. 147(b) is held to be invalid by us and therefore the investment allowance for 1982-83 and 1983-84 cannot be withdrawn. 9. This takes us on to the question whether a restaurant is an industrial undertaking entitled to investment allowance under s. 32A of the IT Act. The learned departmental representative contended that hotel is only a service oriented industry if at all we can call it as an industry. In a restaurant besides supplying eatables other services also would be supplied. Service oriented establishments cannot be called industrial undertaking. For example hospitals are also service oriented and simply because there are certain process or production undertaken in hospitals we cannot call them as industrial undertakings. In hospitals X-ray, ECG, blood test, urine test, etc. would be conducted. However we do not call hospitals as industrial undertakings. He also contended that the decisions given in the context of other Acts cannot automatically be adopted while interpreting the IT Act p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prints vs. Union of India (1989) 75 CTR (Allied laws) (SC) 1 : (1989) 179 ITR 317 (SC), was sought to be relied on. The Madras High Court ruled that the said definition of 'manufacture' which was the subject-matter in the case before the Supreme Court cannot be of any assistance of deciding the case under the IT Act. The learned departmental representative brought to our notice the definition of 'industrial undertaking' given in the Explanation to s. 5(1)(xxxi) of the WT Act and also the definition of the same expression 'industrial undertaking' given in the Explanation to s. 45 (d) of the WT Act. The learned departmental representative heavily relied on the Kerala High Court decision in Casino's case, and Madras High Court decision in Buhari's case,. It is contended that the definition of the industrial undertaking given in the Explanation to s. 5(1)(xxxi) as well as under the Explanation to s. 45(d) of the WT Act can serve as useful guides for coming to the correct conclusion in the matter since the words 'industrial undertaking' were used under the Indian IT Act, 1922 for purpose of grant of development rebate. In this connection the learned departmental representative relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emical composition of the raw material". and Daks Copy Services Pvt. Ltd. vs. ITO, (1989) 78 CTR (Trib) (Bom) (SB) 107, a copy of which is furnished at pages 60 to 65 of the paper book II. At page 63 of the paper book II and distinction between 'production of articles or things' on the one hand with the 'manufacture of goods' on the other is stressed by the Tribunal, which is as follows : "The expression 'production of article or thing' has wider connotation than the expression 'manufacture of goods'. Consequently the activity which would come within the ambit of 'manufacture of goods' would inevitably come within the ambit of 'production of article or thing'. Every manufacture of article is production of article although every production of article may not be manufacture of article. Consequently on the basis of the above decision it must be held that the assessee was engaged in the activity of 'production of article or thing' within the meaning of that expression in s. 32A of the Act. On the question of distinction between manufacture of an article and production of an article, the decision of Allahabad High Court in Singh Engineering Works Pvt. Ltd. vs. CIT 1978 CTR (All) 201:( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial undertaking'. He referred to the Madras High Court decision in CIT vs. M.R. Gopal, (1965) 58 ITR 598 (Mad), a copy of which was provided at page 40 of the paper book II filed by the assessee. The true meaning of the word industrial undertaking was discussed in the said decision and the true meaning of the word 'manufacture' was also discussed. In that case the undertaking was converting boulders into small stones with the aid of machinery. The question was whether such an undertaking was an industrial undertaking or not. The Madras High Court held that the machinery employed by the assessee is used for manufacturing process. They have taken the definition of 'manufacture' as given in Webster's Dictionary and held the following at page 40 of the paper book: "manufacture', as we find from Webster's Dictionary, means: 'Anything made from raw materials by the hand, by machinery, or by art, as clothes, iron utensils, shoes, machinery, etc.; a manual occupation or trade; to produce by labour especially new, according to an organised plan and with division of labour and usually with machinery'. It seems to us to be unarguable having regard to the meaning of manufacture that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'produce' is given, which is an follows: "The context in which the word 'produced' appears in the definition can only mean to bring forth, bring into being or existence to bring (a thing) into existence from its raw materials or elements." 12. The learned counsel for the assessee next argued that sub-s. (iii)of s. 32A(2)(b) was submitted by the Finance Act No. 2 of 1977. The statement of the Finance Minister giving its objects and reasons is provided at page 42 of paper book II, which is as follows: "With a view to is stimulating industrial development and economic growth, I consider it desirable to widen the scope of the scheme of investment allowance introduced last year. That scheme has unfortunately not laid down any well-defined and clear criteria for selecting industries to which the benefit of the concession was to be extended. This made it difficult to explain to those claiming eligibility why some industries had been given the benefit, while it was denied to others. Since there is a need for encouraging generation of internal resources for financing investment I consider it best to extend the scope of investment allowance to all industries except those which are engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en distinguished the decision of this Tribunal dt. 27th Oct., 1987 rendered in the case of M/s Geetha Hostels Pvt. Ltd. In ITA Nos. 2694 to 2698 (Mds)/1985 on the ground that the said decision deals With the case of a hotel and not with the case of a restaurant. The assessee is not a hotel but a restaurant, whereas in 'Geetha Hotels' case the Tribunal dealt with the case of a hotel. Further even though the order in Geetha Hotels' case was rendered on 27th Oct., 1987, it had not taken into consideration the decision of the Delhi Bench of the Tribunal dt. 26th July, 1985 (The Orient Express Co.(P)Ltd., New Delhi) in which it is stated that a hotel is entitled to investment allowance. It is also contended that in Daks Copy Service Pvt. Ltd. vs. ITO (1989)78 CTR (Trib)(Bom)(SB) 107 the Bombay Special Bench had considered a case where grant of investment allowance was the question of dispute and in that case in para 19 they have distinguished the Madras High Court decision in CIT vs. Buhari Sons Pvt. Ltd. in the following words: "The Madras High Court was concerned in said decision with the interpretation of the 'goods' in the expression 'manufacture of goods' in s. 2(7)(d) of the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no possibility of setting up of plant and machinery in a residential accommodation in the case of a restaurant. The main point decided by the Tribunal in Geetha Hotels" case is that the decision of the Madras High Court in Buhari Sons Pvt. Ltd. held that the hotel cannot be said to be manufacturing an article or thing so as to make it answer the description of an industrial undertaking. They also held that the Kerala High Court in Casino's case also took the same view. So having followed both of them they decided that a hotel is not entitled to investment allowance. However in the Special Bench of Bombay in (1989) 78 CTR (Trib) (Bom) (SB) 107,Daks Copy Services Pvt. Ltd. vs. ITO, Buhari's case was distinguished and the ratio of the Madras High Court was held not applicable to cases in which the question of grant of investment allowance is to be considered under s. 32A. This decision in (1989) 78 CTR (Trib) (Bom) (SB) 107,a copy of which is provided at pages 60 to 65 of II paper book, is binding against us and it should certainly be preferred than over the Geetha Hotels case relied upon by the Revenue. We only mention that the distinction drawn by the Bombay Special Bench between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion the activity carried on by the assessee would fulfil the requirements of production of articles or things for sale. We entirely agree and respectfully follow the Special Bench decision and the view it had taken above the word 'industrial undertaking' as well as on the true meaning of the word 'production of an article or thing', which we have already extracted in the above paras of our order. Therefore, we feel very easy to come to the conclusion that the assessee is an industrial undertaking who is engaged in the production of articles or things. Further none of the food articles prepared by the assessee could be described as low priority items described in the Eleventh Schedule of the Act. Therefore we are of the opinion that the assessee fulfilled all the requirements laid down under s. 32A of the IT Act and hence we hold that it is rightfully entitled to investment allowance. We further hold that for the asst. yrs. 1982-83 and 1983-84 investment allowance was rightly granted to the assessee, inasmuch as, in the original assessments, the grant of such investment allowance for those two years is correct under law. For the asst. yrs. 1984-85, 1985-86 and 1986-87 we hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the building has been specifically modified to carry on the restaurant business in a proper atmosphere to attract the customers. The setting itself is offered to the customers for their enjoyment. A part of the building where "Nala Sweets" are produced has glass walls on one side and false ceiling. In "Baahar" where the tandoories and the place where customers eat are arranged to produce an attractive effect for the customers. Similarly in case of 'Amaravathi Restaurant' where non vegetarian meals are produced the building structure has been modified to suit to the restaurant business. The kitchen rooms have been modernised to enable production/manufacture of food articles. It is therefore affirmed that the building is a tool of the trade and would be a plant. He further affirms in his affidavit that the several sections in which vegetarian, non vegetarian foods as well as beverages are prepared would work all 24 hours and throughout the year and so the assessee would be entitled to extra shifts depreciation. The learned counsel for the assessee placed heavy reliance in support of his argument on the following excerpts found in Kanga and Palkhivala s The Law and Practice of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bits and pieces as they arrive from the factory. The fact that a building or part of a building holds the plant in position does not convert the building into plant. A piecemeal approach is not permissible and the entire matter must be considered as a single unit unless of course, the component parts can be treated as separate units having different purposes. (8) The functional test is a decisive test." 16. The question whether a hotel building can be considered to be a plant came up for consideration before the 'D' Bench of this Tribunal and it was held that it could be considered to be a plant in the case of Hotel Srilekha (P) Ltd. vs. Third ITO (1983) 5 ITD 541 (Mad). As per the headnote of the decision the following is what is held: "The word "plant", as judicially interpreted, includes whatever apparatus is used by a businessman for carrying on his business, other than his stock-in-trade. It extends virtually to a man's tools of trade. Applying this functional test, the building as such was an essential part of the overall trading activity of the assessee in this case, and the amenities provided by the assessee were not a setting in which it carried on the business but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designed to be the setting with which they carry on the trade. Hence, following all the above decisions we have to hold that the premises in which the restaurant business is carried on should be considered to be a plant. 17. It is the contention of the assessee that if the premises in which the business is being carried on is considered as a plant then in view of the fact that the plant worked almost 24 hours in a day as per the affirmations made in the affidavit of one of the directors of the company the assessee is entitled to extra shift depreciation allowance as per the Jaipur Bench decision of the Tribunal in The Lake Place Hotels and Motels P. Ltd., (1985) Taxation 92(4)-10, a copy of which is provided at pages 24 and 25 of the II paper bulk filed by the assessee. In that case also after considering the hotel building as a plant the question taken up was whether the assessee is entitled to extra shifts allowance or not at para 11 and held as follows: "The next issue is regarding claims of depreciation on hotel building treating it as a plant and an additional ground has been preferred for claim of extra shift allowance on the hotel building. The additional ground being pure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s.147(b) if disallowed for 1983-84 asst. . . 1,01,360 . Balance loss to be carried over . . (-) 84,621 . Loss as per original assessment order for 1983-84 carried forward : . . . . Depreciation loss for 1982-83 asst. 16,380 . . . Unabsorbed investment allow.1982-83 55,661 . . . Unabsorbed inv. allow 1983-84 1,303 . . . . . . 73,344 Hence there is no income escaped as per s. 152(2). The above table would show that for the asst. yr. 1982-83 if a correct assessment is made then the proper loss which is to be determined must be Rs. 1,73,338. As against this the loss determined in the original assessment was only Rs. 72,041 and the investment allowance sought to be withdrawn for that year was only Rs. 55,661. For the asst. yr. 1983-84 on a correct assessment the loss should have been assessed as per the working given above at Rs. 1,85,981 as against the nil income determined in the original assessment order for that year. However, the investment allowance propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct depreciation by treating the business premises as a building. 19. After having considered the arguments on both sides we wish to make it very clear that we should respectfully follow the Madras High Court decision, but at the same time we have to state that that decision was not rendered in a case which deals with an argument taking in the provisions of s. 152(2). In this case we are not going to confer any special benefits which were not earlier granted to the assessee. We are on the point whether the reopening is valid under s. 147(b). In the light of examining the question whether the reopening under s. 147 (b) is valid or not we are considering the further argument that by virtue of the provisions of s. 152(2) the reopening under s. 147(b) is bad in law. Therefore there is no question of transgressing the ratio laid down by the Hon'ble Madras High Court in 147 ITR 57. We only mention that the ration of the Madras High Court decision cannot be applied to the facts of this case, since the argument under s. 152 (2) was not raised or considered in the facts and circumstances of the Madras High Court decision 147 ITR 57, nor the said ratio was laid down having regard to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 22. Regarding ground No. III.1 for the asst. yr. 1984-85 the ITO levied IT Act, interest of Rs. 1,749 under s. 139(8). This was confirmed by the Commissioner (A). The contention of the assessee is that the income returnable for the asst. yr. 1984-85 was only Rs. 2,191. However, set off of loss determined for earlier years was to be claimed and, therefore, the assessee was under a bona fide impression whether in those circumstances it has to file its income-tax return at all for the asst. yr. 1984-85 and since it felt that it had no duty to file the return, there was delay in filing the return. The assessee can file a waiver petition before the Commissioner to waive this interest and hence no relief can be obtained from us, since admittedly there was delay in filing the return. 23. Ground No. IV for the asst. yr. 1984-85 is regarding levy of interest under s.217(1)(a) of Rs. 3,874. The interest levied was confirmed by the Commissioner (A). For the asst. yrs. 1982-83 and 1983-84 original assessments were completed on 24th Aug., 1982 and 11th Oct., 1983 respectively. For the asst. yr. 1982-83 loss was determined and for the asst. yr. 1983-84 'nil' income was determined. Hence a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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