TMI Blog2000 (8) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... 1989 are filed by the assessee---the Indian Hotels Co. Ltd. and others, which pertain to the assessment years 1977-78, 1978-79 and 1976-77, respectively. Transferred Cases Nos. 22 and 23 of 1989 are filed by the Revenue and pertain to the assessment years 1977-78 and 1978-79. At the outset, we may point out that at the time of hearing of these cases, learned counsel for the parties confined their submissions to the flight kitchen operated by the assessee-Indian Hotels. Hence, other contentions raised in these cases are not required to be dealt with. In the appeals, the Commissioner of Income-tax (Appeals) accepted the contention of the assessee that Taj Flight Kitchen cannot be considered as a hotel as it is a separate industrial undertaking which is engaged in the production of food packages on a large organized and mechanized basis for the use of various international airlines. After considering the contention, he arrived at the conclusion that the flight kitchen of the appellant was engaged in the manufacture or production of articles within the meaning of section 80J(4)(iii) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and it was not part of the hotel a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court in Fariyas Hotels Pvt. Ltd. v. CIT [1995] 211 ITR 390. For the said reason, the Bombay High Court also rejected the reference application vide its order dated September 3, 1997. That order is challenged in this appeal. Relevant parts of the provisions that are required to be considered : For appreciating the contentions raised by learned counsel for the parties, we would first refer to the relevant provisions of the Act. "Section 80A : Deductions to be made in computing total income. Section 80J : Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases.---(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessee under section 80HH or section 80HHA) of so much of the amount thereof as does not exceed the amount calculated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent. of the actual cost of the ship, aircraft, machinery or plant to the assessee : Provided that no deduction shall be allowed under this section in respect of--- (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest-house ; (b) any office appliances or road transport vehicles (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33 ; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head 'Profits and gains of business or profession' of any one previous year. (2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely:--- (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by in assessee engaged in the business of operation of ships or aircraft ; (b) any new machinery or plant inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., is having "business of a hotel" or chain of hotels and is not an industrial undertaking as understood in common parlance language. Even before the Commissioner of Appeals, it was contended by the assessee that a flight kitchen is essentially an ancillary unit. This would mean that operation of flight kitchen was ancillary to its business of hotel. Hence, the result would be---it is a company engaged in the business of hotel and not of industrial undertaking. Hence, for getting the benefit of section 80J(1) it must fulfil the conditions laid down in sub-section (6). The next question would be---Whether under the aforesaid provisions it can be held that the assessee's hotels manufacture or produce foodstuffs ? From the reasoning of the Appellate Commissioner, it appears that he arrived at the conclusion that Taj Flight Kitchen was an industrial undertaking which is engaged in the production of food packages and in the manufacture of food packages on a large scale in an organized and mechanized manner with sophisticated and modern techniques. Its dominant purpose is manufacture of food cover for sale to the airlines and no retail sale in the premises of the flight kitchen is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ells. The court also considered the Ninth Schedule (applicable at the relevant time) which contained Item No. 15 therein relating to ships and observed that the appropriate word in the case of ships is "construction" and in common parlance one speaks of construction of ships and not manufacture of ships. The court held that, in this background, it is not possible or permissible to read the word "construction" as referring to construction of dams, bridges, buildings, roads or canals. The court also observed that the association of words in the former sub-clause (ii) and the present sub-clause (iii) is also not without significance and a statute cannot always be construed with the dictionary in one hand and the statute in the other ; regard must also be had to the scheme, context and to the legislative history of the provision. Similarly, in the case of hotel business there is no question of manufacturing or producing pulses, wheat, rice, meat or such other items but what is done is---from such raw materials eatable foodstuff is prepared. In support of his contention, the learned Solicitor-General referred to the decision of this court in Sterling Foods, A partnership firm v. Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 33. For the machinery and plant installed by an assessee being an Indian company in premises used by it as a hotel, specific provision for grant of deduction of development rebate is made under section 33(1)(b)(B)(ii). Similarly, under section 80J for the business of hotel and industrial undertaking separate provisions are prescribed for making the section applicable, namely, sub-sections (4) and (6). The conditions which are required to be satisfied by such assessees are different. Therefore, an assessee who is carrying on a trading activity of business of a hotel cannot claim the benefit granted to an industrial undertaking by contending that it also produces foodstuff or food packets. In support of his contentions, learned counsel, Mr. Choudhary, referred to the decision of the Gauhati High Court in CIT v. Hotel Belle Vue (P.) Ltd. [1997] 223 ITR 675. In that case the assessee who was running a hotel, installed machinery and plant in the hotel premises and claimed investment allowance in respect of it by contending that foodstuff was produced by it. The claim was rejected by the Assessing Officer but was allowed by the Tribunal and on a reference the High Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Fariyas Hotels Pvt. Ltd. v. CIT [1995] 211 ITR 390 (Bom), it held that investment allowance under section 32A is not available in respect of machinery installed for the purpose of business of the assessee which is engaged in the business of running a hotel as it is essentially a trading activity. Similarly the Calcutta High Court in CIT v. S. P. Jaiswal Estates (P.) Ltd. [1992] 196 ITR 179, held that an assessee who claims investment allowance under section 32A of the Act has to be (1) an industrial undertaking carrying on the business of manufacturing or producing any article or thing, therefore, the business itself has to be that of manufacture or production ; (2) the processing of an article or thing is outside the scope of this provision ; and (3) the business of a hotel is essentially a non-manufacturing or non-producing or even non-processing concern and is a trading concern. The court observed that even if the incidental activity of processing food materials into edible products for service to clients in the restaurant is a necessary adjunct of the hotel business and is ultimate nature of the business of hotel-keeping, it is a trading activity. It cannot be held to be a b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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