HOTEL AND ALLIED TRADES (P.) LTD. VS COMMISSIONER OF INCOME-TAX, 2000 PTD-KERALA-HIGH-COURT-INDIA 3708 (1998)

(a) Income-tax-

----Industrial company---"Manufacture or processing of goods", meaning of --Concessional rate of tax ---Assessee running hotel business---Activity of preparing articles of food from raw materials---Would not amount to manufacture or processing of goods ---Assessee not eligible to be assessed at concessional rate of tax.

The assessee, running a hotel business, is not eligible to be assessed to tax at the concessional rate of tax as an industrial company as the activity carried on in preparing articles of food from raw materials in a hotel would not constitute "Manufacture or processing of goods".

CIT v. Casino (Pvt.) Ltd. (1973) 91 ITR 289 (Ker.) fol.

(b) Income-tax-

.... Investment allowance---Industrial company---"Manufacture or processing of goods", meaning of ---Assessee running hotel---No manufacture on processing of goods takes place in a hotel---Additions to plant and machinery---Not entitled to investment allowance---Indian Income Tax Act, 1961, S.32A.

The assessee, engaged in the business of running a hotel, is not entitled to investment allowance under section 32A of, the Income Tax Act, 1961, on additions to plant and machinery as there is no processing or manufacture of food materials in a hotel.

CIT v. Vrindavan Hotels (P.) Ltd. (1999) 238 ITR 224 (Ker.) fol.

(c) Income-tax-

----Initial depreciation ---Assessee running hotel business---Building incomplete and not used for business of hotel---Additions made daring the year to building---Not entitled to initial depreciation---Indian Income Tax Act, 1961, S.32(1)(v).

The assessee, running a hotel business, is not entitled to initial depreciation under section 32(1)(v) of the Income Tax Act, 1961, on additions made during the year to the building since the building was incomplete and was not used for the business of a hotel during the assessment year in question.

(d) Income-tax---

----Depreciation---Plant---Hotel building---Is plant---Entitled to depreciation at rate applicable to plant---Indian Income Tax Act, 1961, S.32.

A hotel building is a plant and is entitled to depreciation under section 32 of the Income Tax Act, 1961, at the rate applicable to a plant.

CIT v. Hotel Luciya (1998) 231 ITR 492 (Ken.) fol.

Joseph Markos and Joseph Kodianthara for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

JUDGMENT

OM PRAKASH, C.J.---Against the decision of the Income-tax Appellate Tribunal, the assessee as well as the Revenue, bout sought reference. The Appellate Tribunal referred the following questions relating to the assessment year 1980-81, at the instance of the assessee and the Revenue under section 256(1) of the Income Tax Act, 1961, for the opinion of this Court:

Question at the instance of the assessee:

"(1) Whether, on the facts and circumstances of the case, was the Tribunal right in law in holding that the appellant is not eligible to be assessed to income-tax at concessional rate of tax as an industrial company?

(2) Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the appellant is not entitled to investment allowance on additions to plant and machinery?

(3) Whether, on the facts and circumstances of the case, the- Tribunal was right in law in holding that the appellant was not entitled to initial depreciation under section 32(1)(v) on additions made during the year to building?"

Questions at the instance of the Revenue:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the hotel building is a plant?

(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to depreciation on the hotel building at the rate applicable to a plant."

First, we deal with the question referred at the instance of the assessee. Learned counsel for both the parties candidly state before us that the first question is squarely covered by the decision of this Court in CIT v. Casino (Pvt.) Ltd. (1973) 91 ITR 289, against the assessee and in favour of the Revenue. Following the said authority, we, therefore, accordingly answer the first question in the affirmative, that is in favour of the Revenue and against the assessee.

In so far as the second question is concerned, it is apt, to mention that an identical question came up before us for consideration in I.T.R. Nos. 161 and 162 of 1995 (CIT v. Vrindavan Hotels (P.) Ltd. (1999) 238 ITR 224 (Ken.), which we have decided by judgment, dated June 24, 1998, in the negative, that is, in favour of the Revenue and against the assessee. Following the said decision, we answer question No.2 in the affirmative, that is, against the assessee and in favour of the Revenue.

As regards question No.3, the Appellate Tribunal held as follows:

"In the assessment the assessee claimed initial depreciation under section 32(1)(v) at the rate of 25 per cent on additions to the building amounting to Rs.3, 71,487. The Assessing Officer noticed that the building was not completed in the relevant previous year since the building was included under capital work-in-progress in the balance-sheet. The assessee claimed initial depreciation since the construction in respect of the portion was completed and the building was first brought to use in the immediately succeeding year. According to the Assessing Officer, in terms of section 32(1)(v), for the purpose of allowing initial depreciation, the building has to be used by the company as a hotel and such hotel is for the time being approved in this behalf by the Central Government. Hence, he held that a separate approval will have to be obtained from the Government specifically for this purpose in order to enable the assessee to claim initial depreciation on this building ....However, it is seen from the balance-sheet that the construction was in progress as on June 30, 1979 and, therefore, it cannot be said that such construction was complete in the previous year for the assessment year 1980-81. "

It is not disputed before us that initial depreciation was granted in the next following year, when the. Construction of the building was completed. We fully agree with the conclusion of the Appellate Tribunal that initial depreciation could not be claimed on the building, which being incomplete, was not used for the business of a hotel during the previous year, relevant to the assessment year 1980-81. We, therefore, answer this question. in the affirmative, that is, against the assessee and in favour of the Revenue.

To revert to the questions referred at the instance of the Revenue, we first take up question No. 1. This question is fully covered by the decision of a Full Bench of this Court in CIT v. Hotel Luciya (1998) 231 ITR 492, in which hotel was held as plant. Following the Full Bench judgment, we answer this question in the affirmative, that is,, in favour of the assessee and against the Revenue.

Question No.2 is consequentially answered in the affirmative, that is, in favour of the assessee and against the Revenue.

M.B.A./92/FCReference answered.