Case: Indian Hotels Company Limited and Others Vs. Income Tax Officer and Others

But neither has been manufactured in the normal sense of the word." * 13. In our view, same would be the position with regard to the foodstuff served or sold by the hotels. The foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables meat or the like cannot be regarded as commercially distinct commodity and it cannot be held that such foodstuff is manufactured or producedFurther, the legislature has differentiated industrial undertaking and trading activity of the assessee who deals in business of hotel by making different provisions. The business of hotel and that of industrial undertaking is considered to be distinct and separate for the purpose of grant of investment allowance under s. 32A or for grant of deduction under s. 80J. Under proviso (c) to s. 32A deduction of investment allowance is not to be made if in respect of any ship, machinery or plant to which the deduction of development rebate is allowable under s. 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 s. 33(1)(b)(B)(ii). Similarly, under s. 80J for a business of hotel and industrial undertaking separate provisions are prescribed making section applicable namely, sub-ss. (4) and (6). 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. 14. In support of his contentions, learned counsel Mr. Choudhary referred to the decision of the Gauhati High Court in CIT vs. Hotel Belle Vue (P) Ltd. 1996 GUW 106 (Gau) : TC S28.2889. In that case the assessee who was running a hotel, installed machinery and plant in hotel premises and claimed investment allowance in respect of it by contending that foodstuff was produced by it. The claim was rejected by the AO but was allowed by the Tribunal and on reference the High Court held that assessees hotel was an industrial undertaking within the meaning of sub-cls. (ii) and (iii) of sub-s. (2) of s. 32A and was entitled to investment allowance. The Court held that the word "manufacture" has not been defined in the Finance Act in its ordinary meaning "manufacture" is a process by which an alternation or change takes place in the goods which are subjected to such manufacture and brought about a commercially new article in the market, when food is prepared from raw materials, definitely a new product is prepared or made, which is known as a different item and the said item cannot be brought to its original form. The Court observed, "therefore, when food is prepared or processed, it must be taken as manufacturing process" * 15. In our view, the aforesaid reasoning is on the face of it, erroneous as discussed above. By processing of raw food, it cannot be said that it results in manufacture or production of new articles. What is done is raw food is processed for the purpose of consumption. Further, it appears that the High Court has mixed up the words "manufacture" and "process" as s. 32A of the Act provides for business of manufacture or production of goods and not for manufacture or processing of goodsAs against the aforesaid decisions, it has been pointed out that some other High Court have taken the view that (i) a hotel is merely a trading concern; and (ii) the activity carried on for preparing food articles for raw materials in a hotel would not constitute manufacture or production of goods. In CIT vs. Casino (P) Ltd. (supra), Division Bench of the Kerala High Court referred to s. 2(6)(d) of the Finance Act, 1968, which defines an industrial company and held that the activity carried on by the assessee in preparing articles of food from raw materials would not constitute manufacture or processing of goods within the meaning of said section. Foodstuffs prepared in the hotels using raw materials such as pulses, wheat, vegetables or meat and the like cannot be said to be manufacturing activity and such activity was trading activity. The Bombay High Court also took the similar view in CIT vs. Berrys Hotels (P) Ltd. 1993 MUM 251 (Bom) and held that benefit of s. 2(7)(c) of Finance Act, 1973, can be given to manufacturing concerns and not to trading concerns. In Fariyas Hotels (P) Ltd. vs. CIT (supra), it held that investment allowance under s. 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 vs. S.P. Jaiswal Estates (P) Ltd. 1992 CAL 47 (Cal) : TC 28R.227, held that an assessee who claims investment allowance under s. 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 business of manufacture or production of any article or thingIn the result, Transferred Cases Nos. 22 and 23 of 1989 filed by the Revenue are allowed and it is held that the flight kitchen operated by the assessee -

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]In our view, same would be the position with regard to the foodstuff served or sold by the hotels. The foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables meat or the like cannot be regarded as commercially distinct commodity and it cannot be held that such foodstuff is manufactured or producedFurther, the legislature has differentiated industrial undertaking and trading activity of the assessee who deals in business of hotel by making different provisions. The business of hotel and that of industrial undertaking is considered to be distinct and separate for the purpose of grant of investment allowance under s. 32A or for grant of deduction under s. 80J. Under proviso (c) to s. 32A deduction of investment allowance is not to be made if in respect of any ship, machinery or plant to which the deduction of development rebate is allowable under s. 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 s. 33(1)(b)(B)(ii). Similarly, under s. 80J for a business of hotel and industrial undertaking separate provisions are prescribed making section applicable namely, sub-ss. (4) and (6). 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