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

In the appeals, the CIT(A) 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 s. 80J(4)(iii) of the IT Act, 1961 (hereinafter referred to as "the Act") and it was not part of the hotel activity of the assessee. Hence, it would not come within the purview of s. 80J(6) which provides for approval by the Central Government. He, therefore, directed the ITO to allow deductions under s. 80J in respect of the capital employed in the flight kitchenIn this appeal, M/s. Hotel & Allied Traders (P) Ltd. - the assessee sought benefit of investment allowance under s. 32A of the Act for the asst. yr. 1978-79 by contending that assessee-company was an industrial undertaking engaged in manufacturing activity. That claim was finally rejected by the Tribunal by holding that assessee cannot be considered to be an industrial company engaged in manufacturing or processing of articles and hence was not entitled to get benefit under s. 32A of the Act. Further, the Tribunal relied upon the decision in CIT vs. Casino (P) Ltd. 1972 KER 54 (Ker) : TC 24R.272 of the High Court. Against that order petition under s. 256(2) of the Act was filed before the High Court of Kerala which was rejected by order, dt. 7th January, 1985. That order is challenged in this appeal

Court's reasoning:
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