Indian Hotels Co. Ltd. And Ors v. Income Tax Officer, Mumbai And Ors

INDIAN HOTELS CO. LTD. AND ORS. INCOME TAX OFFICER, MUMBAI AND ORS. WITH HOTEL & ALLIED TRADERS PVT. LTD. v. COMMISSIONER OF INCOME TAX HOTEL SHASHI PVT. LTD. v. COMMISSIONER OF INCOME TAX, BOMBAY AUGUST 8, 2000 [S.P. BHARUCHA, M.B. SHAH AND RUMA PAL, JJ.] Income Tax Act, 1961 : Section 80-J-Income Tax-Benefit under-Newly establish industrial undertaking-AYs 1976-77 to 1978-79-Assessee-company engaged in the business of running a hotel-Held : Such a company not entitled to benefits under S.80-J(l) unless it fulfils the conditions under S.80-1(6). Sections 32-A and 80-J-Newly established industrial undertaking-AY 1978-79-lnvestment allowance-Benefit under Ss. 80-J or 32-A-Held: 'Mam1-facture' means production of a new article or bringing into existence a new F commodity-It does not include processing activity like preparation of food packages or selling the same in a hotel-In order to get the benefit of Ss. 80-J or 32-A the assessee must be engaged in the business of manufacture or production of any article or thing. Interpretation of Statutes : Taxing Statutes-Words or phrases-Definition-Absence of-Held: Com- mon parlance meaning has to be applied : Words and Phrases : "Manufacture"-Meaning of-Jn the Context of S.80-J(4)(iii) of the A Income Tax Act, 1961. "Newly established industrial undertakinr('-Meaninf? of-In the con- ' text of S.80-J of the Income Tax Act, 1961. "Investment allowance"-Meaning of-In the context of S.32-A of the Income Tax Act, 1961. In the Transfer Cases, the appellant-assessee was running a Flight Kitchen which was engaged in the production of food packages on a large organized and mechanized basis for the use of various international air-lines. In respect of the Assessment Years 1976-77 to 1978-79 the appellant-assessee contended before the Income Tax Officer that its Flight Kitchen was a separate industrial undertaking and, therefore, it was entitled to get the benefit of Section 80-J(l) of the Income Tax Act, 1961 in respect of the capital employed in the Flight Kitchen. However, the Revenue contended that the activities of the Flight Kitchen carried on by the assessee was part of the hotel business and for getting the benefit of Section 80-J(l), it was required to obtain approval as provided under Section 80-J(6)(d) of the Act. In the Civil Appeal, the appellant-assessee sought the benefit of investment allowance under Section 32-A of the Act for the assessment year 1978-79 by contending that the assessee-company, was an industrial undertaking engaged in manufacturing activity. The Income Tax Appel-late Tribunal rejected the claim, which was affirmed by the High Court. Before this Court the assessee contended that manufacturing and process-ing of goods included tlie activity of preparing articles of food from raw materials entitling the company to get deduction of investment allowance as provided under Section 32-A of the Act; and that a hotel which inter aiia converted raw materials into foodstuffs was an industrial company within the meaning of Section 2(7)(c) of the Finance Act, 1979. The petitioner in the Special Leave Petition, was engaged in the business of running a hotel and claimed the benefit of investment allow-ance under Section 32-A of the Act. But the tribunal and the High Court rejected the said claim. Allowing the transfer cases filed by the Revenue and dismissing the H other matters, this Court INDIAN HOTELS CO. LTD. AND ORS. , .. INCOME TAX OFFICER AND ORS. 263 262 264 1992 2000 Section: CONCLUSION HELD : l. In respect of the benefit under Section 80-J of the Income Tax Act, 1961 the question would be • whether the assessee in the Transfer Cases has derived profits and gains from an 'industrial undertaking' or from the 'business of a hotel'. Industrial undertaking is not given any meaning under the Act. Hence, it is to be understood as per common parlance language. Taking this into account, apparently, the business of the assessee is that of a hotel, which is a trading activity and not that of an industrial undertaking. Therefore, the assessee is not entitled to get the benefit of Section 80-J. [270-C-E] 2.1. From a combined reading of Sections 80-J(l) proviso, 80-J(4), 80-J(6) and Section 32-A, it is clear that for getting benefit of deduction or investment allowance, the requirement is assessee-company must be en-gaged in the business of manufacture or production of any article or thing. In case of preparing food packages or selling the same or preparing food-stuffs, for serving in the hotel there is no question of manufacture or production. The raw material is at the most processed so as to make it eatable. The word "manufacture" has various shades of meaning but unless defines under the Act it is to be interpreted in the context of the object and the language used in the Sections. In the context of the provi-sions which deal with grant of investment rebate or deduction under Section 80-J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. It would not be applicable in cases where only processing activity is carried out. Further, such production activity must be by an industrial undertaking and not by the assessee having mainly trading activity. In case of a 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. [271-C-H] CIT v. N.C. Budharaja, [1994] Supp. 1 SCC 280 and Sterling Foods v. State of Kamatalw, [1986] 3 SCC 469, relied on. East Texas Motor Freight Lines v. Frozen Food Express, 100 L.Ed. 917, referred to. 3. The business of hotel and that of an industrial undertaking is considered to be distinct and separate for the purpose of grant of invest-ment allowance under Section 32-A or for grant of deduction under Sec-tion 80-J. Under proviso (c) to Section 32-A deduction of investment allow- 264 SUPREME COURT REPORTS [2000] SUPP. 2 S.C.R. A ance is not to be made if in respect of any ship, machinery or plant to which the deduction of development rebate is allowable under Section 33. For the machinery and plant installed by an assessee being an Indian company in the premises used by it as a hotel, specific provision for grant of deduction of development rebate is made under Section 33(1)(b)(ii). Similarly, under Section 80-J for a business of hotel and industrial under-B taking separate provision are prescribed making the Section applicable namely sub-sections (4) and (6). Conditions which are required to be satisfied by such assesses are different. Therefore, an assessee who is carry-ing on a trading activity of business of a hotel cannot claim the benefit granted to an industrial undertaking by contending that it also produces c foodstuff or food packets. [272-G-H; 273-A-B] CIT v. Casino (Pvt.) Ltd., (1973) 91 ITR 289 (Ker.); CIT v. Berry's Hotels Pvt. Ltd., (1994) 207 ITR 165 (Born) and CIT v. S.P. Jaiswal Estates (P) Ltd., (1992) 196 ITR 179 (Cal.), approved. 266 D CITv. Hotel Belle Vue (P) Ltd., (1997) 223 ITR 675 (Gau), overruled. CIVIL ORIGINAL APPELLATE JURISDICTION : Transferred Case (C) Nos. 20-24 of 1989. Under Article 139-A of the Constitution of India. WITH Civil Appeal No. 1774 of 1992. From the Judgment and Order dated 7 .1.85 of the Kerala High Court in O.P. Nos. 3547 and 3549 of 1983. F Civil Appeal No. 4443 of 2000. From the Judgment and Order dated 3.9.97 of the Bombay High Court in LT.A. No. 133 of 1997. G H.N. Salve, Solicitor General, Dr. Gauri Shankar, Anoop G. Choudhary, Shri Narain, Sandeep Narain, Ms. Anjali, Ms. A.K. Verma, B.K. Ranganathan, B.V. Desai, Siddhartha Chowdhary, Ms. Kumud Singh, Sanjay Kumar, D.N. Mishra, Ms. Janaki Ramachandran, K.J. John, Nikhil Sakhardande, Ms. Sushma Suri, P. Parme~waran and B.K. Prasad for the appearing parties. INDIAN HOTELS CO. LTD. AND ORS. v. INCOME TAX OFFICER AND ORS. [SHAH, J.] 265 The Judgment of the Court was delivered by SHAH, J. T. C.Nos. 20 to 24 of 19!19: Under Article 139A of the Constitution, the appeals which were pending before the Income Tax Appellate Tribunal were transferred to this Court and numbered as Transferred Cases No.20-24 of 1989. Transferred Cases No.20-21 and 24 of 1989 are filed by assessee - the Indian Hotels Co. Ltd. and others, which pertain to the Assessment Years 1977-78, 1978-79 and 1976-77 respec-tively. Transferred Cases No.22 and 23 of 1989 are filed by the Revenue and pertain to 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 i