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Judgment
In the Ref. Petn. Nos. 37 of 1988, 38 of 1988 and 42 of 1988, at the instance of the assessee, the Tribunal has referred the following question for opinion of this Court:
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that assessee is not an industrial company within the meaning of definition used in Section 2(7)(c) of the Finance Act, 1978 for the purpose of lower rate of tax ?
In the Ref. Petn. Nos. 39 of 1988, 40 of 1988 and 41 of 1988, at the instance of the revenue, the Tribunal has referred the following questions for opinion of this Court:
(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that hotel business is an industrial undertaking covered within the meaning of Section 32A of the Income Tax Act ?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the hotel building is plant for allowance of depreciation at higher rate ?.
The assessee is a private limited company carrying on hotel business at Jaipur known as Ram Bagh Palace Hotels (P) Ltd. The assessee claimed before the Income Tax Officer that the assessee company should be treated as an industrial company/undertaking entitled to the benefits arising out of it. The Income Tax Officer did not accept the plea of the assessee. On appeal before the Commissioner (Appeals), the view of the Income Tax Officer came to be confirmed. The assessee further went in appeal before the Tribunal. Before the Tribunal, the judgment of the Kerala High Court in Commissioner of Income Tax Vs. Casino (Pvt.) Ltd., was relied upon which weighed with the Tribunal and the Tribunal held that the assessee does a hotel business which is nothing but production of articles and there is no difference between production of article and processing of goods and recorded the findings in favour of the assessee. The reference has arisen under these circumstances.
The first question is, whether the Tribunal was justified in holding that the assessee is an industrial company in terms of Section 2(7)(c) of the Finance Act, 1973 (sic). This issue came for consideration before the Bombay High Court in case title Commissioner of Income Tax Vs. Berry''s Hotels Pvt. Ltd., Dealing with this, the court observed as under:
It seems clear to us that the Tribunals view cannot be sustained since the words used in the definition will have to be interpreted contextually always keeping the purpose of the enactment in view. The Finance Act, 1973, gives the definition of the term industrial company thus:
Industrial company means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in construction of ships or in the manufacture or processing of goods or in mining.
The clear object of the Act was to give concession in the rate of Income Tax to manufacturing concerns. The concession was not intended to be given to trading concerns. The activity carried on by the assessee indicates that it essentially belonged to the latter category. It carries on trading activity. The Tribunal gave a wide meaning to the word processing used in the definition on the basis of Addl. Commissioner of Income Tax Vs. Farrukhabad Cold Storage (P.) Ltd., and, only on that basis, upheld the assessees contention. In the first place, it may be mentioned that the said decision of the Allahabad High Court has been expressly overruled by the Supreme Court in the case of Delhi Cold Storage Pvt. Ltd. Vs. Commissioner of Income Tax, New Delhi, Thus, the very basis for the Tribunals view no more exists. But that factor is not decisive of the matter:
It is true that such activity has been held to be manufacturing process as defined u/s 2(k) of the Factories Act. But, it is a well known canon of interpretation of statutes that the meaning given to the words in one statute cannot be automatically imported for interpretation in another statute. All depends upon the purpose of the Act and the context in which the words appear.
On second issue, learned Counsel for the revenue has submitted that the references wherein the opinion of the court is solicited are not res integra. These questions have already been settled by this Court and by the Supreme Court, He has invited the attention of the court on a judgment of this Court delivered in case title Commissioner of Income Tax Vs. Smt. Geeta Devi Purohit, wherein the issue was directly the same, viz., whether the Tribunal was right in holding that the hotel is an industrial undertaking and the assessee entitled to the investment allowance on furniture and electric goods installed in the hotel. The Court, dealing with Section 32A(2), observed as under:
Sub-clause (iii) of Clause (b) of Sub-section (2). of Section 32A provides that the plant and machinery referred to in Sub-section (1) shall be the following which includes any new machinery or plant installed after 31-3-1976--
(i) for the purpose of business of generation or distribution of electricity or any other form of power;
(ii) in a small scale industrial undertaking for the purposes of business of manufacture or production of any article or thing;
(iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.
Admittedly, the assessee runs a hotel. It cannot be said that it is engaged in construction work nor can it be said that by running hotel it manufactures any article or thing. Hotel is made for lodging and boarding. No plant and machinery exists in hotel, which is referred to in section for the purpose of benefit u/s 32A of the Act.
In the language of common parlance it cannot be expected that by running a hotel the assessee should produce any article or thing. When the assessee does not produce any article or thing nor is engaged in construction business, nor is engaged in the business of generating power, in our view, the Tribunal has wrongly treated the assessee as an industrial undertaking nor can the hotel building be treated as plant and machinery.
Similar was the question before the apex court in case title The Indian Hotels Company Ltd. and Others Vs. The Income Tax Officer, Mumbai and Others, . The assessee therein sought the benefit of investment allowance u/s 32 of the Act contending that the assessee company is an industrial undertaking engaged in manufacturing activity. The claim was rejected by the Tribunal holding that the assessee cannot be considered to be an industrial company engaged in manufacturing or processing of articles and thus not entitled to the benefit u/s 32A of the Act. The apex Court, after relying upon number of judgments of the Supreme Court, dismissed the plea of the Indian Hotels.
This Court has also an occasion to deal with similar question, which has been referred to this Court, in case title Commissioner of Income Tax, Jodhpur Vs. M/s. Lake Palace Hotels and Motels (P) Ltd. Udaipur, observed as under:
We are also fortified in our conclusion in the context of Section 32A of the Act by a recent decision of the Supreme Court in The Indian Hotels Company Ltd. and Others Vs. The Income Tax Officer, Mumbai and Others, wherein the court has held that the 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 coming to this conclusion, the court has referred to the decisions in Commissioner of Income Tax Vs. Casino (Pvt.) Ltd., Commissioner of Income Tax Vs. Berry''s Hotels Pvt. Ltd., Fariyas Hotels (P) Ltd. v. CIT (1995) 211 ITR 390 (Bom) and Commissioner of Income Tax Vs. S.P. Jaiswal Estates (P.) Ltd., and approved in principle 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 and it cannot be held to be a business of manufacture or production of any article or thing.
The third question is, whether assessee is entitled to higher rate of depreciation on the theatre whereas herein is a hotel. Dealing with this proposition of third issue, the Supreme Court in case title Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, , observed as under:
In the result, it is held that the building used for running of a hotel or carrying on cinema business cannot be held to be a plant because:
(1) The scheme of Section 32 as discussed above clearly envisages separate depreciation for a building, machinery and plant, furniture and fittings, etc. The word plant is given inclusive meaning u/s 43(3) which nowhere includes buildings. The rules prescribing the rates of depreciation specifically provide grant of depreciation on buildings, furniture and fittings machinery and plant and ships. Machinery and plant include cinematography films and other items and the building is further given a meaning to include roads, bridges, culverts, wells and tubewells.
(2) In the case of CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC), this Court has observed that the business of a hotelier is carried on by adapting building or premises in suitable way, meaning thereby, building for a hotel is not apparatus or adjunct for running of a hotel. The court did not proceed to hold that a building in which the hotel was run was itself a plant, otherwise the court would not have gone into the question whether the sanitary fitting used in bathroom was plant.
(3) For a building used for a hotel, specific provision is made granting additional depreciation u/s 32(1)(v) of the Act.
(4) IRC v. Barclay, Carle & Co. Ltd. (1970) 76 ITR 62 (HL), decided by the Mouse of Lords, pertains to a dry dockyard which itself was functioning as a plant that is to say, structure for the plant was constructed so that dry dock can operate. It operated as an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river. The dock as a complete unit contained a large amount of equipment without which the dry dock could not perform its function.
(5) Even in England, Courts have repeatedly held that the meaning of the word plant given in various decisions is artificial and imprecise in application, that is to use the words of Lord Buckley, it is now beyond doubt that the word plant is used in the relevant section in an artificial and largely Judge made sense. Lord Wilberforce commented by stating that no ordinary man, literate or semi-literate, would think that a horse, a swimming pool, movable partitions, or even a dry dock was plant.
(6) For the hotel building and hospital in the case of Carr v. Sayer 65 Tax Cases 15 (Ch.D), it has been observed that a hotel building remains a building even when constructed to a luxury specification and similarly, a hospital building for infectious diseases which might require a special layout and other features also remains a premises and is not plant.
It is to be added that all these decisions are based upon the interpretation of the phrase machinery or plant u/s 41 of the Finance Act, 1971, which was applicable and there appears no such distinction for grant of allowance on different heads as provided u/s 32 of the Income Tax Act.
(7) To differentiate a building for grant of additional depreciation by holding it to be a plant in one case where the building is specially designed and constructed with some special features to attract the customers and a building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable.
Hence, the question is answered in favour of the revenue and against the assessee by holding that building which is used as a hotel or a cinema theatre cannot be given depreciation as plant.
For the aforesaid reasons, we answer all the three questions in favour of the revenue and against the assessee.