INDIAN HOTELS CO. LTD. AND ORS. vs. INCOME TAX OFFICER, MUMBAI AND ORS.

TRANSFERRED CASE (CIVIL) No. 20/1989Supreme Court2000 INSC 37908 August 2000Bench: 3 JudgesAuthor: S.P. BHARUCHA, M.B. SHAH, RUMA PAL HOTELS CO. LTD. AND ORS.14 pages
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What were the facts?

The Supreme Court heard several appeals concerning the eligibility of hotel businesses for benefits under Sections 80-J and 32-A of the Income Tax Act, 1961. In the Transfer Cases, the appellant-assessee operated a Flight Kitchen producing food packages for airlines, claiming it as a separate industrial undertaking for Section 80-J benefits. The Revenue contended it was part of the hotel business and required specific approval. In a Civil Appeal, the assessee sought investment allowance under Section 32-A for its hotel business, arguing food preparation constituted manufacturing. The Income Tax Appellate Tribunal and High Court rejected this claim. A Special Leave Petition also involved a hotel claiming investment allowance under Section 32-A, which was similarly rejected by lower authorities.

What did the Supreme Court hold?

The Supreme Court held that for the benefit under Section 80-J, the assessee's business must be that of an 'industrial undertaking' and not primarily a hotel business, which is considered a trading activity. The Court found that preparing food packages or foodstuffs for serving in a hotel does not constitute 'manufacture' or 'production' of a new article or commodity. It clarified that 'manufacture' implies bringing into existence a new commodity, not merely processing raw materials for consumption. The Court distinguished between industrial undertakings and hotel businesses, noting separate provisions in Sections 32-A and 80-J for each, with different conditions. It overruled the Gauhati High Court's decision in CIT v. Hotel Belle Vue (P.) Ltd. and approved the views of the Kerala, Bombay, and Calcutta High Courts in cases like CIT v. Casino (Pvt.) Ltd., CIT v. Berry's Hotels Pvt. Ltd., and CIT v. S.P. Jaiswal Estates (P) Ltd., which held that hotel activities are trading activities and not manufacturing or production. Consequently, the Flight Kitchen was not entitled to Section 80-J benefits, and the hotel businesses were not entitled to Section 32-A investment allowance.

What were the issues?

1. Whether the assessee in the Transfer Cases, operating a Flight Kitchen, is entitled to the benefit of Section 80-J(1) of the Income Tax Act, 1961, as an 'industrial undertaking', or if its activities are considered part of the 'business of a hotel' (mixed law and fact, concerning Section 80-J). 2. Whether the activity of preparing food packages or foodstuffs for serving in a hotel constitutes 'manufacture' or 'production' of an article or thing, entitling the assessee to investment allowance under Section 32-A of the Income Tax Act, 1961 (question of law, concerning Section 32-A). Assessee's contentions: The assessee argued that its Flight Kitchen was a distinct industrial undertaking. In the Civil Appeal, it contended that manufacturing and processing of goods included preparing articles of food from raw materials, qualifying for investment allowance under Section 32-A, and that a hotel converting raw materials into foodstuffs was an industrial company under Section 2(7)(c) of the Finance Act, 1979. Revenue's contentions: The Revenue argued that the Flight Kitchen's activities were part of the hotel business and required approval under Section 80-J(6)(d). It also implicitly argued that hotel activities, including food preparation, did not amount to manufacture or production for Section 32-A benefits.

Which sections of the Income-tax Act were involved?

Section 80-J,Section 32-A,Section 33,Section 2(7)(c)

AI-generated summary — verify with the full judgment below

INDIAN HOTELS CO. LTD. AND ORS. v. INCOME TAX OFFICER, MUMBAI AND ORS. WITH HOTEL & ALLIED TRADERS PVT. LTD. v. COMMISSIONER OF INCOME TAX AND 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 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 :

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