Holding

A hotel business, including its flight kitchen, is a trading activity and not an industrial undertaking; therefore, it is ineligible for deductions under Section 80J or investment allowance under Section 32A.

Summary

The petitioners – Indian Hotels Co. Ltd., Hotel & Allied Traders Pvt. Ltd. and Hotel Shashi Pvt. Ltd. – claimed that their hotel‑related activities, including a large‑scale flight kitchen, qualified as a "newly established industrial undertaking" and therefore entitled them to deductions under Section 80J and investment allowance under Section 32A of the Income Tax Act, 1961. The Revenue argued that the hotel business is a trading activity and that the flight kitchen is ancillary to the hotel, so the statutory conditions for the deductions were not satisfied. The Court examined the meaning of "industrial undertaking", "manufacture" and "production" in the context of the relevant provisions and held that preparation of foodstuffs in a hotel is merely processing, not manufacture of a new article. Consequently, a hotel cannot be treated as an industrial undertaking nor as an industrial company under the Finance Act, 1979. The Court therefore rejected the petitioners' claim for tax benefits and allowed the Revenue's case, dismissing the appeals.

Issues considered

Whether a hotel’s flight kitchen constitutes an "industrial undertaking" for the purpose of Section 80J of the Income Tax Act, 1961.
Whether the preparation of foodstuffs in a hotel amounts to "manufacture or production" within the meaning of Section 80J(4)(iii) and Section 32A.
Whether a hotel can be classified as an "industrial company" under Section 2(7)(c) of the Finance Act, 1979 for claiming investment allowance.
Whether approval under Section 80J(6)(d) is required for a hotel to claim deduction under Section 80J.

Legislation cited

Income Tax Act, 1961s. 256(2), s. 32A, s. 33, s. 80, s. 80HH, s. 80HHA, s. 80J

Subjects

Income TaxSection 80JSection 32AIndustrial undertakingManufactureHotel businessTax deductionInterpretation of statutes

Judgment

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

WITH

HOTEL & ALLIED TRADERS PVT. LTD. B
v.
COMMISSIONER OF INCOME TAX

AND

HOTEL SHASHI PVT. LTD. c
v.
COMMISSIONER OF INCOME TAX, BOMBAY

AUGUST 8, 2000

[S.P. BHARUCHA, M.B. SHAH AND RUMA PAL, JJ.] D

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 E
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 F
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 :
G
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 H
261
262 SUPREME COURT REPORTS [2000] SUPP. 2 S.C.R.
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
B 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-
c 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
D 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
E 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
F 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
G 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
HELD : l. In respect of the benefit under Section 80-J of the Income A
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 B
• 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 C
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
D
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 E
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 F
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, G
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- H
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.

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.
E 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
AND

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
H 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 A
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
B
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 c
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 D
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 produc-
tion 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 E
manufacture or production of articles within the meaning of Section 80J(4)(iii)
of the Income Tax 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 section 80J(6) which provides for approval by the Central
Government. He, therefore, directed the ITO to allow deductions under section
80J in respect of the capital employed in the Flight Kitchen. F

It is the contention of Dr. Gouri Shanker, learned Senior Counsel for the
assessee that the activity pertaining to the Flight Kitchen is not a hotel activity.
The Flight Kitchen is a separate industrial undertaking which is engaged in
manufacture or production of food packages on a large organised and mecha-
G
nized basis for the use of various international airlines and, therefore, is entitled
to get the benefit of Section 801 of the Act. As against this, learned Solicitor
General Mr. Salve, on behalf of the revenue submitted that the activity of Flight
Kitchen carried on by the assessee is part of the hotel business and for getting
the benefit of Section 80J( 1), it is required to obtain approval as provided under
Section 80J (6)(d). of the Act. H
266 SUPREME COURT REPORTS [2000] SUPP. 2 S.C.R.
A CIVIL APPEAL No.I774 of I992

In this appeal, M/s Hotel & Allied Traders Pvt. Ltd.-the assessee sought
benefit of investment allowance under Section 32A of the Act for the assess-
ment year 1978-79 by contending that assessee-company was an industrial
undertaking engaged in manufacturing activity. That claim was finally rejected
B by the Tribunal by holding that assessee cannot be considered to be an indus-
trial company engaged in manufacturing or processing of articles and hence
was not entitled to get benefit under Section 32A of the Act. Further the
Tribunal relied upon the decision in C.I.T., Kera/av. Casino Pvt. ltd., (1973)
91 ITR 289, of the High Court. Against that order petition under section 256(2)
c of the Act was filed before the High Court of Kerala which was rejected by
order dated 7.1.1985. That order is challenged in this appeal.

S.l.P.(C) No. 32411998

Leave granted.
D In this appeal also, the assessee - Hotel Shashi Private Ltd., a company
engaged in the business of running a hotel named the Valley View Resort
situated at Mahableshwar, claimed the benefit of investment allowance under
Section 32A of the Act. Finally, that claim was rejected by the Tribunal. The
application for reference by the Tribunal was also rejected as the issue involved
E was covered by the decision of the Bombay High Court in Fariyas Hotels Pvt.
ltd. v. Commissioner of Income 'fox, (1995) 211 !TR 390. For the said reason,
the Bombay High Court also rejected the reference application vide its order
dated 3. 9 .1997. That order is challenged in this appeal.

Relevant parts of the provisions that are required to be considered:
F
For appreciating the contentions raised by the learned counsel for the
parties, we would first refer to the relevant provisions of the Act.

"Section 80: Deductions to be made in computing total income.

G Section 80J: Deduction in respect of profits and gains from newly established
industrial undertakings or ships or hotel business in certain cases.

80J.( 1) Where the gross total income of an assessee includes any profits
and gains derived from an industrial undertaking or a ship or the
business of a hotel, to which this section applies, there shall, in
H accordance with and subject to the provisions of this section, be
INDIAN HOTELS CO. LTD. AND ORS. v. INCOME TAX OFFICER AND ORS. [SHAH,!.] 267
allowed, in computing the total income of the assessee, a deduc- A
tion from such profits and gains reduced by the deduction, if any,
admissible to the assessee under section 80HH or section 80HHA
of so much of the amount thereof as does not exceed the amount
calculated at the rate of six per cent per annum on the capital
employed in the industrial undertaking or ship or business of the
B
hotel, as the case may be, computed in the prescribed manner in
respect of the previous year relevant to the assessment year (the
amount calculated as aforesaid being hereafter, in this section,
referred to as the relevant amount of capital employed during the
previous year) :
c
Provided that in relation to the profits and gains derived by an
assessce, being a 'company', from an industrial undertaking
which begins to 'mam(facture' or 'produce' articles or to operate
its cold storage plant or plants after the 31st day ofMarch, 1976,
or from a ship which is first brought into use after that date, or
from the business of a hotel which starts functioning after that D
date, the provisions of this sub-section shall have effect as if for
the words "six per cent", the words 'seven and a half per cent"
had been substituted.

"80J(4) : This section applies to any industrial undertaking which fulfils
all the following conditions, namely:-
E

(i) ....

(ii) ....

(iii) It mam(factures or produces articles, or operates one or F
more cold storage plant or plants, in any part of India, and
has begun or begins to manufacture or produce articles or
to operate such plant or plants, at any time within the period
of thirty-three years next following the 1st day of April,
1948, or such further period as the Central Government
may, by notification in the Official Gazette, specify with
G
reference to any particular industrial undertaking;"

"80J(6) : This section applies to the business of any hotel, where all the
following conditions are fulfilled, namely:-

(a) .... H
268 SUPREME COURT REPORTS [2000] SUPP. 2 S.C.R.
A (b) ....

(c) ....

(d) The hotel is for the time being approved for the purposes of this
sub-section by the Central Government;"
B
The relevant part of Section 32A of the Act which grants investment
allowance reads thus: -

"32A. (I). In respect of a ship or an aircraft or machinery or plant
specified in sub-section (2), which is owned by the assessee and is
c wholly used.for the purposes of the business carried on by him, there
shall, in accordance with and subject to the provisions of this section,
be allowed a deduction, in respect of the previous year in which the
ship or aircraft was acquired or the machinery or plant was installed
or, if the ship, aircraft, machinery or plant is first put to use in the
immediately succeeding previous year, then, in respect of that prev.ious
D year, of a sum by way of investment allowance equal to twenty-five
per cent of the actual cost of the ship, aircraft, machinery or plant to
the assessee:

Provided that no deduction shall be allowed under this Section in respect
of-
E
(a) any machinery or plant installed in any office premises or any
residential accommodation, including any accommodation in the
nature of a guest house;

(b) any office appliances or road transport vehicles;
F
(c) any ship, machinery or plant in respect of which the deduction
by way of development rebate is allowable under section 33; and

(d) any machinery or plant, the whole of the actual cost of which is
allowed as a deduction (whether by way of depreciation or
G otherwise) in computing the income chargeable under the head
"Profits and gains of business or profession" of any one previous
year.

(2) The ship or aircraft or machinery or plant referred to in sub-section
(1) shall be the following, namely:-
H
INDIAN HOlELS CO. LTD. AND ORS. v. INCOME TAX OFFICER AND ORS. [SHAH, J.] 269
(a) a new ship or new aircraft acquired after the 3 lst day of March, A
1976 by an assessee engaged in the business of operation of ships
or aircraft;

(b) any new machinery or plant installed after the 31st day of March,
1976-
B
(i) for the purposes of business of generation or distribution of
electricity or any other form of power; or

(ii) in a small-scale industrial undertaking for the purposes of
business of manufacture or production of any article or
thing; or c
(iii) in any other industrial undertaking for the purposes of
business of construction, rrumufacture or production of any
article or thing, not being an article or thing specified in the
list in the Eleventh Schedule."
(Emphasis supplied) D
Chapter II of the Finance Act, 1979 provides for rates of income tax.
Relevant part dealing with the Company is as under: -

"2(7) For the purposes of this section and the First Schedule.-

(a) ... E
(b) ...
(c) "industrial company" means a company which is mainly en-
gaged in the business of generation or distribution of electricity
or any other form of power or in the construction of ships or in
the manufacture or processing of goods or in mining." F

The aforesaid definition covers four categories of the activities carried
on by a company and it must be mainly engaged: -

(i) in the business of generation or distribution of electricity or in
other form of power; G
(ii) in the construction of ships;
(iii) in manufacturing or processing of goods; and
(iv) in mining.

The explanation further provides that a company shall be deemed to be H
270 SUPREME COURT REPORTS (2000) SUPP. 2 S.C.R.
A mainly engaged in the aforesaid activities if the income attributed to any one
or more of the aforesaid activities in its total income of previous year is not
less than fifty-one percent of such total income.

Section 801 quoted above provides for grant of deductions to an assessee
who derives income from an industrial undertaking or a ship or the business
B of a hotel to which the Section applies and the Section applies to any industrial
undertaking, any ship or business of any hotel if conditions prescribed under
sub-section (4), (5) and (6) respectively are satisfied. The question would be-
whether the assessee has derived profits and gains from an 'industrial under-
taking' or from the 'business of a hotel'. Industrial undertaking is not given
C 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. The assessee - Indian Hotels Company Ltd. is having 'business
of a hotel' or chain of hotels and is not an industrial undertaking as understood
in common parlance language. Even before the Commissioner of Appeals, it
D
was contended by the assessee that Flight Kitchen is essentially ancillary unit.
This would mean that operation of flight kitchen was ancillary to its business
of hotel. Hence, result would be - it is a company engaged in the business of
hotel and not of industrial undertaking. Hence, for getting the benefit of Section
80J(l) it must fulfil the conditions laid down in sub-section (6).
E
The next question would be- Whether under the aforesaid provisions it can be
held that assessee 's hotels manufacture or produce .foodstuffs?

From the reasoning of the Appellate Commissioner, it appears that he
arrived at the conclusion that Taj Flight Kitchen was an industrial undertaking
F which is engaged in the production of food packages and in manufacture of
food packages on a large scale in an organized and mechanized manner with
sophisticated and modern techniques. Its dominant purpose is manufacture of
food cover for sale to the airlines and no retail sale in the premises of the flight
kitchen is involved. He, therefore, held that the Flight Kitchen of the assessee
G is engaged in the manufacture or production of articles within the meaning of
section 80J(4)(iii) of the Act.

In the Civil appeals filed by M/s Hotel & Allied Products (P) Ltd. and
Hotel Shashi Pvt. Ltd., learned counsel Mr. Choudhary submitted that manu-
facturing and processing of goods includes the activity of preparing articles of
H food from raw materials entitling the Company to get deduction of investment
INDIAN HOTELS CO. LTD. AND ORS. i·. INCOME TAX OFFICER AND ORS. [SHAH. J.] 271
allowance as provided under section 32A of the Act. It has been contended that A
the appellant-assessee satisfies the requirement of industrial Company as de-
fined under section 2(7)(c) of the Finance Act, 1979. He submitted that hotel
which inter alia converts raw materials into food stuffs is an industrial Com-
pany within the meaning of Section 2(7)(c) of the Finance Act and, therefore,
it is entitled to get the benefit of section 32A.
B
From the Sections quoted above, i.e. Sections 80J(l) proviso, 80(J)(4),
80(J)(6), and Section 32A, for getting benefit of deduction or investment
allowance, the requirement is - assessee-company must be engaged in the
business of manufacture or production of any article or thing. In case of
preparing food packages or selling the same or preparing foodstuffs for serving C
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 defined under the Act it is to be inter-
preted in the context of the object and the language used in the Sections. In
the context of the provisions which deal with grant of investment rebate or
deduction under section 80J it is apparent that it is used to mean production
D
of a new article or bringing into existence some new commodity by an indus-
trial 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 C./. T.
Orissa and Others v. Mis N.C. Budharaja and Company and Others, [1994] E
Supp I SCC 280, this Court considered the provisions of section 32A and
Section 80HH(2) of the Act and held that machinery or plant "for the purpose
of business of construction, manufacture or production of any article or thing"
would not cover machinery employed in digging bore wells. The Court also
considered the IXth Schedule (applicable at the relevant time) which contained
F
item No.15 therein relating to ships and observed that the appropriate word in
the case of ships is "construction" and in common parlance one speaks of
construction of ships and not manufacture of ships. The Court held that, in this
background, it is not possible or permissible to read the word "construction"
as referring to construction of dams, bridges, buildings, roads or canals. The
Court also observed that the association of words in former sub-clause (ii) and G
the present sub-clause (iii) is also not without significance and a statute cannot
al ways be construed with the dictionary in on~hand and the statute in the other;
regard must also be had to the scheme, context and to the legislative history
of the provision. Similarly, in case of a hotel business there is no question of
manufacturing or producing pulses, wheat, rice, meat or such other items but H
272 SUPREME COURT REPORTS (2000] SUPP. 2 S.C.R.
A what is done is-from such raw materials eatable food stuff is prepared.

In support of his contention, learned Solicitor General referred to the
decision of this Court in Mis Sterling Foods, A Partnership Firm v. State of
Kamataka and Anothe1; [1986] 3 SCC 469. The Court in that case considered
the question as to what happens when shrimps, prawns and lobsters purchased
B by the assessee (under the provisions of the Central Sales Tax Act, 1956) are
subjected to the process of cutting heads and tails, peeling, deveining, cleaning
and freezing before export. Do they cease to be original commodity and
become commercially a new commodity or do they still retain their original
identity as shrimps, prawns and lobsters? The Court held that despite such
c processing they continue to possess their original character and identity and
even though processing was necessary for making them fit for the table. The
Court referred to the decision of the Supreme Court of the United States in East
Texas Motor Freight Lines v. Frozen Food Express [100 L.Ed. 917] where the
question was whether dressed and frozen chicken was a commercially distinct
article from the original chicken. The Court relied upon the following passage
D from the said judgment:

" ... there is hardly less difference between cotton in the field and
cotton at the gin or in the bale or between cottonseed in the field and
cottonseed at the gin, than between a chicken in the pen and one that
is dressed. The ginned and baled cotton and the cottonseed, as well as
E
the dressed chicken, have gone through a processing stage. But neither
has been "manufactured" in the normal sense of the word."

In our view, same would be the position with regard to the food stuff
served or sold by the Hotels. The foodstuff prepared by cooking or by any other
F 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 produced.

Further, the Legislature has differentiated industrial undertaking and
trading activity of the assessee who deals in business of hotel by making
G 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 Section 32A or for grant of deduction under Section 80J.
Under proviso (c) to Section 32A deduction of investment allowance is not to
be made if in respect of any ship, machinery or plant to which the deduction
H of development rebate is allowable under Section 33. For the machinery and
INDIAN HOTELS CO. LTD. AND ORS v. INCOME TAX OFFICER AND ORS. [SHAH. I.] 273
plant installed by an assessee being an Indian company in premises used by A
it as a hotel, specific provision for grant of deduction of development rebate
is made under Section 33( l)(b )(B )(ii). Similarly, under Section 80J for a
business of hotel and industrial undertaking separate provisions are prescribed
making Section applicable namely sub-sections (4) and (6). Conditions which
are required to be satisfied by such assessees are different. Therefore, an
B
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 support of his contentions, learned counsel Mr. Choudhary referred
to the decision of the Gauhati High Court in Commissioner of Income-Tax v.
Hotel Belle Vue (P.) Ltd., [1997] 223 ITR 675. In that case the assessee who
c
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 Assessing Officer but was
allowed by the Tribunal and on reference the High Court held that assessee's
hotel was an industrial undertaking within the meaning of sub- clauses (ii) and D
(iii) of sub-section (2) of Section 32A and was entitled to investment allow-
ance. The Court held that the word "manufacture' has not been defined in the
Finance Act and in its ordinary meaning "manufacture" is a process by which
an alteration or change takes place in the goods which are subjected to such
manufacture and brought about a commercially new article in the market; when E
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
back to its original form. The Court observed, "therefore, when food is pre-
pared or processed, it must be taken as manufacturing process". 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
F
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 section 32A of the Act provides for
business of manufacture or production of goods and not for manufacture or
processing of goods. G
As against the aforesaid decisions, it has been pointed out that some
other High Courts have taken the view that (i) a hotel is merely a trading
concern; and (ii) the activity carried on for preparing food articles from raw
materials in a hotel would not constitute manufacture or production of goods.
In C./.T., Kera/av. Casino (Pvt.) Ltd., [1973] 91!TR289, Division Bench of H
274 SUPREME COURT REPORTS [2000] SUPP. 2 S.C.R.

A the Kerala High Court referred to Section 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 con-
stitute 'manufacture or processing of goods' within the meaning of said Sec-
tion. Foodstuffs prepared in the hotels using raw materials such as pulses,
wheat, vegetables or meat and the li~e cannot be said to be manufacturing
B activity and such activity was trading activity. The Bombay High Court also
took the similar view in Commissioner of Income-Tax v. Berry's Hotels Pvt.
Ltd., [1994] 207 ITR 615 and held that benefit of Section 2(7)(c) of Finance
Act, 1973 can be given to manufacturing concerns and not to trading concerns.
In Fariyas Hotels Pvt. Ltd. v. Commissioner of Income Tax, [1995] 211 ITR
c 390, it held that investment allowance under Section 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 C.I.T. v. S.P. Jaiswal Estates (P)
Ltd., [1992] 196 ITR 179, held that an assessee who claims investment allow-
ance under Section 32A of the Act has to be (1) an industrial undertaking
D
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
E 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 thing.
F
In the result, Transferred Cases No.22 and 23 of 1989 filed by the
Revenue are allowed and it is held that the Flight Kitchen operated by the
assessee-Indian Hotels Company Ltd. is not entitled to get the benefit of
Section 80J. Transferred Cases No.20, 21and24 of 1989 filed by the assessee-
Indian Hotels Company Ltd. are dismissed. Civil Appeal No.1774 of 1992 and
G Civil Appeal No. 4443 of2000@ S.L.P.(c) No. 324of1998 filed by Mis Hotel
& Allied Traders Pvt. Ltd. and Hotel Shashi Private Ltd. respectively are also
dismissed. There shall be no order as to costs.

v.s.s. Transfer cases allowed and
appeals dismissed.