Commissioner of Income Tax vs LAKE PALACE HOTELS and MOTELS (P) LTD.

N.N. Mathur, J.

By this common order three reference applications being D.B. Income Tax Reference No. 10 of 1992 (CIT v. Lake Palace Hotels & Motels (P) Ltd.) D.B. Income Tax Reference No. 102 of 1998 (Ajit Bhawan Hotel v. CIT (for assessment year 1984-85)) and D.B. Income Tax Reference No. 103 of 1998 (Ajit Bhawan Hotel v. CIT (for assessment year 1987-88)) are being disposed of.

The common question involved in these three reference applications is as to whether hotel building can be treated as plant or industrial undertaking and, therefore, the assessee is entitled to investment amount (sic-allowance) u/s 32A of the Income Tax Act. The controversy involved stands concluded by recent decision of the Apex Court in Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, , wherein the court has held that hotel building and theatre building are separate from industrial undertaking or the plant in spite of the fact that they are specially equipped for the purpose of business, they still remain building and as such not entitled to depreciation at the rate applicable to plant u/s 32 of the Income Tax Act. However, Mr. Anjay Kothari learned counsel appearing for the assessee, has sought to distinguish the case of M/s. Ajit Bhawan Hotel from the decision of the Supreme Court in Anand Theatres on the ground that the scheme of section 32A of the Income Tax Act is different. It is submitted that the provisions of sections 32 and 32A of the Act operate in different fields and the intended object of both the provisions are also different and, therefore, the ratio of Anand Theatress case shall not be applicable while interpreting section 32A. The learned counsel also placed reliance on a recent decision of the Apex Court in Commissioner of Income Tax Vs. Dr. B. Venkata Rao, wherein it is held that a building in which nursing home was running is a plant because the nursing home building was specially equipped with assessees business. The learned counsel has also referred to the decision of the Apex Court rendered after Anand Theatres case in CIT v. Karnataka Power Corporation (2000) 162 CTR (SC) 249.

It is necessary to acquaint with the development in Income Tax Reference No. 10 of 1992. The said reference application along with D.B. Income Tax Reference No. 6 of 1987 CIT v. Payal Theatre, Shri Ganganagar, and D.B. Income Tax Reference No. 20 of 1992-CIT v. Ratan & Co. was heard by the Division Bench consisting of Y.R. Meena, J. and V.K. Singhal, J. The judgment was prepared by Honble Singhal, J. The judgment was pronounced on 14-11-1995, by the Bench consisting of B.R. Arora, J. and B.J. Shethna, J. The reference was answered in favour of the revenue and against the assessee. After the judgment was delivered the assessee Lake Palace Hotels & Motels Ltd., Udaipur, presented a miscellaneous application, which was registered as D.B. Civil Miscellaneous Appln. No. 58 of 1996 on 13-12-1995, pointing out that the reference could, not have been heard by the Bench consisting of Y.R. Meena, J. as his lordship was one of the Members of the Bench of the Tribunal which decided the appeal in favour of the assessee by order dated 2-9-1988. The Division Bench allowed the said application by order dated 20-7-1998, on the ground that Honble Mr. Justice Y.R. Meena, and Honble Mr. Justice, V.K. Singhal could not constitute the Bench in view of their Lordships transfer to other High Courts. Accordingly the judgment dated 14-11-1995, was recalled and the case was posted for fresh hearing. This is how D.B. Income Tax Reference No. 10 of 1992-CIT v. Lake Palace Hotels & Motels Ltd. has come before us today for rehearing. It is interesting to notice that in fact nothing has been left for us to rehear as the judgment which has been recalled by the order of this court dated 20-7-1998, has been reported in Commissioner of Income Tax Vs. Lake Palace Hotels and Motels Pvt. Ltd., This case has been followed in number of cases by this court and has been extensively discussed and approved by the Apex Court in Anand Theatres case (supra).

As regard the contention raised by Mr. Anjay Kothari distinguishing Anand Theatres case has also been dealt with by this court in CIT v. Lake Palace Hotels & Motels (P) Ltd. (supra). This court while dealing with all the cases referred by Mr. Anjay Kothari concluded as follows :

"From the above, it can be seen that a person engaged in the business as hotelier cannot be said to be a person engaged in the business of manufacture or production of an article or a thing, but is a person who is engaged in the business of providing service. The investment of capital in installing any plant or machinery for the purposes of a business of providing service cannot be considered as investment in an industrial undertaking engaged in manufacture or production of any article or thing. Hence, on its own provision of section 32A are not attracted".

The view taken by the Division Bench is buttressed by subsequent decision of the Apex Court in The Indian Hotels Company Ltd. and Others Vs. The Income Tax Officer, Mumbai and Others, wherein the court held that the assessee, who is carrying on trading activity of the business of a hotel cannot claim the benefit granted to industrial undertaking by contending that it also produces food stuff and food packets.

Consequently the question referred in all the three reference applications is decided in favour of the revenue and against the assessee. No order as to cost.