(1) This is a reference under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') at the instance of the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short 'the Tribunal') whereby the Tribunal has referred the following common question of law to this Court the case of assessee for the assessment years 1986-87 and 1987-88 for answer:
"Whether on the facts and in the circumstances of the case the ITAT is legally justified in holding that the hotel business is an industrial undertaking and therefore the- assessee is enlitled to investment allowance under Sec. 32A of the IT Act?"
(2). The brief facts giving rise to this reference are: that the assessee is a Company running hotels at Udaipur. The hotels of the assessee-Company were being operated by the Indian Hotels Company Limited and 50% of the net operating profits were paid as operation fee. The assessee-Company claimed investment allowance on the hotel building treating the same as Plant.
(3). However, the Dy. Commissioner of Income-tax (Assmt), Special Range, Udaipur vide his order dated 13.3.1989 did not accept the claim of the assessee for investment allowance. An appeal was filed by the assessee before the Commissioner of Income Tax (Appeals), Jodhpur, Camp at Udaipur against the order of the Dy. Commissioner of Income-fax (Assmt), Special Range, Udaipur dated 13.3.1989 disallowing assessee's claim for investment allowance. In appeal, that ordar was confirmed by the Commissioner of Income Tax (Appeals) Jodhpur, Camp at Udaipur vide Judgment dated 13.2-1990. The assessee preferred second appeal before the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur against the judgment of the Commissioner of Income Tax (Appeals), Jodhpur, Camp at Udaipur dated 13.2.1990 and the Tribunal, after hearing both parties came to conclusion that assessee was an industrial under-taking and thus, was entitled to investment allowance on the Hotel Building as apparatus of business under Section 32A of the Act as it was running hotel business and thus, the order dated 13.3.1989 passed by the Dy. Commissioner of Income-tax (Assmt), Special Range, Udaipur and judgment dated 13.2.1990 passed by the Commissioner of Income Tax (Appeals), Jodhpur, Camp at Udaipur were set aside to that extent and the appeal was partly allowed by the Tribunal vide judgment dated 29.9.1994.
(4). Thereafter, the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur was of the opinion that findings recorded by it give rise to a question of law fit for reference to the High Court and in these circumstances, the question of law, as quoted above, has been referred by the Tribunal on 15.12.1995 for answer to this Court on an application under Sec. 256(1) of the I.T. Act at the instance of the Commissioner of Income Tax.
(5). We have heard the learned counsel appearing for the parties and have carefully gone through the record of the case.
(6). It has been contended by the learned counsel for the assessee that though in Anand Theatre's case (1), the Supreme Court has held Hotel Building not to be a 'plant' within the meaning of Sec. 32 of the Act, which separately identifies 'buildings' as depreciable asset, distinct and independent of plant and machinery and prescribes separate rate at which deduction for depreciation or written down value of a building is to be allowed, Sec. 32-A which governs the case of 'investment allowance' on investment made in 'plant and machinery' is in addition to and independent of deduction for depreciation. In Anand Theatre's case, the Supreme Court was dealing with the deprecialion and interpreted the word 'depreciation' in the context of independent description of building as depreciable asset. This is apparent from the follow-ing statement of law while interpreting Sec. 32 of the Act:
"42. Further for running almost all industries or for carrying on any trade or business, building is required. On occasions, building may be designed and constructed to suit the requirement of a particular industry, trade or business. But that would not make such building a plant. It only shelters running of such business. For each and every business, trade or industry, building is required to carry on such activity. That means building plays some role and in other words, its function is to shelter the business, but it has no other function except in some rare cases such as dry dock where it plays as essential part in the operations which take place in getting a ship into the dock, holding it squarely and then returning it to the river. Building is more durable. If contention of the assessee is accepted, virtually all such building would be considered to be plant and distinction which the legislature has made between the 'building' and 'machinery' or 'plant' would be obliterated.
43. Learned counsel for the assessee submitted that the words 'plant' and 'building' are not mutually exclusive. 'Plant' may include building in certain set of circumstances and therefore, applying the functional tests, assessee would be entitled to depreciation under the head "it is more beneficial to it". He submitted that in the modern era, theatre building and hotel building are integral part of operation for carrying out such business and, therefore, such building should be considered as a 'plant.'
44. As discussed above, the aforesaid contention cannot be accepted. Firstly, it would be difficult to draw a line between a building which is specifically constructed for the aforesaid purposes and building which are used for the aforesaid purposes by converting a residential accommodation or industrial premises for such purposes. Secondly, the depreciation as a general principle represents the diminution in value of capital asset when applied to the purpose of making profit or gain. The object is to get true picture of real income of the business. Hence, it can be interred that the legislature never intended to give such benefit of depreciation to a 'building' which is usually . more durable than 'machinery' or 'plant'. In CIT vs. Alps Theatre AIR 1967 SC-1437: TC 27R. 145, Court considered the question whether the cost of land is entitled to depriciation under the Schedule to the IT Act along with the cost of the building standing thereon? The Court observed (in para 6) thus:
"It would be noticed that the word used is 'depriciation' and 'depriciation' means:
"a decrease in value of property through wear, deterioration, or obsolescence; the allowance made for this in book-keeping account, etc." (Webster's New Word Dictionary).
In that sense, land cannot depriciate. The other words to notice are "such buildings". We have noticed that in sub-cl. (iv) and (v), 'building' clearly means structures and does not include site."
The Court also held in paras 7 and 8 that:
"One other consideration is important. The whole object of Sec. 10 is to arrive at the assessable income of a business after allowing necessary expenditure and deductions. Depreciation is allowable as a deduction both according to accountancy principles and according to the Indian IT Act. Why? Because otherwise one would not have a true picture of the real income of the business. But land does not depreciate, and if. depreciation was allowed it would give a wrong picture of the true income."
Under the new Act also for the building and machinery or plant depreciation is allowed probably after taking into consideration its life and decrease in the value of the property through wear and tear."
(7). It was contended that scheme of Sec. 32-A of the Act being different, the ratio of Anand Theatres case shall not be applicable while interpreting Sec. 32-A. Learned counsel urged that in the context of object and intent of Sec. 32-A 'functional test' has been applied by various courts and approved by Supreme Court. Learned counsel placed reliance on the principle enunciated by Supreme Court in C.I.T. vs. Taj Mahal Hotel (2), wherein while considering the provisions of Sec. 33 relating to 'Development Rebate', the forerunner of scheme of 'investment allowance' under Sec. 32-A and couched in same words wherein the Court laid the functional test for holding whether any business asset is a plant or not for the purpose of claiming development rebate in which sanitary amenities provided by a Hotel were considered fo be plant for the purpose of claiming development rebate, He also relied on a recent decision of Supreme Court in C.I.T. vs. Dr. B. Venkata Rao (3), holding a building in which nursing home was running as a plant because the nursing home building was specially equipped as a plant for the assessee's business. The Court has observed:
".....what is to be determined is whether the particular nursing home building was equipped as to enable the assessee to carry on the business of nursing home therein or whether it is just any prem-ises utilised for the object."
(8). He also placed reliance on a later decision of Supreme Court rendered after .Anand Theatre's case holding a building where power generator set was installed was held to be a plant in C.I.T. vs. Karnataka Power Corporation (4), following its earlier decision in B. Venkatrao's case (supra) in which nursing home building was held to be plant and on that basis, the building wherein power generating plant was installed was held to be a plant eligible to claim investment allowance under Sec. 32-A.
(9). Reference was also made to a decision of Gujarat High Court in C.I.T. vs. Gujaral Fertilizer (5), wherein roads of a factory were held to be part of building and not of plant for the purposes of Sec. 32 for the very same reason of difference in language in Sec. 32 and 32A.
(10). Learned counsel appearing for the revenue urged that 'hotel building' is not a plant and depriciation is not allowable to hotel building as a plant but only as a building under Sec. 32 of the Act. In support of this contention, the principle laid down in Anand Theatre's case (supra) was pressed in to service. It was Contended by the learned counsel that what is not a plant under Sec. 32 of the Act cannot also be a plant under Sec. 32-A of the Act. He also relied on the definition of 'plant' given in Sec. 43(3) of the Act and the interpretation of that provision by the Supreme Court in Anand Theatre's case (supra).
(11). Having given our thoughtful consideration, we are of the opinion that it is true that provisions of Secs. 32 and 32-A of the Act operate in different fields and the intended object of both the provisions are also different. Learned counsel for the assessee is also right in his submission that in Anand Theatre's case (supra), the Supreme Court was considering the case of 'hotel building' for the purpose of allowing depriciation under Sec. 32 only and the question of treatment of building under Sec. 32-A of the Act was not before it and the decision in Anand Theatre's case (supra) has been distinguished by the Supreme Court in C.I.T. vs. Karnataka Power Corporation (supra), wherein while considering the case of allowing 'investment allowance in respect of a building, it was held to be an integral part of its generating system.
(12). Yet we are of the opinion that the very scheme of Sec. 32-A itself which houses the provision of allowing investment allowance on the investment, made in plant and machinery does not carry the case of the petitioner any further even assuming without holding it to be so, hotel building to be a plant in generic sense as defined in the dictionary. Sec. 32-A of the Act to the extent relevant for present purposes reads as under:
"S. 32-A, Investment allowance:-(1) 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 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 previous year, of a sum by way of investment allowance equal to twenty-five percent, of the actual cost of the ship, aircraft, machinery or plant to the assessee:
Provided further that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as if for the words "twenty-five percent", the words "twenty percent," had been substituted:
Provided further that no deduction shall be allowed under this section in respect of:-(a).....
(c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Section 33; and
(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following namely:-
(a) a new ship or new aircraft acquired after the 31st day of March, 1976 by an assessee engaged in the business of operation of ships or aircrafts;
(b) any new machinery or plant installed after the 31st day of March, 1976:-
(i) for the purposes of generation or distribution of electricity or any other form of power; or
(ii) in a small scale industrial undertaking for the purpose of business of manufacture 9r production of any article or thing; or
(iii) in any other industrial undertaking for the purpose 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;
Provided that nothing contained in clauses (a) and (b) shall apply in relalion:-
(1) (a) .....
(5) ..... (6) .....
(13). A perusal of the scheme of Sec. 32-A of the Act makes it abundantly clear that investment in anything which can be termed in generic sense as plant and machinery used for the purposes of business has not been made eligible to claim investment allowance and a deduction in respect of such investment, but only such plant and machinery used in business which fulfils Further essential conditions and requirement required for laying claim to such deductions. Even if other conditions of the allowability of investment allowance are fulfilled namely creation of Investment allowance reserve fund and making provision in the books of accounts as envisaged therein, it is only the plant and machinery specified in sub-s. (1) of Sec. 32-A of the Act, that had been made eligible for laying claim to the investment allowance for deduction. Sub-S. (a) of S. 2 which deals with new ship or new aircraft does not hold good in the present case. Clause (b) of Sec. 32-A (2) of the Act lays down a pre-condition before the plant and machinery can be considered eligible for laying claim to investment allowance. The criteria for making investment in plant and machinery to become eligible for claiming deduction of any allowance, the first and foremost condition is that the activities by which the new plant and machinery comes into existence by installation and secondly such plant and machinery should be installed either for the purposes of business of generation or distribution of electricity or any other form of power or it should be plant and machinery installed in any other industrial underiaking for the purposes of business of construction or manufacture or production of any article or thing, not being an article or thing specified in list in the eleventh schedule. For the purposes of application of these provisions, the keywords used in this Section arc 'for the purposes of business of construction, manufacture or production of any article or thing'. A plain reading of the language of Sec. 32-A of the Act would reveal that any plant or machinery which is not installed for any of the purposes mentioned in clause (b) of sub-s. (2) of S. 32-A of the Act shall not qualify as a plant, investment of which would be eligible for 'investment allowance.' It may be noticed here that there is distinction regarding meaning of 'plant' for the purposes of depreciation allowance under Sec. 32 and investment allowance under S. 32-A of the Act. While Sec. 32 of the Act identifies depreciable assets distinctly as building, machinery or plant and furniture but is not inhabited by any other condition of having been installed for the purposes of business of construction, manufacture or production of any article of thing but it only suffices that such building, machinery or plant or furniture is owned and used for the purposes of business or profession. Therefore, operative field of Sec. 32 of the Act is far wider than S. 32-A in its applicability. In no sense of word, the Hotel building can be considered to be a plant installed for the purposes of business of construction, manufacture or production of any 'article' or 'thing' much less for manufacture or production of any article or thing not specified in the list in the Eleventh Schedule, for which purpose also, S. 32-A is not applicable. By no stretch of reasoning, the very requirement of 'for the purposes of business of construction, manufacture or production of any article or thing', for the purposes of application of Sec. 32-A of the Act can be extended to a plant or machinery used for the purposes of hotel business.
(14). 'Article' in its ordinary sense refers to an objective or perceiveable thing and not to incohate rights or rendition of services in any form. 'Article' in its dictionary meaning in the context mean as per webster's Third New International Dictionary;
"a material thing; item object"
"a thing of a particular class or kind as distinct form from a thing of another class or kind."
(15). So also expression 'a thing' in the context of manufacture or production as part of regular activity of human endevour known as business can apply corresponding to its meaning in Webster's Third New International Dictionary as:
"an entity that can be apprehended or known as having existence in space or time as distinguished from what is purely an object of thought;
"an inanimate object as distinguished from living being" -
"whatever may be possessed or owned."
(16). In contrast, an activity of rendering service or service through an activity of human endevour for feeding the needs of other cannot be termed to be engaged in business of manufacture or production of any article or thing will be clear from seeing through the meaning of term 'Service' from the very same dictionary which shall make the distinction clear:
"Professional or other useful ministration, supply of needs, utility."
"useful labour that does not produce a tangible commodity, debt service, facility or provision for maintenance and repair, the provision organisation or apparatus for conducting a public utility or meeting a general demand;
"Providing services rather than tangible goods"
(17). In this context, it is to recall that requirement of provision is 'investment in installing plant and machinery by the assessee in the business of manufacture or production of an article or thing' and not merely engaging in activity of manufacture and production. Thus, word 'production' has to be related to production of any article or thing that is to say tangible commodity and not in its wide sense to include production of service.
(18). Reference in this connection may be made to State of H.P. vs. Associated Hotels of India (6). it was a case-arising under the Sales Tax laws concerning the nature of transaction of supply of food to its customer's by a Hotelier in the context of question whether it amounts to sale of goods. Commenting upon the essential nature of the business carried on by a hotelier, the apex court said:
"The transaction between a hotelier and a visitor to his hotel whereby the former receives the latter fortodging in his hotel is essentially a contract of service and where in the performance of the service and as a part of the amenities incidental to that service, the hotelier serves meals at stated hours, the transaction is not 'Sale'.
(19). This concept about hotel business was reiterated by the Apex Court in Northern India Caterers vs. U.O.I. (7).
(20). 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 Sec. 32-A are not attracted. The Tribunal has erred in extending the provisions of S. 32-A to a hotel by treating it to be an industrial undertaking engaged in the business of manufacture or production of an article or thing.
(21). The decision in Karnataka High Court in C.I.T. vs. Woodland Hotel Private Limited (8), fortifies us in our 1TR-224] aforesaid conclusion as to scope of Sec. 32-A in relation to a hotel building. The further conclusion that for the purposes of Sec. 32 for computing depreciation, it is a plant, must be considered to be impliedly covered by the decision of the Supreme Court in Anand Theater's case (supra).
(22). The decision in Commissioner of Income Tax vs. Karnataka Power Corporation (supra), is clearly distinguishable inasmuch as installation of plant for the purposes of business of generation or distribution of electricity or any other form or power has been specifically envisaged as one of the business in which investment in' installing plant or machinery to become eligible to claim deduction on account of investment allowance subject to fulfilment of other conditions: The Supreme Court in Karnataka Power Corporation's case (supra) while applying the test that where a building is so planned or constructed as to serve an assessee's special technical requirement, it will qualify to be treated as a plant for the purposes of investment allowance, held that the assessee's generating station building was an integral part of its generation system and, therefore, it is a plant and is entitled to investment allowance. Thus, the decision in Karnataka Power Corporation's case (supra) is distinguishable on facts inasmuch there the investment in building was held to be a business apparatus of a business of generating electricity to which provisions of S.32-A were made applicable.
(23). Further inhibition is to be found against allowability of investment allowance under the scheme of the provisions of the Act. While claim for depreciation and investment allowance are not mutually exclusive but the claim for investment allowance and development rebate are mutually exclusive, that is to say that where the assessee is entitled to claim deduction as a development rebate on certain investments made under S. 33 of the Act, he is not entitled to claim investment allowance under Sec. 32-A of the Act. Clause (c) of second proviso to Sec. 32A(1) of the Act clearly postulates that no deduction shall be allowed under this section in respect of any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Sec. 33. That being the position, the allowability of investment allowance in respect of Hotel premises in respect of installation of any plant and machinery in a hotel in other way is excluded.
(24). Attention of us was invited to provisions of S. 33(1)(B)(ii), which deals with allowance of development rebate to any plant or machinery installed in a premises used by an Indian Company as a hotel. Therefore, the cases in which the courts have considered cinema premises as a plant and eligible for development rebate in view of specific provision do not render any assistance to the assessee.
(25). This is the view expressed by the Supreme Court in Commissioner of Income Tax vs. Anand Theaters (supra), wherein the Court held that hotel building cannot be treated as plant and, therefore, Sec. 32 of the Act is not attracted. We arc also fortified in our conclusion in the context of Sec. 32-A of the Act by a recent decision of the Supreme Court in Indian Hotels Co. Ltd. vs. I.T.O. (9), 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 C.I.T. vs. Casino (Pvt.) Ltd. (10); C.I.T. vs. Berry's Hotels Pvt. Ltd. (11); Fariyas Hotels Pvt. Ltd. vs. C.I.T. (12), and C.I.T. vs. S.P. Jaiswal Estates (P) Ltd. (13), 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 in 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.
(26). In view of the aforesaid discussion, we hold that the Tribunal was not justified in holding that hotel business is an industrial undertaking to which S. 32-A applies and the assessee is entitled to investment allowance by treating the hotel building: itself as a plant.
(27). We, therefore, answer the question referred to this court in negative that is to say in favour of the revenue and against the assessee. No order as to costs.