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In the context of an assessee running a five star hotel who had claimed investment allowance on air conditiong system u/s 32A the Madras High Court in the case of Adayar Gate Hotels Ltd. v. CIT (108TAX293) held that preparation of food with the aid of equipment installed in the kitchen cannot be said to amount to manufacture or production. The use of the machinery or plant for the purpose as preserving food, heating or other intermediate tasks involved in the preparation of the foodstuff such as grinding, baking, cooking, frying etc., cannot be regarded as machinery used in the manufacture or production of articles. Thus, neither can it be said that machinery is utilized for the manufacture or production of goods nor can it be said that the machinery is installed in an industrial undertaking. The court further held that the hotel industry is a service industry and use of the word ‘ industry’ in this context cannot result in the hotel being also regarded as manufacturing industry, which it is not. In this case the assessee relied on a Delhi Tribunal decision in which it has been held that all food articles prepared in a canteen amounted to manufacture and, therefore, investment allowance was allowable based on Madras High Court ruling in the case of CIT v. Engine Valves Ltd. (126ITR347). The Madras High Court after this ruling impliedly overruled its earlier view in 126ITR347. The Kerala High Court in the case of CIT v. Abad Hotels India (P.) Ltd. (108TAX299) also held the same view.

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