This is an application by Messrs. Krishna & Co., under Section 66(3) of the Indian Income-tax Act praying that the Commissioner of Income-tax be directed to refer certain questions of law, to be presently stated for decision to this Court. The facts that led to the present application are as follows :-
The assessee, Messrs. Krishna & Co., is a registered firm carrying on business in the district of Bareilly. The assessee does various kinds of business including the taking of contracts for making constructions. The assessee was called upon to make a return of its income for the year 1934-35 and in the return submitted by it, it was stated that the assessee had in the year in question undertaken a contract for the construction of certain buildings for a concern styled as 'Kesar Sugar Works, Baheri' and that, the contract having been executed, a bill of charges due to the assessee amounting to Rs. 1,15,199 was submitted to the proprietors of Kesar Sugar Works, but the Kesar Sugar Works had in the year in question paid to the assessee only a sum of Rs. 86,500 and a sum of Rs. 28,669 was still due. It was also stated by the assessee that some dispute had arisen between the assessee and the Kesar Sugar Works with the result that a suit for recovery of the amount alleged to be due to the assessee was pending in the Civil Court. The assessee maintained that as the amount spent by it in making the constructions was in excess of the amount received from the Kesar Sugar Works it must be taken that the assessee had made no profit from the contract referred to above. This contention of the assessee was overruled by the Income-tax Officer who held that the assessee was unable to say when the dispute between it and the Kesar Sugar Works would be settled, and it was impossible to wait for the settlement of the dispute ad infinitum and therefore the assessee must be assessed on the profits made by it from the contract. The Income-tax Officer further held that the accounts submitted by the assessee were incomplete and accordingly he estimated the profits from the contract of building at a flat rate of 15 per cent on the outlay. The assessee appealed to the Assistant Commissioner who affirmed the assessment made by the Income-tax Officer.
The assessee then applied to the Income-tax Commissioner under Section 66(2) of the Act for reference of certain questions of law to this Court. The Commissioner of Income-tax rejected the application. In the course of his judgment he observed that the application had all along maintained his accounts according to the mercantile system of accountancy and accordingly he held that the mere fact of non payment of a portion of the amount due from the Kesar Sugar Works could not exonerate the assessee from the liability to assessment as regards the amount received by it from the Kesar Sugar Works Ltd. He held that it was clear from the assessees own admission as well as from its account books that it did not close its account as it should have done by taking into account the money that according to it became due by the Kesar Sugar Works Ltd., on account of the work that it did. The Commissioner of Income-tax allowed the assessee the option of having the profit charged in the year in question adjusted in the year in which settlement might take place between it and the Kesar Sugar Works but this offer was not accepted by the assessee.
The questions of law that have been embodied in the application filed in this Court re as follows :-
(a) Whether the learned Income-tax Officer was right in assessing the profits of the building contract of the Kesar Sugar Works at a flat rate of 15 per cent of the net receipts without questioning the correctness of the accounts of the said contract submitted to him ?
(b) Whether even assuming the correctness of flat rate of estimate of profits made by the learned Income-tax Officer, was the assessee liable to be taxed before any profit had actually accrued to him and the amount due to him had been actually received ?
The question at what rate the profits should have been calculated was essentially a question of law. The second question also is not a question of law. Having regard to the finding recorded by the Commissioner of Income-tax that the assessee maintains account son the mercantile system of accountancy, the assessee was liable to assessment even though a portion of the amount spent by it in making the constructions had not been realised.
As no question of law arises in the case, we reject this application with costs. The learned counsel for the department will be entitled to a fee of Rs. 75.