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Commissioner of Income-tax Vs. Civil Engineering Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 550 of 1977
Judge
Reported in(1982)29CTR(All)279; [1982]136ITR38(All)
ActsIncome Tax Act, 1961 - Sections 256(1)
AppellantCommissioner of Income-tax
RespondentCivil Engineering Co.
Appellant AdvocateM. Katju, Adv.
Respondent AdvocateR.K. Gulati, Adv.
Excerpt:
- - 15,000 in 1971-72. the assessee's appeals before the aac on this question having failed, it took up the matter in further appeal before the i......section 256(1) of the i.t. act, 1961, and the following question has been referred by the i.t. appellate tribunal, delhi bench-a, for the opinion of this court:'whether, on the facts and in the circumstances of the case, the tribunal was legally correct in holding that profit on the cost of materials supplied by the government could be assessed only if the assessee had calculated such profit while giving tenders and had adjusted its rates on that basis and, therefore, in setting aside the assessments and restoring the matter back to the file of the income-tax officer for examining the issue afresh ?'2. the brief facts are these. the assessment years involved are 1970-71 and 1971-72, the corresponding accounting periods ending on 30th june, 1969, and 30th june, 1970, respectively. the.....
Judgment:

R.R. Rastogi, J.

1. This is a reference under Section 256(1) of the I.T. Act, 1961, and the following question has been referred by the I.T. Appellate Tribunal, Delhi Bench-A, for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that profit on the cost of materials supplied by the Government could be assessed only if the assessee had calculated such profit while giving tenders and had adjusted its rates on that basis and, therefore, in setting aside the assessments and restoring the matter back to the file of the Income-tax Officer for examining the issue afresh ?'

2. The brief facts are these. The assessment years involved are 1970-71 and 1971-72, the corresponding accounting periods ending on 30th June, 1969, and 30th June, 1970, respectively. The assessee, a registered firm, carries on the business of undertaking contracts under the public works dept. authorities. For the assessment year 1970-71, the assessee had received a sum of Rs. 8,01,144 on account of work done from the authorities concerned and similarly for the assessment year 1971-72 it had received Rs. 7,17,238. Apart from these payments the assessee had received during these two years cement, steel and bricks of the value of Rs. 4,57,033 and Rs. 3,00,000 in the two years, respectively. The controversy relates to the question of assessing any profit on the value of these materials. The assessees case before the ITO was that since it had not earned any profit on the value of the materials received by it from the Govt., no profit should be charged from it. That contention did not find favour with the ITO and he estimated the gross profit at five per cent. thereby making an addition of Rs. 22,851 in 1970-71 and Rs. 15,000 in 1971-72. The assessee's appeals before the AAC on this question having failed, it took up the matter in further appeal before the I.T. Appellate Tribunal.

3. The assessee again canvassed before the Appellate Tribunal that it had not earned any profit on the value of the materials which it had received from the Govt. and relied upon a decision of the Kerala High Court in M. P. Alexander & Co, v. CIT : [1973]92ITR92(Ker) and of the Madras High Court in CIT v. K. S. Gumswami Gounder (reported in the same volume at page 90). On the other hand, the revenue's contention was that the assesseehad in fact earned a profit on the materials supplied by the Govt. inasmuch as the supplies had been made at controlled rates. Reliance was placed on a decision of the Punjab and Haryana High Court in Brij Bushan Lal v. CIT and of this court in Goswami Brothers v. CIT [1972] UPTC 565. On a consideration of the case law cited at the bar the Tribunal came to the conclusion that the decision of this question depends ultimately on the terms of the tender. What is required to be seen is whether the assessee while furnishing its tenders had a definite understanding that the department would be concerned with the supply of the required materials to it and the assessee adjusted the rates offered in the tender on that basis. In the instant case the authorities below had not addressed themselves to this aspect of the case with the result that there was no material on the record to lead to a definite conclusion on this point. Accordingly, in the interests of justice, the Tribunal considered it necessary to refer the matter back to the ITO with a view to examine the tenders and find out as to whether the assessee had calculated its profit on the value of the materials while submitting the tenders and, if that is so, then estimate the reasonable profit on such value. If, on the other hand, it is found that the assessee was under an understanding that the department concerned would supply the required materials to it for the execution of those contracts and the assessee adjusted its rates on that basis, then there would not arise any occasion for estimating any profit on the value of the materials supplied. For that reason, the Appellate Tribunal remanded the case to the ITO with a view to decide it afresh in the light of the observations made.

4. Now, at the instance of the Commissioner, the question indicated above has been referred to this court.

5. After hearing learned standing counsel, we find that the view taken by the Appellate Tribunal is absolutely correct. Unless the facts are found, it is not possible to apply the law and in the present case, as noted above, the Tribunal came to the conclusion that fuller facts had not been found and for that purpose they have remanded the case. We do not find any justification to take a different view.

6. Our answer to the question referred, therefore, is in the affirmative, in favour of the assessee and against the department. In the circumstances, however, we make no order as to costs.


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