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Srichand Agarwala Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberSpecial Jurisdiction Case No. 87 of 1978
Judge
Reported in[1984]148ITR34(Orissa)
ActsIncome Tax Act, 1961 - Sections 144 and 145(2)
AppellantSrichand Agarwala
RespondentCommissioner of Income-tax
Appellant AdvocateA.K. Ray, Adv.
Respondent AdvocateStanding Counsel
Excerpt:
.....mohan de, 1995 (2) gau lt 218 (db) and union of india v smt gita banik, 1996 (2) glt 246, are not good law]. - against that order, the petitioner went up in appeal to the income-tax appellate tribunal, but was unsuccessful......receipt was only rs. 4,01,446. a sum of rs. 1,37,402 was deducted by the contractee towards the cost of materials supplied to the petitioner at the time of execution of the work.3. the petitioner had returned income from business at rs. 38,480. adding to the business income rs. 2,324, representing interest from security, the petitioner returned a total income of rs. 40,804. assessment was completed by the ito, who did not give the allowance, as claimed by the petitioner, for the materials supplied by the contractee to the petitioner at the time of execution of the work. in appeal also the claim of the petitioner was not taken into consideration by the aac. against that order, the petitioner went up in appeal to the income-tax appellate tribunal, but was unsuccessful. thereafter, an.....
Judgment:

J.K. Mohanty, J.

1. This is a reference under Section 256(2) of the I.T. Act, 1961 (hereinafter called the 'Act'). The following question has been referred for the opinion of this court:

' Whether, on the facts and circumstances of the case, the gross payment shown including the cost of material deducted by the principal should have been taken into account for determining the profit for calculating on percentage basis or the value of the supplies made by the principal should have been deducted and on the remainder profits should have been estimated '

2. The petitioner-firm carries on business as works contractor being engaged in construction of buildings, bridges and roads. According to the petitioner, during the assessment year 1975-76, the petitioner had received a sum Rs 5,38,898 towards gross bill whereas the actual net receipt was only Rs. 4,01,446. A sum of Rs. 1,37,402 was deducted by the contractee towards the cost of materials supplied to the petitioner at the time of execution of the work.

3. The petitioner had returned income from business at Rs. 38,480. Adding to the business income Rs. 2,324, representing interest from security, the petitioner returned a total income of Rs. 40,804. Assessment was completed by the ITO, who did not give the allowance, as claimed by the petitioner, for the materials supplied by the contractee to the petitioner at the time of execution of the work. In appeal also the claim of the petitioner was not taken into consideration by the AAC. Against that order, the petitioner went up in appeal to the Income-tax Appellate Tribunal, but was unsuccessful. Thereafter, an application filed under Section 256(1) of the Act having been rejected, the petitioner has moved this court under Section 256(2) of the Act requiring the Tribunal to state a case and refer the above mentioned question of law for the opinion of this court.

4. The main point canvassed before us on behalf of the petitioner is that the petitioner is entitled to deduction of Rs. 1,37,402 towards the cost of the materials supplied by the contractee to him at the time of execution of the work as the petitioner did not get any profit from out of the materials supplied to him by the contractee. In support of this contention, the learned counsel for the petitioner relied on a decision of the Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT : [1978]115ITR524(SC) , wherein, in a similar circumstance, their Lordships have held (p. 533):

' It is true that, ordinarily, when a works contract is put through or completed by a contractor, the income or profits derived by the contractor from such contract is determined on the value of the contract as a whole and cannot be determined by considering several items that go to form such value of the contract but in our view where certain stores/ material is supplied at fixed rates by the Department to the contractor solely for being used or fixed or incorporated in the works undertaken on terms and conditions mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/material so supplied. Therefore, since no element of profit was involved in the turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee-firms, the income or profits derived by the assessee-firms from such contracts will have to be determined on the basis of the value of the contracts represented by the cash payments received by the assessee-firms from the M.E.S. Department exclusive of the cost of the material/stores received for being used, fixed or incorporated in the works undertaken by them,'

5. Admittedly, in this case certain materials were supplied by the contractee to the petitioner and the cost of the same has been deducted from the bill. In view of the decision cited above, we are of the opinion thatthe petitioner is entitled to deduction of the cost of the materials supplied to him by the contractee from the gross receipt.

6. The reference is answered accordingly in favour of the assessee. There shall be no order as to costs.

Misra, J.

7. I agree.


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