Dwarka Prasad, J.
1. This is a reference made at the instance of the Commissioner of Income-tax, Rajasthan, Jaipur, and the following question of law has been referred to us by the Income-tax Appellate Tribunal, Jaipur Bench, as arising out of its order dated August 21, 1971:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the cost of materials supplied by the M.E.S. department was not to be included in the gross receipts of the business for the calculation of the profit of the assessee's business at the estimated net profit adopted for the purpose ?'
2. The assessee is a building contractor and had executed four works worth Rs. 8,84,219 on behalf of M.E.S., Delhi, during the preceding year relevant to the assessment year 1966-67. The ITO applied the net profit rate of 12% to his turnover, while assessing tax for the assessment year 1966-67. On appeal, the AAC applied the net profit rate of 10%. When the matter went in second appeal before the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'), the assessee raised the question that no amount of profit should be calculated on the value of the material supplied to him by the M.E.S. department for the execution of the works in question. The Tribunal while upholding the 10% profit rate by its order dated August 21, 1971, also accepted the contention advanced on behalf of the assessee that there was no possibility of any profit accruing to the assessee on the value of the material which was supplied by the M.E.S. department to the contractor for execution of the works when such material was claimed to have been utilised wholly on those works. As such, the value of such materials was excluded by the Tribunal from the calculation of the turnover of the assessee. The Commissioner of Income-tax applied to the Tribunal for making a reference to this court under Section 256 of the I.T. Act, 1961, and thus the question of law quoted above has been referred by the Tribunal to this court.
3. As the question which has been referred to us has since then been decided by their Lordships of the Supreme Court, it is not necessary for us to discuss the matter in detail. It appears that the Kerala High Court in Alexander & Co. v. CIT : 92ITR92(Ker) the Madras High Court in CIT v. Guruswami Gounder and Krishnaraju, : 92ITR90(Mad) the Gujarat High Court in Trilokchand Chunilal v. CIT : 104ITR732(Guj) and a Full Bench of the Andhra Pradesh High Court in Addl. CIT v. Trikamji Punia and Sons : 106ITR597(AP) took the view which the Tribunal has taken in the present case, that as no amount of profit was involved in respect of the materials supplied by the Government department for the execution of the contracts, as such in the best judgment assessment,the value of the materials supplied by the Government department should not be included while applying the net profit rate to the income of the assessee. However, the Punjab and Haryana High Court in Brij Bhushan Lal v. CIT and again in CIT v. Brij Bhushan Lal Ramesh Kumar took a contrary view and held that the percentage of profit in the case of such a contractor is not determined with respect to each item of the material involved in the performance of the contract, but on the amount of the whole contract and the same could not be divided in different parts according to the nature and source of supply of the material used for that purpose. In Brij Bhushan Lal's case an appeal was taken by the contractor against the judgment of the Punjab and Haryana High Court to the Supreme Court and their Lordships of the Supreme Court, while deciding the appeal in Brij Bhushan Lal Parduman Kumar v. CIT : 115ITR524(SC) held as under (pp. 532, 533):
'In substance and in reality, such stores/material always remains the property of the department and the contractor has merely the custody of it and he fixes or incorporates the same into the works. It seems to us clear that in such circumstances and having regard to the terms and conditions on which such supply of stores/materials is made, there is not even a theoretical possibility of any element of profit being involved in the turnover represented by the cost of such stores/material......when stores/material is supplied by the Government department at fixed rates for being used, fixed or incorporated in the works on terms indicated above, there would be no element of profit involved in the turnover represented by the cost of such material. 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.'
4. Thus, following the aforesaid principles laid down by their Lordships of the Supreme Court, we hold that the value of the materials supplied by the Government department to the contractor for being used for the execution of the works is to be excluded while determining the turnover of the contractor assessee. After the decision of their Lordships of the Supreme Court in Brij Bhushan Lal's case : 115ITR524(SC) the legal position in respect of the question referred to us has been set at rest. Consequently, we answer the question referred to us in the affirmative, in favour of the assessee and against the Department.
5. In the circumstances of the case, the parties shall bear their own costs of this reference.