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Commissioner of Income-tax Vs. Ram Dayal Modi and Sons - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 22 of 1972
Judge
Reported in[1985]151ITR481(Raj)
ActsIncome Tax Act, 1961 - Sections 256(1)
AppellantCommissioner of Income-tax
RespondentRam Dayal Modi and Sons
Appellant Advocate R.N. Suroliya, Adv.
Respondent AdvocateNone
Excerpt:
- .....briefly stated, are as under:m/s. ram dayal modi & sons, dholpur (hereinafter referred to as 'the assessee-firm '), was carrying on business as contractor during the assessment year 1969-70. it had executed certain contracts for the construction of buildings for certain government departments. the gross amount of the bills receivable by the assessee was rs. 2,25,323 for the aforesaid works executed by the assessee-firm. the aforesaid bills included a sum of rs. 36,825 towards the value of the material supplied by the government for utilisation in the construction work and the said amount was recovered by the government from the gross amount of rs. 2,25,323 and the balance amount was paid to the assessee firm. according to the books of account of the assessee-firm, the profit shown by.....
Judgment:

Agrawal, J.

1. In this reference made under Section 256(1) of the I.T. Act, 1961, the Income-tax Appellate Tribunal, Jaipur Bench (hereinafter referred to as 'the Tribunal'), has referred the following question to this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the cost of material supplied by the Government is not includible in the gross receipts for the purpose of estimating the net income of the assessee ?'

2. The facts, briefly stated, are as under:

M/s. Ram Dayal Modi & Sons, Dholpur (hereinafter referred to as 'the assessee-firm '), was carrying on business as contractor during the assessment year 1969-70. It had executed certain contracts for the construction of buildings for certain Government Departments. The gross amount of the bills receivable by the assessee was Rs. 2,25,323 for the aforesaid works executed by the assessee-firm. The aforesaid bills included a sum of Rs. 36,825 towards the value of the material supplied by the Government for utilisation in the construction work and the said amount was recovered by the Government from the gross amount of Rs. 2,25,323 and the balance amount was paid to the assessee firm. According to the books of account of the assessee-firm, the profit shown by the assessee-firm was 3.7% on the gross bill amount of Rs. 2,25,323. The ITO rejected the books of account of the assessee-firm under the provisions of Section 145 of the Act and estimated the net profit of the assessee-firm at 121/2% after estimating the gross contract receipts at Rs. 2,26,000.

3. The AAC reduced the estimate of profit from 121/2% to 12%, but did not accept the contention of the assessee-firm that no profit should be estimated on the value of materials supplied by the Government.

4. The Tribunal, while maintaining the rate of profit at 12% held that the materials valued at Rs. 36,825 which were supplied by the Government to the assessee-firm could not be included for assessing the estimated profit of the assessee-firm. The Tribunal, therefore, assessed the profit of the assessee-firm after deducting the said amount of Rs. 36,825 from the gross bill amount of Rs. 2,25,323. In taking this view, the Tribunal placed reliance on a decision of the Kerala High Court in Alexander & Co. v. CIT [1973] 93 ITR 92. Thereafter, the Commissioner submitted an application before the Tribunal for making a reference to this court and the Tribunal has referred the question referred to above to this court.

5. We have heard Shri Suroliya, the learned counsel for the Revenue. The assessee-firm has not chosen to appear.

6. As noticed earlier, the Tribunal has held that the value of the material which was supplied by the Government for utilisation in the construction work amounting to Rs. 36,825 could not be taken into account for assessing the estimated profit and has placed reliance on the decision of the Kerala High Court in Alexander & Co. v. CIT : [1973]92ITR92(Ker) . The view which was taken by the Kerala High Court in the aforesaid case has also been taken by the other High Courts in CIT v. Guruswami Gounder & Krishnaraju [1913] 92 ITR 90 Trilokchand Chunilal v. CIT : [1976]104ITR732(Guj) and AMI. CIT v. Trikamji Punia & Sons : [1977]106ITR597(AP) .

7. The Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT : [1978]115ITR524(SC) has considered this question and has approved the view taken in the abovementioned decisions and has held, that where certain material is supplied at a fixed rate by the Department to the contractor for being used or fixed or incorporated in the works on the terms that they would remain the property of the Government and the surplus should be returned to the Government, the real total value of the entire contract would be the value minus the cost of such materials so supplied and that, since no element of profit was involved in the turnover represented by the cost of the materials supplied by the Government to the assessee, the income or profit derived by the assessee from such contracts had to be determined on the basis of the value of the contracts represented by the cash payments received by the assessee from the Government exclusive of the cost of the materials received for being used, fixed or incorporated in the works. The decision of the Supreme Court has been followed by the Patna High Court in Ramesh Chandra Chaturvedi v. CIT : [1980]121ITR116(Patna) The aforesaid decision of the Supreme Court in Brij Bhushan v. CIT : [1978]115ITR524(SC) fully covers the present case. In view of the above decision, it must be held that the Tribunal has rightly excluded the sum of Rs. 36,825, being the value of the material supplied by the Government for utilisation in the construction works for the purpose of estimating the income or profit of the assessee-firm.

8. In the circumstances, the reference must be answered in the affirmative and we do so accordingly.


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