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Commissioner of Income-tax Vs. K.S. Guruswami Gounder and K.S. Krishnaraju (Contractors) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 262 of 1967 (Reference No. 83 of 1967)
Judge
Reported in[1973]92ITR90(Mad)
AppellantCommissioner of Income-tax
RespondentK.S. Guruswami Gounder and K.S. Krishnaraju (Contractors)
Appellant AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Respondent AdvocateK.R. Ramamani and ;S.V. Subramaniam, Advs. for Subbaraya Iyer, Sethuraman and Padmanabhan
Cases ReferredM. P. Alexander & Co. v. Commissioner of Income
Excerpt:
- - there was an appeal to the appellate assistant commissioner, but without success. it is not the case of the revenue that the obligation to supply the materials like cement, steel, etc......the revenue :'whether, on the facts and in the circumstances of the case, the costof the materials supplied by the government was not liable to be includedin the total receipts of the assessee for calculating its profits for theassessment year 1961-62 ?'2. having regard to the very frame of the question it appears to us that the question involved is one of fact. there does not appear to be any question of principle involved, much less any question of law. even otherwise, on the facts and in the circumstances of this case, the decision of the tribunal appears to be quite justified on merits.3. the assessee is a registered firm engaged in construction of buildings for several departments of the government on contract basis. for the assessment year 1961-62, it returned an income.....
Judgment:

Ramanujam, J.

1. The following question has been referred to this court at the instance-of the revenue :

'Whether, on the facts and in the circumstances of the case, the costof the materials supplied by the Government was not liable to be includedin the total receipts of the assessee for calculating its profits for theassessment year 1961-62 ?'

2. Having regard to the very frame of the question it appears to us that the question involved is one of fact. There does not appear to be any question of principle involved, much less any question of law. Even otherwise, on the facts and in the circumstances of this case, the decision of the Tribunal appears to be quite justified on merits.

3. The assessee is a registered firm engaged in construction of buildings for several departments of the Government on contract basis. For the assessment year 1961-62, it returned an income of Rs. 23,806 from its business. In computing the income, the assessee did not include the cost of the materials supplied to it by the Government in the total receipts as, according to it, there was no element of profit in the cost of the materials supplied by the departments. The Income-tax Officer was, however, of theview that if the assessee had purchased the building materials such as cement, steel, etc., in open market, it would have been in a more disadvantageous position, and that, therefore, it had definitely an advantage in getting the required materials from the departments concerned. He, therefore, included the cost of the materials supplied by the departments in the total receipts shown by the assessee and estimated the income at 12 per cent, of the total receipts including the cost of the materials. That resulted in an addition of Rs. 34,929 to the income returned by the assessee. There was an appeal to the Appellate Assistant Commissioner, but without success.

4. The assessee went up before the Tribunal contending that there is no profit motive in acquiring the materials from the departments concerned, that the inclusion of the value of the materials in the actual receipts returned by the assessee was not justified and that the assessee cannot be said to have earned any profit in the supply by the departments of certain materials for use in the buildings it had undertaken to erect. The Tribunal accepted the assessee's case and held that the income of the assessee has to be calculated only on the actual receipts and that the cost of the materials supplied by the Government cannot be included in the assessee's receipts. The question is whether the Tribunal was right in setting aside the addition of the cost of the materials to the actual receipts returned bythe assessee. It is not the case of the revenue that the obligation to supply the materials like cement, steel, etc., was not undertaken by the Government even at the time of calling for the tenders. If the assessee gave its tender on the definite understanding that the department concerned is to supply the required materials for the construction of the buildings, the rates quoted by him would have been adjusted on that basis. Therefore, there is no question of the assessee purchasing the materials required for the buildings from outside and putting itself to a disadvantage. Admittedly, the materials supplied by the departments had been used in the construction of the buildings and the assessee did not. in fact, earn any profit in relation thereto. We are not, therefore, in a position to say that the turnover represented by the cost of the materials supplied, in any manner, contributed to the profit of the assessee. We find that the decision rendered by the Kerala High Court in M. P. Alexander & Co. v. Commissioner of Income-tax,


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