Law:

Section:

Section 4 of the Income tax Act, 1961 - Income - Chargeable as - Assessment year 1987-88 - Assessee was given a contract for civil work - Assessee had to provide materials and labours - However, contract provided for payment of advance by owner - Advance so received was adjustable in final bill - Assessee debited Rs. 99.09 lakhs towards cost of steel while credited to earnings only an amount of Rs. 45.35 lakhs - Assessing authority construed that advance was given by owner for purchase of steel and cement and, therefore, difference of above two amounts i.e., Rs. 55.72 lakhs should be assessed as assessee's earnings - Whether amount advanced by owner which was adjustable with final bill could not be constructed to be paid for purchase of steel and cement and, resultantly, differential amount could not be assessed as earnings of assessee - Held, yes [In favour of assessee] FACTS The assessee, as a contractor had an agreement with NSTL for the execution of civil works. The contract execution contemplated that the assessee would provide materials including steel and cement etc., necessary for the proper execution of the work to the satisfaction of the owner (NSTL). The assessee received advance money for the total contract price as per the contract by the owner under article 5. The assessee claimed that the value of the goods (closing stock, cement and steel) could not be included as part of its income in its hands because the role of the assessee with regard to the goods supplied by supplier was only that of a bailee. However, the Assessing Officer rejected the claim of the assessee on the ground that since NSTL had already debited the assessee's account with the amount paid by them towards the cost of cement, the closing stock would be treated as the income of the assessee and made addition. On appeal, Commissioner (Appeals) cancelled the addition holding that there could be no separate addition in the circumstances the assessee had to pay for the cement and steel supplied by NSTL. On second appeal by revenue, Tribunal restored the assessment holding that when the assessee had undertaken only labour contract, the assessee would not have debited the cost of…

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