Law:

Section:

Income-tax---Income--Assessee, a works contractor executing Government contracts--Cost of material supplied by Government included in assessee's total receipts for calculating profits is not liable to be included in receipts. C I T v. S P Jain (1973) 87; I T R 370 (S C) and Kalpnath Rai v. C.I.T. (1985) 151 I T R 281 (Pat.) ref. JUDGMENT UDAY SINGHA, J.--This is a reference under Section 256(2) of the Income Tax Act, 1961. The following question has been referred to us for our opinion: "Whether, on the facts and in the circumstances of this case, the cost of materials supplied by the Government was liable to be included in the total receipts of the assessee for calculating its profits for the assessment year 1968-69 (appears to be a typing mistake for 1974-75)?" The relevant assessment year is 1974-75. This reference is concluded by a Division Bench decision of this Court in the case of this very assessee in Taxation Case No.57 of 1975 disposed of on November 21, 1984 (C I T v. S.P. viz. Construction Co.--[1987] 163 I T R 666) to which I was a party. The assessee is a contractor. During the relevant assessment year, the assessee admitted before the Income-Tax Officer that he had executed works of the Army of the value of Rs.15,91,271. That was confirmed by the Garrison Engineer Ranchi. The Engineer also informed the Income Tax Officer that out of the said payment of Rs.15,91,270.74, a sum of Rs.5,29,270.74 had been deducted from the gross sum and that only a net sum of Rs.10,28,902 had been paid to the assessee. A deduction of Rs.33,098 as income-tax was also made by the Garrison Engineer from the total payment. The Income Tax Officer was of the view that as income-tax is deducted at the rate of 2% on the payment, the gross receipt was Rs.16,54,900 and not Rs.15,91,270.74. The Income-Tax Officer held that the gross receipt of the assessee was Rs.16,54,900. He also held that the net profit of the assessee should be estimated at 10% on the gross receipt. He accordingly assessed the net profits as such. The assessee appealed against the order of the Income- Tax Officer. The Appellate Assistant Commissioner being in agreement with the view of the Income-Tax Officer…

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