Law: Income Tax Act, 1922

Section:

Income-tax----Income---Works contract---Computation of income---Cost of material supplied to contractor was deductible from gross amount received---Security deposits deducted from running bills not to be taken into account---Indian Income Tax Act, 1961. 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 where certain stores/materials are 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 the real total value of the entire contract would be the value minus the cost of such stores/materials so supplied. The assessee received gross payments of Rs.19,74,903 from H out of which Rs.51,OMrelated to the earlier year 1968-69 and Rs.2,15,726 from I for works done for them. The amount of Rs.3,76,950 was adjusted in respect of material and Rs.2,13,177 in respect of security. While making the assessment for the assessment year 1970-71, the Income-tax Officer estimated net profits on the gross receipts of Rs.19,23,903 (Rs.19,74,903-¬Rs.51,000) from H and of Rs.2,15,726 from I. The contention of the assessee that no profits could be estimated on the receipts of Rs.3,76,950 by way of adjustment of material was not accepted by the Income-tax Officer. Similarly, the contention that in respect of the security, amounts of Rs.2,13,177 deducted from the bills should be excluded while estimating the profits, was also rejected by the Income-tax Officer. The Tribunal held that the receipts by way of adjustment of raw materials as well as security deposits were to be included in the gross receipts for the purpose of estimation of profits. On a reference: Held, (i) that the assessee would be entitled to deduct the cost of material supplied from the gross amount of the contract and the tax liability would be only on the balance payment. Brij Bhushan Lai Parduman Kumar v. CIT (1978) 115 ITR 524 (SC) fol. (ii) that it was found that after the work was…

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