Srichand Agarwala vs Commissioner Of Income-Tax on 31 January, 1984

Orissa High Court
Srichand Agarwala vs Commissioner Of Income-Tax on 31 January, 1984
Equivalent citations: 1984 148 ITR 34 Orissa
Author: J Mohanty
Bench: J Mohanty, B Misra


JUDGMENT

J.K. Mohanty, J.

1. This is a reference under Section 256(2) of the I.T. Act, 1961 (hereinafter called the “Act”). The following question has been referred for the opinion of this court:

” Whether, on the facts and circumstances of the case, the gross payment shown including the cost of material deducted by the principal should have been taken into account for determining the profit for calculating on percentage basis or the value of the supplies made by the principal should have been deducted and on the remainder profits should have been estimated ? ”

2. The petitioner-firm carries on business as works contractor being engaged in construction of buildings, bridges and roads. According to the petitioner, during the assessment year 1975-76, the petitioner had received a sum Rs 5,38,898 towards gross bill whereas the actual net receipt was only Rs. 4,01,446. A sum of Rs. 1,37,402 was deducted by the contractee towards the cost of materials supplied to the petitioner at the time of execution of the work.

3. The petitioner had returned income from business at Rs. 38,480. Adding to the business income Rs. 2,324, representing interest from security, the petitioner returned a total income of Rs. 40,804. Assessment was completed by the ITO, who did not give the allowance, as claimed by the petitioner, for the materials supplied by the contractee to the petitioner at the time of execution of the work. In appeal also the claim of the petitioner was not taken into consideration by the AAC. Against that order, the petitioner went up in appeal to the Income-tax Appellate Tribunal, but was unsuccessful. Thereafter, an application filed under Section 256(1) of the Act having been rejected, the petitioner has moved this court under Section 256(2) of the Act requiring the Tribunal to state a case and refer the above mentioned question of law for the opinion of this court.

4. The main point canvassed before us on behalf of the petitioner is that the petitioner is entitled to deduction of Rs. 1,37,402 towards the cost of the materials supplied by the contractee to him at the time of execution of the work as the petitioner did not get any profit from out of the materials supplied to him by the contractee. In support of this contention, the learned counsel for the petitioner relied on a decision of the Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524, wherein, in a similar circumstance, their Lordships have held (p. 533):

” It is true that, ordinarily, 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 in our view where certain stores/ material is 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 mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/material so supplied. Therefore, since no element of profit was involved in the turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee-firms, the income or profits derived by the assessee-firms from such contracts will have to be determined on the basis of the value of the contracts represented by the cash payments received by the assessee-firms from the M.E.S. Department exclusive of the cost of the material/stores received for being used, fixed or incorporated in the works undertaken by them,”

5. Admittedly, in this case certain materials were supplied by the contractee to the petitioner and the cost of the same has been deducted from the bill. In view of the decision cited above, we are of the opinion that

the petitioner is entitled to deduction of the cost of the materials supplied to him by the contractee from the gross receipt.

6. The reference is answered accordingly in favour of the assessee. There shall be no order as to costs.

Misra, J.

7. I agree.

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