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Issues Involved:
1. Inclusion of the value of materials supplied by Hindustan Copper Ltd. and Instrumentation Ltd. for calculating the gross profit rate. 2. Allowance for security deposits deducted from the running bills of the assessee in estimating income. Detailed Analysis: 1. Inclusion of the Value of Materials Supplied: The primary issue was whether the Tribunal rightly included the value of materials supplied by Hindustan Copper Ltd. and Instrumentation Ltd. to the assessee for calculating the gross profit rate. The Tribunal had included these values in the gross receipts for estimating profits, citing that the responsibility of supplying materials was on the contractor, who could purchase from the market or the Department at controlled prices. The Tribunal observed that since no funds were blocked and the assessee was relieved of the botheration of purchasing and transporting materials, tax should be charged on the gross amount without deducting the adjustments made. However, the Tribunal's decision was challenged based on the precedent set by the Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524, which held that when stores/materials are supplied by the Government department at fixed rates, there is no element of profit involved in the turnover represented by the cost of such materials. This principle was reaffirmed by the Rajasthan High Court in CIT v. Rameshwardass Narsinghdass and Co. [1985] 155 ITR 270 and Addl. CIT v. Hemandas Dharajmal [1985] 155 ITR 533. The court concluded that the assessee is entitled to deduct the cost of materials supplied from the gross amount of the contract, and the tax liability should be on the balance payment. Thus, question No. 1 was answered in favor of the assessee and against the Revenue. 2. Allowance for Security Deposits Deducted: The second issue concerned whether the Tribunal was right in holding that no allowance need be given for security deposits deducted from the running bills of the assessee while estimating income. The Appellate Assistant Commissioner had initially ruled that since the amount had not been received and the assessee followed the cash system regarding security, the security amount could only be taxed when received. The security deposit was meant for the due and faithful performance of the contract and could be applied towards any sum due by the contractor to the corporation. The Tribunal, however, found that the assessee did not maintain proper books of account, and the assessment was framed under section 145(2) by estimating profits as per section 144. The Tribunal held that the security deposits formed part of the gross receipts because they were appropriated towards the security deposits. The security deposit was a matter of convenience and was deducted from the running bill, transforming the bill amount into a security deposit by the process of deduction. The Tribunal concluded that the assessee received the entire bill amount, and the deductions were merely appropriations of the bill amount. The security deposits were payable after six months of the contract's expiry, and the corporation had the absolute right to adjust the security deposit against its claims on the contractor. The court agreed with the Tribunal's view, stating that the total amount for which the bills were prepared is the receipt, and deductions for security deposits are appropriations of the amount that the assessee could have otherwise been paid. Therefore, the assessee was not justified in reducing the amount of security deposit from the corporation receipt to arrive at its true income. Consequently, question No. 2 was answered in favor of the Revenue and against the assessee. Conclusion: In summary, the High Court concluded that the Tribunal was not right in including the value of materials supplied by Hindustan Copper Ltd. and Instrumentation Ltd. for calculating the gross profit rate, thus ruling in favor of the assessee on this issue. However, the Tribunal was correct in holding that no allowance need be given for security deposits deducted from the running bills of the assessee while estimating income, thus ruling in favor of the Revenue on this issue. No order as to costs was made.
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