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Interpretation of law regarding inclusion of material cost in total receipts for income computation in M.E.S. contracts. Analysis: The High Court addressed the question of whether the inclusion of the cost of materials supplied by the M.E.S. authorities to the assessee-firm in the total receipts for income computation was justified for the assessment years 1968-69 and 1969-70. The assessee contended that the Supreme Court's judgment in a similar case supported their position, emphasizing that the materials supplied should not be considered for income determination. The Tribunal had relied on a previous judgment of the Punjab and Haryana High Court, which was subsequently overruled by the Supreme Court. The Court noted that both cases involved M.E.S. contracts where materials were supplied by the Government at fixed rates for incorporation in the contract. The Department argued that the materials were sold to the assessee in this case, but the Court found no evidence supporting this claim. The Court highlighted that in similar cases before the Supreme Court, the surplus material was to be returned, which was not specified in the present contract. As all cases involved M.E.S. contracts, the Court found it challenging to distinguish the Supreme Court's judgment, leading to a conclusion in favor of the assessee. The Court further examined the payment process in the contract, noting that the price of the materials supplied was deducted from the contract payment received by the assessee. This deduction indicated that the receipts from the contract were essentially the cost of work minus the material, aligning with the Supreme Court's previous rulings. The Department attempted to present other judgments from different High Courts to challenge the Supreme Court's view, but the Court found these cases irrelevant as they did not involve M.E.S. contracts. The Court emphasized that when material is supplied by the Government at a fixed price for incorporation in the works, the tender price should not include any profit on the material, as it is already factored into the works. Ultimately, the Court concluded that the case fell within the scope of the Supreme Court's judgment, ruling in favor of the assessee and directing each party to bear their own costs due to the matter being a covered case.
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