1983 (6) TMI 8 - HC - Income Tax

Summary

Issues:
Assessment of income at the rate of 10% on the gross amount of the bill.
Deduction of the value of materials supplied by the Department from the gross amount.
Interpretation of clause (9) of the conditions of the contract.
Compliance with the law in making a best judgment assessment.
Benefit of Supreme Court case in Brij Bhushan Lal's case.
Furnishing details of materials supplied to the Department for assessment purposes.

Analysis:
The judgment involves an application under articles 226 and 227 of the Constitution of India by a registered firm to quash assessment orders by the Income Tax Officer (ITO) and the Commissioner of Income Tax (CIT). The firm, engaged in executing works contracts, entered into an agreement with a government department for a project. The ITO assessed the firm's income at 10% of the total amount received, leading to a dispute regarding the deduction of the value of materials supplied by the Department from the gross amount for profit calculation. The Commissioner remanded the matter for re-assessment, rejecting the firm's claim for deduction based on the agreement's terms.

The petitioner argued that the materials supplied by the Department did not form part of the firm's profit as they remained the property of the Department. The firm relied on clause (9) of the contract conditions to support its claim for deduction. The judgment referenced the Supreme Court case in Brij Bhushan Lal's case, emphasizing that if materials supplied remain the property of the Department, no profit element is involved in the turnover represented by the cost of such materials. However, the firm's failure to submit the entire agreement before the taxing authorities was noted as a hurdle.

The court considered the terms of the agreement, especially clause (9), which indicated that the materials supplied by the Department remained its property. The judgment highlighted that the value of these materials should not be included in the firm's profit calculation. Legal precedents were cited to support the firm's claim for deduction based on the nature of the materials supplied. The court concluded by allowing the application, quashing the assessment orders, and remanding the matter to the Commissioner for re-assessment after deducting the value of materials supplied from the total sum for profit calculation during the relevant assessment year.

In a concurring opinion, another judge agreed with the decision to allow the application and remand the matter for re-assessment, emphasizing the importance of deducting the value of materials supplied by the Department in determining the firm's income/profit.