1979 (2) TMI 95 - HC - Income Tax

Summary

Issues:
1. Interpretation of provisions of s. 145(1) of the I.T. Act regarding assessment of profit.
2. Whether the price of stores supplied by the Government should be included in applying the flat rate to the assessee's contract receipts.

Analysis:
The judgment involves a reference made by the Income-tax Appellate Tribunal regarding the assessment of profit for a military contractor during the accounting period relevant to the assessment year 1964-65. The Income Tax Officer (ITO) assessed the profit by applying a flat rate of 10% on total receipts due to lack of supporting vouchers for the expenditure. The Appellate Assistant Commissioner (AAC) allowed the appeal of the assessee, stating that no rate of profit could be applied to the value of stores supplied by the Government. The Tribunal upheld this decision, leading to the question of whether the Tribunal was justified in confirming the AAC's order regarding the inclusion of the price of stores supplied by the Government in applying the flat rate to the contract receipts.

A Division Bench referred to conflicting views by different High Courts on the issue. The Full Bench judgment highlighted a recent decision by the Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524, which reversed the earlier judgment and held that the assessment should exclude the cost of material and stores received for use in the contractor's works. The parties' counsels agreed that the Supreme Court's decision governs the present case, leading to the Full Bench's decision in favor of the assessee and against the revenue.

The judgment clarifies the correct interpretation of the law in such cases, resolving the conflict of judicial precedent and establishing the exclusion of the cost of material and stores supplied by the Government in assessing profit for contractors. The decision aligns with the Supreme Court's ruling and sets a precedent for similar cases, providing clarity on the treatment of such costs in the assessment of profits for contractors.