9911796707
TMI Blog1990 (12) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... award amount remains in dispute. 4. The assessee is a registered firm of civil contractors. It executed certain works during the period 10th April, 1968 for which arbitration award of Rs. 6,62,829, pre-award interest of Rs. 5,72,492 and post-award interest of Rs. 96,624 were received. The assessee claimed exemption on the pre-award in and on the principal amount net profit at 12.5 per cent was admitted the ITO assessed the entire award amount on the ground that there was no evidence to show that extra expenses were incurred in respect of the award amount. Since the book results were accepted in the past the assessed the award amount as income. 5. The CIT(A) noted that as the entire bills were not accepted by the contracts arbitration proceedings were started and after asking into account the extra expenses incurred on the extra work carried out by the as for which no payment was made the award was granted. The contentions of the assessee before him were that the Hon'ble Orissa High Court approved the adoption of 10 per cent as net profit on the award amount in the case of CIT vs. Govinda Choudhary Sons 1978 CTR (Ori) 14. Reliance was also placed on the order of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Orissa High Court in the case of Govinda Choudhary Sons. He also referred to ground No. 4 taken by the assessee and stated that the entire expenses incurred on securing the award should have been allowed by the CIT(A). 8. The ld. Deptl. Representative, on the other hand, distinguished the facts in the case of Govinda Choudhary Sons reported in 1978 CTR (Ori). 14. In particular, he referred to para 5(iii) wherein there was a binding agreement between the assessee and the Revenue to charge 10 per cent of the gross receipts under contract as net profit. Coming to the legal expenses claimed by the assessee, he urged that only the legal expenses incurred were admissible and nothing beyond that. As regards interest he pointed out that the assessee had offered the post-award interest and, therefore, it was rightly assessed by the ITO as well as the CIT(A). 9. In the appeal filed by the Revenue the method of computation of in form arbitration award as well as the assessment of pre-award in decided by the CIT(A) are challenged. In particular, it was pointed out that arbitration expenses were not furnished and, therefore, the CIT(A) was wrong in allowing Rs. 50,000 on estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be set off against such award. It was only from this point of view the CIT(A) sought to distinguish the case of the assessee from that of Govinda Chouddhury Sons. Therefore, he agreed with the Assessing Officer that the entire award was taxable as income but he allowed on estimated basis the sum of Rs. 50,000 towards arbitration expenses. As regards pre-award interest h assessment was bound by the judgment of the Hon'ble Orissa High Court in the case of Govinda Choudhury Sons. He did not adjudicate on the question of post-award interest and that is why this dispute did not arise from the order of the CIT(A) on account of which an additional ground was moved before us at the time of hearing. Since the assessee had offered such interest and it was assessed by the ITO and not disputed before the CIT(A). The additional ground raised is not admitted in view of the judgment of the Supreme Court in the case of Addl. CIT vs. Gurjargravures P. Ltd 1978 CTR (SC) : (1978) 111 ITR 1 (SC). In particular the Supreme Court observed at page 2 of the report as under: "Merely because the ITO brings an item to tax he cannot be deemed to have considered its non-taxability though no such cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-contractors were solely responsible for execution of their portion of work and to bear all expenses relating thereto. The assessee was only entitled to retain 5 per cent of the net amount of the bills realised. It is for this reason the ITO adopted a net profit rate of 12.5 per cent on the gross receipts an deducted the net profit at 7.5 per cent on the receipts passed to sub-contractors. The ITO was under the impression that it was possible to demarcate the work executed by the sub-contractors and the assessee separately. Hence, he adopted the global method of determining income. In the asst. yr. 1968-69, gross receipts amounted to Rs. 43,64,302 whereas the amount paid to sub-contractors amounted to Rs. 33,47,384. Even in the assessment order for this year the ITO reiterated the same finding that the assessee-firm incurred no expenditure on the works entrusted to sub-contractors. In the assessee 1969-70, a new contract with the Chief Engineers, Penury, North Estzone, Shillong was undertaken which was assigned to a new sub-contractor in respect of which 5 per cent commission on the case payments made to them was due to the assessee. In fact, the ITO commented in the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be that extra expenses incurred which were allowed as deduction by acceptance of book results and hence the entire award amount was taxable. This approach is negative in nature and ignores the realities of the situation which the assessee is executing contracts. The assessee which is carrying on contract works at Choudwar cannot be expected to execute the work at Penary, Shillong. Therefore, the work was assigned to sub-contractors who were responsible to incur expenses as per terms of contract, a fact which is recorded in the assessment order itself. Therefore, the approach of the authorities was not correct in calling upon the assessee to prove the extra expenses or assuming that having accepted the books of account there were no more expenses incurred to be set off against the award amount. In other words, the assessee was asked to prove the negative forgetting the fact that the sub-contractors were responsible for incurring expenditure as it would be reflected in their accounts. 14. In the asst. yrs. 1977-78 and 1978-79, the Tribunal considered a similar situation in respect of contracts executed at Choudwar during the financial years 1961-62 to 1965-66 in respect of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executing extra items of work than what was specified. Therefore, the receipts are contract receipts and not capital receipts. Therefore, the assessee itself estimated profit at 12.5 per cent on the principal amount of award which is in order though the award amount represents the contracts executed by sub-contractors as indicated earlier as bulk of the contracts was assigned to sub-contracts. In view of this conclusion, the case of the assessee stands alone on its own facts. The dictum of reships loquitur would apply. Therefore, it is not necessary to refer to the cases of Govind Choudhury Sons, Dandapani Ratha, B.N. Agarwala Co. Roy Chowdhury Co., Union Steel Products, etc. In this view of the matter, the CIT(A) was not justified in upholding the assessment of the entire award amount as income. However, his decision to allow arbitration expenses at Rs. 50,000 is upheld because such expenses would not have been entered into the books of account of either the assessee or the sub-contractors and have to be borne by the assessee. The ground taken by the assessee that the entire expenses should have been allowed was not pressed by the assessee at the time of hearing and, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
