Punjab-Haryana High Court
Commissioner Of Income-Tax vs Kartar Singh Gill on 20 February, 1979
Equivalent citations: [1979]117ITR618(P&H)
JUDGMENT B.S. Dhillon, J.
1. This is a reference made by the Income-tax Appellate Tribunal under orders of this court. The assessee is a military contractor. During the accounting period relevant to the assessment year 1964-65, the assessee took three M.E.S. contracts. The ITO found that the expenditure of the assessee was not supported by vouchers and he detected some other mistakes also in the accounts. After applying the provisions of Section 145(1) of the I.T. Act (hereinafter called "the Act"), the ITO assessed the profit from these contracts by applying a flat rate of 10% on the total receipts. The AAC allowed the appeal of the assessee and held that no rate of profit could be applied on the value of the stores supplied by the Government and this order was upheld by the Tribunal. The question of law referred at the instance of the Tribunal in accordance with the directions of this court is as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the Appellate Assistant Commissioner that price of stores supplied by Government was not to be included while applying the flat rate to the assessee's contract receipts ?"
2. A Division Bench of this court in Brij Bhushan Lal v. CIT [1971] 81 ITR 497 (Punj) took the view that where the assessee does not produce his accounts to satisfy the ITO so as to enable him to assess actual profits or income earned by him from contracts and leaves it to the officer to determine the same on the basis of estimate, the percentage of profit, is not determined with reference to each item of the material involved in the performance of the contract but on the amount of the whole contract which cannot be divided into different parts according to the nature and source of supply of the materials used for that purpose. This view has been followed in CIT v. Brij Bhushan Lal Ramesh Kumar [1976] 102 ITR 430 (Punj) and CIT v. K. S. Reddy [1976] 103 ITR 822 (AP). The latter authority is that of the Andhra Pradesh High Court, which stands over-ruled by a Full Bench of the same High Court in Addl. CIT v. Trikamji Puma & Sons [1977] 106 ITR 597 (AP) [FB].
3. On the other hand, we find that a contrary view has been taken in CIT v. K. S. Guruswami Gounder & K. S. Krishnaraju [1973] 92 ITR 90 (Mad), M. P. Alexander & Co. v. CIT [1973] 92 ITR 92 (Ker), Trilokchand Chunilal v. CIT [1976] 104 ITR 732 (Guj), Addl. CIT v. Trikamji Punia & Sons [1977] 106 ITR 597 (AP) [FB] and CIT v. J. S. Serwarey [1977] 107 ITR 566 (Gau). The main ground, on which the above mentioned authorities are based, is that the tax has to be levied on the income, which would, in turn, mean the profit. The value of the goods, which were supplied by the Government and for which an amount was deducted by the Government from the contract account, cannot form the basis of any profit. Therefore, the said value has to be deducted and no tax can be levied on the said amount. Mr. Gupta, the learned counsel for the assessee, contends that the view taken in Brij Bushan Lal's case [1971] 81 ITR 497 (Punj) and other decisions while following the said view is not the correct position in law. We are of the opinion that the matter requires reconsideration by a larger Bench. The papers may be placed before my Lord the Chief Justice for constituting a larger Bench.
JUDGMENT OF FULL BENCH S.S. Sandhawalia, C.J.
4. A head-on conflict of judicial precedent had rightly necessitated this reference to the Full Bench. Fortunately, however, it now stands resolved by a recent judgment of the final court.
5. The question of law that has been referred for the decision is as follows;
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the Appellate Assistant Commissioner that price of stores supplied by Government was not to be included while applying the flat rate to the assessee's contract receipts ?"
6. The Division Bench before whom the matter was first placed noticed the divergent views taken by the various High Courts and particularly because of the challenge laid to the correctness of the judgment in Brij Bushan Lal v. CIT [1971] 81 ITR 497 (Punj) has referred the matter for decision to the Full Bench.
7. In the aforesaid case, it had been held that the Tribunal was justified in holding that the price of stores supplied by the military authorities to a contractor of the M.E.S. department was to be included before applying the flat rate to the assessce's receipts. On an appeal being carried against the said judgment, their Lordships in Brij Bhushan Lal Pardumun Kumar v. CIT [1978] 115 ITR 524 (SC) have reversed the said judgment and held that the assessment was to be made excluding the cost of material and stores received for being used in the works undertaken by the contractor.
8. Learned counsel for the parties are agreed that no controversy now exists and the decision of their Lordships of the Supreme Court in Brij Bhushan Lal Parduman Kumar's case [1978] 115 ITR 524, completely governs the present case as well. Following the decision we return the answer to the question referred in the affirmative, that is, in favour of the assessee and against the revenue.
9. There will be no order as to costs.
B.S. Dhillon, J.
10. I agree.
Harbans Lal, J.
11. I agree.