MAHESHA HEGDE B Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two references under section 256(2) of the Income tax Act, 1961 relate to the assessment year 1964-65 (accounting year ending 31st March, 1964). The first one arises out of the assessment proceedings for the said year and the other one in respect of a penalty imposed under section 271(1)(c) of the Income tax Act, 1961.

(2.) THE facts lie within a narrow compass. THE assessee is a contractor at Udipi. During the year of account he had taken up contracts which included the construction of hospital at Udipi and construction of roads. THE Income-tax Officer dealt with these several contracts under three headings. THE first one was with regard to the building of a hospital at Udipi and construction of a garage and certain other items. Items Nos. 2 and 3 related to the construction of roads. THE assessee did not maintain any accounts. In regard to the contract of item No. 1, he disclosed profit of 8 per cent of the receipts on estimate. THE Income tax offer was of opinion that the profit disclosed was low. He estimated the profit in respect of the building contract at 10 per cent. of the total receipts. This was made on the basis of an estimate as the assessee had not taken into account the cost of materials. So far as the road works were concerned, he was of opinion that the profit in respect of such contracts would be higher than in regard to a building contact. Accordingly, he estimated the profits at 12 1/2 per cent. in respect of such items in item No. 1 and at 12 per cent. in respect of other items comprised in items Nos. 2 and 3. THE assessee went up in appeal against these assessments. THE Appellate Assistant Commissioner confirmed the assessment as made by the Income-tax Officer. Feeling aggrieved by this the assessee went up in appeal to the Tribunal. THE Tribunal after considering the entire facts reduced the addition in regard to item No. 1 to a sum of Rs. 3,000 only. In regard to the other two items of contracts the case of the assessee was that he had given them out on subcontracts and the profit derived by him was only three per cent. THE Income-tax Officer did not accept this contention. He held that the so-called sub contractor were mere name lenders to the assessee and the entire profit has to be assessed in the hands of the assessee. THE same view was uphold both by the Appellate Assistant Commissioner and the Tribunal. It, however gave a further relief in a sum of Rs. 1,500 in respect of these two contracts.

(3.) SO far as the road works were concerned, the materials involved would be quite small. It would virtually be a contract of labour. It is common knowledge that in such contracts the margin of profits is higher than in the case of building and other constructions. No error of law can be discerned in the action of the Tribunal in estimating the profits in respect of these several contracts.