ALEXANDER AND CO Vs. CIT KERALA

JUDGEMENT

(1.) THE Income Tax Appellate Tribunal, Madras Bench acting under S. 66 (1) of the Indian Income Tax Act, 1922, has referred the following question:- "whether on the facts and in the circumstances of the case, the inclusion of any sum as profits on materials supplied by the government under its agreement with the assessee k right in law?"

(2.) THE assessee entered into two contracts for the execution of certain works for the State Government. THE total amount of the first of these contracts is Rs. 5,52,191/- and the second, Rs. 2,24,109/ -. THEse figures are made up of the cost of materials, Rs. 2,56,639/- and Rs. 87,482/- respectively for the two contracts, supplied by the Government to the contractor in terms of the agreement. Rs. 53,912/- and Rs. 663/- respectively being the hire charges payable by the assessee and other charges which the contractor had to meet in executing the contract. THE accounts of the assessee were rejected and such rejection was not disputed before the Tribunal. An estimate was therefore made and the method adopted was to apply a per centage on the total turnover. In computing this turnover, the Tribunal accepted the case of the assessee that the amounts of Rs. 53,912/- and Rs. 663/-for the two years representing the hire charges should not be taken into account. THE assessee had also contended before all the authorities that the amounts of Rs. 2,56,689/- and Rs. 87,482/- should also be left out of account, because they represent the cost of the materials supplied by the Government. This contention of the assessee has been rejected and the question is whether on the facts and in the circumstances the computation of profits on the above amounts also will be justified in law.

(3.) IT is clear that the Tribunal has proceeded on the basis that there is an element of profit involved even in the supply of materials by the State Government. Even so they were prepared to say that there was no such element involved in the hire charges. We are unable to discern any difference between these. Further we are unable to see any material on the basis of which it was possible to postulate that the turnover represented by the cost of materials in any manner contributed to the profit of the assessee. If anything, the material indicate that there is no such element of profit.