KALPNATH RAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is an application under Articles 226 and 227 of the Constitution of India by M/s. Kalpnath Rai, a registered firm, for quashing annexures 2 and 3 of this application. By annexure 2, the ITO, West Circle, Muzaffarpur, assessed the petitioner to tax in terms of Sections 144 and 146 of the I.T. Act, 1961, for the assessment year 1973-74. By annexure 3, the revisional application of the petitioner was rejected by the CIT in terms of Section 264(1) of the said Act.

(2.) THE petitioner carried on the business of executing works contracts. In that connection, it entered into an agreement with the Executive Engineer, Tirhut Canal Division, Gandak Project, Hajipur, for execution of works contract in relation to the Project. THE case of the petitioner is that it entered into a lump sum agreement with the State of Bihar and in terms thereof, it was supplied with cement, steel, copper sheets, rubber seal, bricks, etc., by the Department. THEse materials, according to the petitioner, were always to remain the properties of the Department. After the completion of the works, a composite bill for Rs. 11,12,985 (which will be referred hereafter for brevity as "eleven lakhs odd") was submitted by the petitioner. Out of this gross amount, a sum of Rs. 4,37,609.02 was deducted by the Department as cost of materials supplied to the petitioner by it. As the firm did not submit any return, the ITO passed best judgment assessment in terms of Sections 144/182(1)/146 of the I.T. Act (hereinafter referred to as "the Act"). THE ITO assessed the income/profit of the petitioner at 10% of the amount received by it, i.e., eleven lakhs odd. On that basis, the income/profit was assessed at Rs. 1,11,468. THE petitioner moved the Commissioner in revision, but having failed in revision too, has moved this court by the present application.

(3.) THE petitioner's case is that the materials supplied by the Department to the petitioner did not go to form part of the profit of the firm as it always remained the property of the Department and, therefore, the said sum was liable to be deducted. His submission is based upon the provisions of Clause (9) of the conditions of contract which was in Form F-2. Clause (9) reads as hereunder stated :--