BRIJ BHUSHAN LAL PARDUMAN KUMAR ETC. versus COMMISSIONER OF INCOME TAX, HARYANA, HIMACHAL PRADESH AND NEW DELHI-III

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BRIJ BHUSHAN LAL PARDUMAN KUMAR ETC.

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COMMISSIONER OF INCOME TAX, HARYANA, HIMACHAL PRADESH AND NEW DELHI-III

October 6, 1978

(P. N. BHAGWATI AND V. D. TULZAPUllKAR, JJ.]

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Liability to tax-Whet~r in a lun1p sum contract, where the stores and n1aterials are Jupplied by the Govern1ncnt, the cost thereof was liable to be taken into account while estiJnating the inco1ne or profits of the assessee con tractor-Best Judgment assess1nent, principle to be followed.

The appellant assessees are ~1ilitary Engineering Services' contractors and as such carry on business of executing contracts and work on behalf of the '·Lumpsum contracts"' where the depart Government.. 'fheir contracts are ment suppli~s the materials at fixed rates. The revenue was of the opinion that the cost of the materials supplied by the military authorities was liable to be included before applying the fiat rate to the assessee's receipts and estimat- ing the profits for the purposes of tax liability. The High Court of Punjab and Haryana on a reference at the instance of the Revenue confirmed it follow ing it~ own earlier Judgments in the case· of Brij Bhushan Lal v. C.l.T. Delhi, (1971) 81 I.T.R. 497.

Allowing the appeals by special leave, the Court,

HELD : 1. The law relating to 'best judgment assessment' is same both in the case of income tax assessment and the sales tax assessment. The authority making a best judgment assessn1ent must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious, but should have a reasonable nexus to the available material and the circumstances of the case. [22G-H, 23D-E]

Commissioner of Income Tax v. Laxminarain Badridas, (1937) 5 I.T.R. 170 (PC), Raghubar Mandal Harihar Mandal v. State of Bihar, (1957) 7 S.T.C. 770 at p. 778 and State of Kuala v. C. Velukutty, (1966) 60 I.T.R. 239; referred to.

the

from

the contractor

income or profits derived by

2. Ordinarily when a works contract is put through or completed by a con tractor such oontra..:t is determined on the value of the contract as a whole and cannot be determined by considering several items that go to form such value of the contract but where certain stores/material is supplied at the Department to the Contractor solely for being used for fixed or incorporated in the v;'orks undertaken on terms oo.d conditions mentioned in the contract, the real totnl value of the entire contract would be the value minus the cost of such sto•·e~.;n1atrial so supplied. Therefore, since nJ. element of profit was involved in the turnover represented by the cost of stores/material supplied by the M .E.S. to the assessee firms, the income or profits derived by the assessee firms from such contracts will have to be determined on the basis of the value of the contracts represented by the cash payment."! received by the asscssee

fixed rates by

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BRIJ BHUSHAN v. c. I. T. (Tulzapurkar, J.)

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firms fron1 the M.E.S. Department cxclusi\c of the cost of the ;material/stores received for being used, fixed or incorporated in the works undertaken by them. [26E·H]

features

two salient

In Lumpsum contracts of M.E.S. Department

are always present namely, ( 1) there is a Schedule 'B' which specifies the items -of stores/material to be supplied by 1hc Oepaitment to the contractor solely 'for being used, fixed or incorporated in the \vorks together with the fixed rates at which the same will be supplied and such supply is governed by General Conditions Nos. 10 and 33; apart from the stores/material specified in Schedule 'B' the contractor also brings his own stores/n1aterial on site for the purposes of the works which is also governed by some Paragraphs of General Conditions Nos. 10 and 33; and (2) the final financial liability of the Government is fixed ~on completion of the contract on the hasis of the actual measurements and on the basis of the rates \\1hich are already standardised; a detailed measure- nlent is undertaken at the end of the \\-ork at which the Garrison Engineer and the As~cssee·s representative remain present and the measurements, are entered in Measurement Books and after the n1easurements final bills are prepared as per the M.E.S. Schedule and payments are made after making adjustments for the advances already ma<le. [24.:\-D)

aforesaid terms and conditions of the ''Lun1p Sum Contracts" two or

From the tender documents that are made available to contractor and the three . aspects emerge very clearly. Tn the first place the contractor becomes aware that certain specified stores/materials \Vil! be supplied to him by the Depart ment at fixed rates for being used in the works to be undertaken by him for which he has not to pay from his pocket and it is on that footing that he sub- mits his tender quotin£ a particular figure for the entire work; Secondly, such ·stores/material so supplied by the M.E.S. Department has to be used, fixed or incorporated by the· contractor in the \vorks undertaken by him and the surplus, if any, that would remain after the completion of the work is to be returned to the Department; thirdly, since for accounting purposes the initial supply is . debited to the contractor at the spec'ified fixed rates, credit for the balance of ·the stores/materials so returned is also given at the same rates, some adjust· ment being made in respect of the wear and tear of such stores/material but in regard to the stores material out of such supply as is actually used, fixed or incorporated into the works, no accounting is done viz-a-viz the contract In other words, in substance and in payment that is ma.de to the contractor. reality suci:t stores /material alway~ remains the property of the Department and the contractor has merely the custody of it and he fixes or incorporates the same into the works. In such circumstances having regard to the terms and conditions on which such supply of stores/materials is ma.de there is· not even a theoretical possibility of any clement of profit being involved in the conceivable turnover represented by the cost of such stores/materials. that when the contractor himself purchases materials in the open market and supplies the same to the Department by using, fixing or incorporating the same in the ivorks, as in the case of materials other than specified in Schedule 'B' -some profit element would be embedded in. the turnover represented by the cost of such n1artial but when stores/material is supplied by the Government De partment at fixed rates for being used, fixed or incorporated in the work on terms indicated above there would be no element of profit involved in the

It is

·turnover represented by the cost of such n1aterial. 1{25G-H, 26A-E]

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Brii Bltushan Lal v. Co1n1nissioner of /11con1e Tax, Delhi, (1971) 81 I.T.R.

497 (Pb and Haryana); overruled.

M. P. Alexander and Co. v. Comtnissioner of lnconJe Tax (1973) 92 LT.R., 92 (Kerala); Co1nn1is.sioner of lncon1e Tax, Madra.<J v. K. S. Guruswami Gounder and K. S. Krishnaraiu (1973) 72 I.T.R. 90 (Madras); Trilokchand I.T.R. 732 Chuni/al v. Commissioner of Income Tax Gujarat (Gujarat), Ad"itional Commissioner of Income Tax v. Trikamji Punia and Sons, (1'77) 106 lTR 597 [AP (F.B.)]; approved.

(1976) 107

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CNIL APPELLATE JURISDICTION

: Civil Appeal Nos. 1701-

1703 of 1974.

Appeal by Special Leave from the Judgment and Order dated 26-9-73 of the Punjab & Haryana High Conrt in Income Tax Reference Nos. 38/72, 2/73, 3/73.

S. T. Desai and Ramesh Chand for the Appellant.

P. G. Gokhale and Miss A. Subhashini for the Respondent.

The Judgment of the Court was deliwred by

TuLZAPURKAR, J.-The short question raised in these appeals by Sp;!cial leave is whether the cost of materials supplied by the Govern ment (M.E.S. Department) for being used i:l the execution of workS is liable to be taken into consideration while estimating the profits of a contractor and the question has assum~d general importance as it affects the entire class of contractors who undertake works on behalf of the Govemme:it and in view of a conflict of decisions on the point among different High Courts.

The facts in all the three appeals are substantially the same though In Civil Appeal No. 1701 of 1974 the the assessees are different. material facts are these : The asses see (Ml s. Brij Bhushan Lal Pradu man Kumar of Ambala Cantonment), a registerod firm, is a Military Engineering Servic~ (M.E.S.) contractor and as such carries on the business of executrng contracts and works on behalf of the Govern ment. For the execution of the works undertaken by the assessee cer tain material such as cement, coal. items of steel etc. is supplied at the fixed rntes specified in Schedule B to the contract by the Govcrmnent for being used in the works. Such material though in custody of the contractor always remains the property of the Government aTid if any surpluses is left at the completion of the contract, the contractor ( assessee) has to account for it at the same rates at which the supply was made to him (wear and tear excepted) and return the same tO' the Government. The ass•essment year involved was 1966-67 for which· the accounting year commenced on 1-10-1964 and ended on September

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BRIJ BHUSHAN v. c. I. T. (Tulzapurkar, !.)

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30, 1965. The assessee-firm had taken two contracts, one at Delhi and the oth~r )It Ambala. For the said assessment year it filed its return of income <leclaring income of Rs. 44,462 being 10% of the total cash payments of Rs. 4,44,622 received from the military autho the rities. The assessee, however, did not furnish any fi&'llres about stores (material) received by it from the M.E.S. The Income-tax Officer called upon the assessee to produce the relevant certificates in respect of such stores but the assessee failed to do so on the ground that the Departments were not COO)J"'rating with it. The Income-tax Officer, therefore, <Y.;timated the cost of such ma:terial at 50% of the cash payments, namely, at Rs. 2,22,311 and by adding this figure to tho;, net cash receipts of Rs. 4,44,622 he arrived at total receipts (in cluding the cost of material) of Rs. 6,66,933 and after rejecting the book posuli:'s applied a flat rate of 10% and worked out net income or prol.its at Rs. 66,693 which was rou~ded upto Rs. 66,690 and on that basis the tax was levied after allocating the said profits among the three partners of the firm. The assessee preferP~d an appeal to the Appellate Assistant Commissioner contending that the addition of the cost of material supplied by the Government to the figure of cash receipts received by it during the year for applying the Jlat rate of 10% was erroneous and in any case tbe estimate of the value of such stores at 50% of the cash payments was excessive. The Appellate Assistant Commissioner rejected the first contention but reduced the estimate of the value of the stores supplied by the Government to 25 % and con frned the adclit;on to Rs. 1,11,155. Aggrieved by that order the assessee preferred further appeal to the Income Tax Appellate Tribunal and the Tribunal accepted the co:itention of the asscssec that the cost of the stores or material supplied by the Government to the assessee could not be added to the figure of cash payments received by the assessee on the ground that .the stores (material) supplied by the Government were 'never sold' to the contractor, that the same always remained the property of the Government and that no. profit could be said to have arisen to the assessee when such stores (material) was merely handled and manipulated by the assessee in the execution of the works under the contract. The Tribunal followed the decision of the Kerala fiigh Court in M.P. Alexander & Co. v. Commissioner of Income-tax(') where that Court has taken the view that the cost of such material supplied by the Government was not to be included while estimating the profits of a contractor. The Revenue sought a reference to the Punjab & Haryana High Court on the question whether on the. facts and circumstances of the case, the Tribunal was justified in holding that the cost of the material supplied by the Government was not to be

(!) (1973) 92 l.T.R. 92.

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included while estimating the profits of a contractor and the High Court in Reference No. 38 of 1972 answered the question against the assessec and in favour of the Department and restored the view of the taxing authorities by its order dated September 26, 1973 and in doing so the yearly income tax paid by them is Rs. 70 to Rs. 80 only. There is Bhushan Lal v. Commissioner of Income-Tax, Deihh') where it had held that the cost of the materials supplied by the military authorities wa5 liable tc be included before applying tlm tfat rate to the assessee's receipts.

Civil Appeals Nos. 1702 & 1703 of 1974 relate to the a'8essments of M/s. Brij Bhushan Lal Ramesh Kumar for the assessment yearn 1965-66 and 1966-67, the relevant accounting years being the ones which ended on March 31, 1965 and March 31, 1966 respectively. The assessee firm, a M.E.S. Contractor, carried on the business of executing works on behalf of the Government under similar M.E.S. contracts wherein stores/materials were supplied by the military auth orities to the firm on identical terms. For the assessment year 1965- 66 the assessee filed its return declaring an income of Rs. 18,684 and disclosing net cash receipts from the Government at Rs. 2,63,853. Though this income was based on books of accounts maintained by the firm, the assessee during the course of assessment proceedings offered that a flat rate of 9% on the cash receipts of Rs. 2,66,853 may be ap plied. The Income Tax Officer did not accept the offer but applied a flat rate of 10% on Rs. 3,07,6:)5 which included the value of the stores supplied by the Department to the assessee with the result that the profits were assessed at Rs. 30760 and after allowing d"rreciation of Rs. 5107 the net taxable income was determined at Rs. 25,653 which For the assessment year 1966-67 was rounded up to Rs. 25,650. the firm declared an income of Rs. 62414 calculated by adopting the fiat rate of 10% on the cash receipts of Rs. 6,24,144. The firm had received stores/material of the value of Rs. 1,36,520 from the military authorities and the Income Tax Officer after adding the value of the stores to the cash receipts arrived at a total receipt of Rs. 7,60,664 and by applying tbe flat rate of 10~{. determined the taxable income at Rs. 76,070. The assessee's appeals for both the years to the Appellate Assistant Commissioner were unsuccessful but in further appeals the Appellate Tribunal by its order dated October 31, 1970 accepted the assessec's contention and held tliat the cost or the value of the stor~s/ material supplied by Government to the contractor was not liable to be In included while estimating the prcfits or income of the contractor. coming to this conclusion. as in the other case, the Tribunal followed the Kerala High Court's decision in M. P. Alexander's case (•upra). -(1)(197i)sl1i"R 497.

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BRIJ BHUSHAN v. c. I. T. (Tulzapurkar, !.)

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At the instance of the Revenue two references (being Income Tax Re- A ferences Nos. 2 and 3 of 1973) wne made to the Punjab & Haryana High Court and the High ( ourt following its earlier decision in Brij Bhushan Lat's case (supra) answered the questions referred to it in the negative i.e. in favour of the Department and ai,'llinst the assessee. Both the assessces liave come up to this Court by special leave challenging the view taken by the High Court.

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In support of these appeals counsel for the appellants has ~ontended that it was well settled that even while making a best judgment assess ment the Income-Tax Officer must make an honest and fair estimate of the income of the assessee and that having regard to the lerms and conditions of the contract (a specimen whereof was· produced during the. hearing before us) and particularly the terms on which the stores/ materials were supplied by the military authorities to the asscssee for being used in the works undertaken by the firm, it was dear that no element of profit was embcclcled in such stores/materials that wc1e made available to the contractor for being used in the works entrusted ro the contractor and as sucl: the cost or value of such stores/material could not be added to the total cash payments received by the contractor from the Department under the contract for the purpose of estimating the income or profits derived by the contractor from such contract. He pointed out that under :Le terms and conditions of the contract such stores/material were never 'sold' by the Department to the contractor but the same always remained the property of the Departmem and the the contractor had merely handled, manipulated or used the same in works completed by him and the surplus of such stores/material, if any, that remained was required to be and was actually returned :iy the contractor to the Dcpanment and this being the true nature of the supply of such stores/material, the cost or the value thereof could not be included or added to the total cash payment received by the contractor under the contract for computing his income or profit'l from In suppor( cf his contention reliance 1>as placed the said contract. upon M.P. Alexander's case (supra), Madras High Court's decision ii: Cornnzissioner of Income-tax A1adras v. K. S. Guruswami Gounder & K. S. Krislmaraju('); Gujarat High Court's decision in Trilokchaiid Chunilal v. Commissioner of Income-Tax, Gujarat(") and Full Bench decision of the Andhra Pradesh High Court in Additional Commis sioner of Income-tax v. Trikamji Punia & Sons(').

On the other hand, ccunsd for the Revenue contendeJ that not only the cash payments received hy the assessee under the -:ontract but - - - - ·---------

(!) (1973) 92 !TR 90. (2) (1976) 107 !TR 732. (3) (1977) !06 !TR 597.

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also the cost of the stores/matcria1 supplied by the Department to the contractor-both together rt'prrsented the real value of the conirnct to the contractor and as such, sh1l'.e the book results were rcjec.:~cd, the Taxing Authorities and the High Court were right in coming to the conclusioil that the income or profits derived by the contractor from such contracts was liable t0 be determined by a;:plying the ftat rate to the entire value of the contract. In other words, it was contended by him that the cost of the stores/material supplied by the Government to the contractor was liable to be taken into account while estimating the income or profits of the contr~ctor under such contract and in that behalf he pressed for our acceptance the view of the Punjab & Haryana High Conrt in Brij Bhushan Lal's case (supra).

At the out set it may be stat<d that in the, case of both the assessees their returns and book-results were rejected on the ground that proper and reliable books of account had not been maintained and the Incomc tax Officer was required to make the assessments on "best judgment" basis. However, the prim:iplcs to be followed by the Income-t:ix Officer while making a best judgment assessment have been clearly laid down by the Privy Council as also by this Court in a number of In Commissio11er oj Income-Tax v. Laxminarai11 Badri decisions. das('), their Lordships of the Privy Council observed as follows :

"The officer is to make an assessment to the best of his judgment against a person who is in default as regards supply ing information. He must not act dishonestly or vindicti vely or capriciously because he must exercise judgment in the matter. He must make what he honestly beijcves to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able 10 t:ike into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of pre vious returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guesswork. In that sense, too, the assessn1l~nt 1nust be to some extent arbitrary".

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Since the law relating to "best judgment assessment" is the same both in the case of income-tax assessment and the sales-tax asse~sn1ent, the· following observations of this Court in Raghubar Manda/ Jlarihar Mandal v. State of Bihar,( 2 ) a case under the Bihar Sales Tax Act, would be material :

(1) (1937) 5 I.T.R. 170 (PC). (2) (1957) 7 STC 770 at p. 778.

BRIJ BHUSHAN v. c. I. T. (Tulzapurkar, !.)

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"No doubt it is true that when the returns and the books an of account are 1cjected, the assessing officer must make estimate, and lo ~hat e·<tent he must make a guess : but the estimate must be related to some evidence or material and it must be something more than mere suspicion."

Aga;n in State of Kera/a v. C. Velukutty,(') which was a case under the Travancore-Cochin General Sales Tax Act, Subba Rao, J. (as he then was), speaking tor thh Court observed at page 244 of the :report thus :

"The limits of the power are implicit in the. expression Judgment is a faculty t.o decide mat 'best of his judgment'. ters with wisdom truly and legally. not depend npon the arbitrm y capnce of a judge, but on settled Though there is an and invariable principles of justice. element of guesswork in a 'best judgment assessment.' it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case."

Judgment does

It will appear clear from wllat has been said above that the autho rity making a best judzment assessment must make an honest and fair -estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious bnt should have a reasonable nexus to the available material and the drcumstance.s ·Of the case. It is with reference to these principles that the question raised before us will have to be considered and looking at it from that point of view the real question is whether the turnovter represented by the coit of the stores/material supplied by the M.E.S. Department in volves any element of profit having regard to the terms and conditions If it does then cost of such stores/ on which such supply is made ? material will have to be taken into account but if it does not such cost will have to be excluded.

In order to decide the aforesaid question it will be necessary to advert to the terms and ccnd1tions of the works contracts undertaken 1 he by the two assc~see fitms, wh'ch as stated earlier, are common. assessee firms in both the cases are M.E.S. Works Contractors ten dering and obtaining from the l'l'l.E.S. Department what are known as "Lump sum contracts" wl1ich arc governed by the General Condi to tions of contracts I.A.F.\V. the general condition~. the pnrti•:ular work undertaken by the contractor is also governed by special terms crntained in the Acce_ptance of Ten Jn ''Lump der, and the specificalioLs and Schc<luks annexed thereto.

'.!249 (1963 print).

In addition

(1) (1966) 60 I.T.R. 239.

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Sum Contracts" cf M.E.S. Department two salient features are always. present, namely, ( 1) there is a Schedule 'B' which specifies the items of stores/material to be supplied by the Department to ~he contractor solely for being used, fixed or in~orporated in the works together with the fixed rates at which the snmc will be supplied and such supply is governed by General Conditions Nos. 10 and 33 : apart from the stores/material specified in Schedule 'B' the contractor also brings his own stores/material on site for the purposes of the works which is also governed by some Paragrap;1s of General Conditions Nos. 10 and 33 : and (2) the final financial hability oi the Government is fixed on com- pletion of the contract on the basi; of the actual measurements and on the basis of the rates which ar~ already standardised; a detailed measure ment is undertaken at the end of the work at which the Garrison En- gineer and the assessee's representative remain present and the measure ments are entered in Measurement Books and after the measurement$. final bills are prepared as per the .M.E.S. Schedule and payments are made after making adjmtments for the advances already made. With regard to stores/material Conditions Nos. 10 and 33 of the General Conditions are material. Cond:l!on No. 10 so far as is material runs. thus :

"Condition 10-Stores and Mmerials-

The Contractor shall, r.t his own expense, supply all stores and materials required for the Contract, other than those lis ted in Schedule 'B' which me to be provided by the Govern ment at the rates detailed therein.

All stores and materials to be supplied by the Contractor shall be the best of the respective kinds described the Specifications and the Contractor shall upon the request of the Engineer-in-Charge furnish him with proof to his satisfaction that the stores and materials so comply.

in

In the case of stores provided under Schedule 'B', the Contractor shall bear the cost of loading, transporting to site, unloading, storing under covo! as required, assembling and jointing the several parts together as necessary and incorporat ing and fixing these · s'.rres and materials in the Works, in cluding all preparatory work of whatever description as may

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be required, and of closing, preparing, loading and returning empty cases or containers to the place of issue without any extra charge."

Condition No. 33 sc far as is material runs thus

"Co11ditio11 33~tores and Materials on site-

be Stores and materials required for the Works are to deposited by the Contractor only irt places to be indicated by the Engineer-in-Charge.

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All stores and materials brought to tbe site shall become and remain the property of Government and shall uot be removed off the site without tbe prior written approval of But whenever the Works are finally completed, the G.E. the Contractor shall at his own expense forthwith remove from the site all surplus stores and materials originally sup plied by him and upon such removal, the same shall revest in and become the property of tbe Contractor. All Government stores and materials l>SW'd tc the Contractor for incorporation or fixing in the Works and which, making due allowance for reasonable wear and tear a11d/01 waste, have not on comple tion of the Works been so incor11orated or fixed shall be retur ned by the Contractor at his own expenses to the place of issue.

Surplus stores and/or materials returned by the Contrac tor will be credited to him at a price not exceeding that at which the said stores and m~terials were originally issued to him but due consideration shall be given to and allowance claimed by Government in respect of any depreciation or damage suffered by the Stores and/or materials whilst in the custody of the Contractor."

From the tender documents that are made available to contractor and the aforesaid terms and conditions of the "Lump Sum Contracts" In the first place the con two or three aspects emerge very clearly. tractor becomes aware that certain specified stores/materials will be supplied to him by the I'\·r1>rtment at fixed rates for being used in the works to be undertaken by him for which he has not to pay from his poc.ket and it is on that footing tbat he submits his tender quoting a particular figure for the entire work; secondly, such stores/material so supplied by the M.E.S. Department has to be used, fixed or incorporat-

3-817 SCI/78

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ed by the contractor in the works undertaken by him and t]1e sin plus, if any, that would remain ofter the comp!ction of the wurk is to be returned to the Department; thirdly, since for accounting purposes the initial supply is debited to the contractor at the specified lhed tates, credit for the balance of the stores/materials so returned is also given at the same rates, some adjustment being made in respect of the wear and tear of such stores/material but in regard to the stores/material out of such supply as is actually used, fixed or incorporated into the works, no accounting is done vis-a-vis the contract payment that is made to the contractor. In other words, in substance and in reality such stores/material always remains the property of the Ikpartment and the contractor has m~rely the custody of it and he fixes or incor It seems to us clear that in such porates the same into the works. circumstances and having regard to the terms and conditions on which such supply of stores/materials is made there is not even a theorotical possibility of any element of profit being involved in the turnover It is conceiveable represented by the cost of such stores/material. that when the contractor himself purchases materials in the open market and supplies the same to the Ikpartment by using, fixing or incorporating the same in the works, as in the case of materials other than specified iti Schedule 'B' some profit element would be embedded in the turnover represented by the cost of such material bu~ when stores/material is supplied by the Government Department at fiXed rates for being used, fixed or i.-1corporated in the work on terms indi cated above there would be no element of profit involved in the turn over represented by the cost of such material. It is true that ordinarily when a works contract is put through or completed by a contractor the income or profits derived by the contractor from such contract is determined on the value of the contract as a whole and cannot be determin~d by considering several items that go to form such value of the contract bnt in our view where certain stores/material is supplied at fixed rates by the Department to· the Contractor solely for being used or fixed or incorporated in the works undertaken on terms and conditions mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/material so su;iplied. Therefore, since no element of profit was involvod in the turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee firms, the income or profits derived by the assessee firms from such contracts will have to be determined on the basis of the value of the contracts represented by the cash payments received by the assessee firms from the M.E.S. Department exclusive of the cost of the material/stores received for being used, fixed or incorpora~~d in the works undertaken by them.

llRIJ BHUSHAN v. c. !. T. (Tulzapurkar, J.)

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).

Having· regard to our aforesaid conclusion the view tahln by the Punjab and Haryana High Court in Brij Bhushan Lal's case (supra) must be regarded as erroneous and we approve the view taken by the Kerala High Court (M. P. Alexander & Co. case), Madras High Court (K. S. G11ruswami Gounder's case), Gujarat Higb Court (Trilok chand Chunilal's case) and Andhra Pradesh High Court (Trikamji Punia' s case).

In the result the appeals are allowed, the impugned orders of the High Court are stt aside and those of the Appellate Tribunal are restored. The Revenue will pay the costs of the appeals to the assessee firms. S.R .

Appeals allowed.

B

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f