Tribunal decision: Cost of materials need not be included in profit calculation.

The High Court upheld the Tribunal's decision that the cost of materials supplied by the Department need not be included in the total receipts for profit calculation for the assessment year 1968-69. The Court found the Tribunal's findings to be well-founded and aligned with legal principles established in previous cases, determining that no profit element is involved when contractors only have custody of materials supplied by the Department. Consequently, the Court ruled in favor of the assessee, relieving the Revenue from including the cost of materials in profit calculations.

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Issues: Calculation of profit for assessment year 1968-69 based on the cost of materials supplied by the Department.

Analysis:
The case involved a question of law referred by the Income-tax Appellate Tribunal regarding the inclusion of the cost of materials supplied by the Department in the total receipts of the assessee for the assessment year 1968-69. The assessee, a firm undertaking building contracts, had declared its receipts and net profits for the year. The Income-tax Officer estimated gross receipts due to incomplete accounts and unverifiable expenses, applying a net profit rate without allowing depreciation separately. The Appellate Assistant Commissioner adjusted the net profit considering no profit on materials supplied by the companies and allowed depreciation. The Tribunal partially allowed the departmental appeal, relieving the Revenue on the matter of depreciation and ruled that the cost of materials supplied need not be included in the total receipts for profit calculation, consistent with the previous year's assessment.

The High Court, after considering the arguments presented by the Revenue's senior standing counsel, upheld the Tribunal's order. The Court found the Tribunal's factual findings based on the record materials to be sound and not perverse, unsupported, or lacking in legal understanding. Referring to a previous case, the Court established a legal principle that if the contractor only has custody of materials supplied by the Department and incorporates them into the works without owning them, no profit element is involved in the turnover represented by the cost of such materials. In this case, the Tribunal's finding favored the assessee regarding the custody of the materials, aligning with the legal precedent set by the Court in a previous judgment. Consequently, the Court answered the referred question in favor of the assessee, holding that the cost of materials supplied by the contracting parties was not to be included in the total receipts for the assessment year 1968-69. No costs were awarded in the circumstances of the case.

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