Flat allotment letters can create a works contract where reciprocal obligations and consideration govern construction and valuation.

Allotment letters for residential flats were treated as creating enforceable reciprocal obligations on specification, payment, cancellation, transfer restrictions and possession, so the construction undertaken against consideration was regarded as a works contract. The fact that the project was on the assessee's own land and that a later sale deed or sub-lease was contemplated did not negate the agreement. On valuation, the Tribunal's 10% addition over book value was upheld because the assessee did not prove the deductions required to displace the estimated method, and a reasonable approximation of taxable turnover was permitted.

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Issues: (i) Whether the allotment letters issued for residential flats constituted an agreement giving rise to a works contract for the purpose of tax under the Act. (ii) Whether the Tribunal was justified in sustaining the 10% addition over the book value of goods for determining the taxable turnover of the works contract.

Issue (i): Whether the allotment letters issued for residential flats constituted an agreement giving rise to a works contract for the purpose of tax under the Act.

Analysis: The definition of works contract under the Act is inclusive and covers any agreement for carrying out building or construction for valuable consideration. The allotment letters contained mutual promises on specification, payment schedule, cancellation, delayed payment, transfer restrictions, and possession, thereby creating enforceable obligations. The fact that the construction was raised on the assessee's own land, that sale deed or sub-lease was to follow later, and that there was no separate statutory regime like KOFA or MOFA in Uttar Pradesh did not detract from the existence of an agreement. On the principles affirmed in the later Supreme Court ruling on construction contracts, the decisive factor was the existence of an agreement under which construction was undertaken for allottees against consideration.

Conclusion: The allotment letters did constitute an agreement and the construction activity amounted to a works contract. The issue is decided against the assessee.

Issue (ii): Whether the Tribunal was justified in sustaining the 10% addition over the book value of goods for determining the taxable turnover of the works contract.

Analysis: The assessee did not satisfactorily establish the deductions necessary to displace the estimated valuation method. In the absence of proof for the precise deductions contemplated by the valuation rule, the Tribunal was entitled to adopt a reasonable estimate for profit in determining the turnover of goods involved in the works contract. The method of taking book value with a 10% addition was treated as a practical and permissible approximation and no perversity was shown in that finding.

Conclusion: The 10% addition was upheld. The issue is decided against the assessee.

Final Conclusion: The revision was rejected and the tax demand sustained in principle and on valuation.

Ratio Decidendi: For construction of flats, an allotment letter containing reciprocal obligations, payment terms, and enforceable rights can amount to an agreement for a works contract, and in the absence of proof of allowable deductions, a reasonable estimated addition may be adopted to determine taxable turnover.

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