1973 (3) TMI 11 - HC - Income Tax

High Court exempts construction firm's Govt-supplied material cost from profit calculation, citing lack of profit motive.

Commissioner of Income-Tax, Madras Versus KS. Guruswami Gounder And KS. Krishnaraju (Contractors).

The High Court of Madras ruled in favor of the assessee, a construction firm, in a case concerning the inclusion of Government-supplied materials in total ... ' Whether, on the facts and in the circumstances of the case, the cost of the materials supplied by the Government was not liable to be included in the total receipts of the assessee for calculating its profits for the assessment year 1961-62 ? ' Issues:1. Whether the cost of materials supplied by the Government should be included in the total receipts of the assessee for calculating profits for the assessment year 1961-62Rs.Analysis:The judgment delivered by the High Court of Madras pertained to the issue of whether the cost of materials supplied by the Government should be considered in the total receipts of the assessee for profit calculation. The assessee, a registered firm engaged in construction on a contract basis, did not include the cost of materials supplied by the Government in its total receipts for the assessment year 1961-62, arguing that there was no profit element in those materials. However, the Income-tax Officer disagreed, asserting that the assessee had an advantage in receiving materials from the Government rather than purchasing them in the open market. Consequently, the Income-tax Officer included the cost of materials in the total receipts, resulting in an increased income for the assessee. This decision was upheld by the Appellate Assistant Commissioner.Upon further appeal, the Tribunal sided with the assessee, emphasizing that there was no profit motive in acquiring materials from the Government, and thus, the cost of materials should not be included in the total receipts. The Tribunal highlighted that the assessee did not earn any profit from the materials supplied by the Government, as the rates quoted were adjusted based on the understanding that the Government would provide the necessary materials for construction. The High Court concurred with the Tribunal's decision, noting that the turnover represented by the cost of materials did not contribute to the assessee's profit. The Court referenced a similar decision by the Kerala High Court to support its stance. Ultimately, the High Court determined that the question at hand was factual rather than legal, and ruled in favor of the assessee, dismissing the revenue's claim and ordering no costs to be paid.