Judgment

TULZAPURKAR, J.:- The short question raised in these appeals by special leave is whether the cost of materials supplied by the Government (M. E. S. Department) for being used in the execution of works is liable to be taken into consideration while estimating the profits of a contractor and the question has assumed general importance as it affects the entire class of contractors who undertake works on behalf of the Government and in view of a conflict of decisions on the point among different High Courts.

2. The facts in all the three appeals are substantially the same though the assessees are different. In Civil Appeal No. 1701 of 1974 the material facts are these : The assessee (M/s. Brij Bhushan Lal Praduman Kumar of Ambala Cantonment), a registered firm, is a Military Engineering Services (M.E.S.) contrator and as such carries on the business of executing contracts and works on behalf of the Government. For the execution of the works undertaken by the assessee certain material such as cement, coal, items of steel etc. is supplied at the fixed rates specified in Schedule B to the contract by the Government for being used in the works. Such material though in custody of the