The cost of material supplied by the Government should not be included in the contractor's profit estimation.

D.K.Mahajan, J.

1. This order will cover Income-tax References Nos. 2 and 3 of 1973. In these references a single question of law has been referred for our opinion, namely:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the cost of material supplied by the Government was not to be included while estimating the profit of a contractor ?"

2. The assessee is a registered firm. It derives its income from contract business. The assessment years in question are 1965-66 and 1966-67, accounting years ending on 31st March, 1965, and 31st March, 1966, respectively. The assessee filed its return of income declaring the income at Rs. 18,684 for the assessment year 1965-66. The total receipts from the contract were Rs. 2,63,853. The income was shown on the basis of account maintained but during the assessment proceedings, the assessee offered that a that rate of 9 per cent, on the total receipt of Rs. 2,63,853 be applied. The Income-tax Officer, however, applied a flat rate of 10 per cent, on total receipt of Rs. 3,07,605. The total receipt shown by the assessnc at Rs. 2,63,853 did not include the value of the stores supplied by the department concerned. This figure was enhanced to Rs. 3,07,605 because of the addition of the value of the material supplied by the department. A sum of Rs. 5,107 was allowed as depreciation. The total income was determined at Rs. 25,653. The samp procedure was followed for the assessment year 1966-67 and the total income was assessed at Rs. 76,070. The assessee was aggrieved against these orders and preferred appeals to the Appellate Assistant Commissioner which were rejected by him. The assessee then appealed to the Income-tax Appellate Tribunal. The Tribunal allowed the appeals and accepted the contention of the assessee that the cost of building material should not be added to the total receipts which had been shown by the assessee at Rs. 2,63,853 for the assessment year 1965-66. Similar finding was given with regard to the assessment year 1966-67. The department being dissatisfied moved the Tribunal under Section 256(1) of the Income-tax Act, 1961, for referring the following question of law for the opinion of this court with regard to the assessment for both the years:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the cost of material supplied by the Government was not to be included while estimating the pronts of a contractor ?."

3. That is how these cases have been placed before us. The learned counsel for the department relies on the decision of this court in Brij Bushan Lal v. Commissioner of Income-tax, [1971] 81 ITR 407 (Punj).. I was a party to this decision. On the other hand, Mr. Bhandari, learned counsel for the assessee, draws our attention to the decision of the Kerala High Court reported as M. P. Alexander & Co. v. Commissioner of Income-fax, [1973] 2 ITR 92 (Ker)J. which has taken a contrary view.

4. After hearing the learned counsel for the parties we see no reason to depart from the view we took in Brij Bushan Lals case. This decision binds us. We, therefore, answer the question referred to us in the negative, that is, in favour of the department and against the assessee. There will be no order as to costs in both the references.

C.G.Suri, J.

5 I agree.