BRIJ BHUSHAN LAL PARDUMAN KUMAR ETC. versus COMMISSIONER OF INCOME TAX, HARYANA, HIMACHAL PRADESH AND NEW DELHI-III

Citation: [1979] 2 S.C.R. 16 · Decided: 06-10-1978 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
c 
16 
BRIJ BHUSHAN LAL PARDUMAN KUMAR ETC. 
v. 
COMMISSIONER OF INCOME TAX, HARYANA, HIMACHAL 
PRADESH AND NEW DELHI-III 
October 6, 1978 
(P. N. BHAGWATI AND V. D. TULZAPUllKAR, JJ.] 
Liability to tax-Whet~r in a lun1p sum contract, where the stores 
and 
n1aterials are Jupplied by the 
Govern1ncnt, the cost thereof 
was liable to be 
taken into account while estiJnating the inco1ne or profits of the assessee con-
tractor-Best Judgment assess1nent, principle to be followed. 
The appellant assessees are ~1ilitary Engineering Services' contractors 
and 
as such carry on business of executing contracts and work on behalf of the 
Government.. 
'fheir contracts are '·Lumpsum contracts"' where the depart-
ment suppli~s the materials at fixed rates. The 
revenue was of the opinion 
that the cost of the materials supplied by the military authorities was liable to 
be included before applying the fiat rate to the assessee's receipts and estimat-
D 
ing the profits for the purposes of tax liability. 
The High Court of Punjab 
and Haryana on a reference at the instance of the Revenue confirmed it follow-
ing it~ own earlier Judgments in the case· of Brij Bhushan Lal v. C.l.T. Delhi, 
(1971) 81 I.T.R. 497. 
E 
F 
Allowing the appeals by special leave, the Court, 
HELD : 1. The law relating to 'best judgment assessment' is same both in 
the case of income tax assessment and the sales tax assessment. The authority 
making a best judgment assessn1ent must make an honest and fair estimate of 
the income of the assessee and though arbitrariness cannot be avoided in such 
estimate the same must not be capricious, but should have a reasonable nexus 
to the available material and the circumstances of the case. [22G-H, 23D-E] 
Commissioner of Income Tax v. Laxminarain 
Badridas, (1937) 5 I.T.R. 
170 (PC), Raghubar Mandal Harihar Mandal v. State of Bihar, (1957) 7 
S.T.C. 770 at p. 778 and State of Kuala v. C. Velukutty, (1966) 60 I.T.R. 
239; referred to. 
2. Ordinarily when a works contract is put through or completed by a con-
tractor the income or profits 
derived 
by the 
contractor from 
such 
oontra..:t is determined on the value of the contract as a whole and cannot 
G 
be determined by considering several items that go to form such value of the 
contract but where certain stores/material is supplied at fixed rates by the 
Department to the Contractor solely for being used for fixed or incorporated 
in the v;'orks undertaken on terms oo.d conditions mentioned in the contract, 
the real totnl value of the entire contract would be the value minus the cost of 
such 
sto•·e~.;n1atrial so supplied. 
Therefore, since nJ. element of profit was 
H 
involved in the turnover represented by the cost of stores/material supplied 
by the M .E.S. to the assessee firms, the income or profits derived by the 
assessee firms from such contracts will have to be determined on the basis of the 
value of the contracts represented by the cash payment."! received by the asscssee 
.. 
• 
\. 
' 
1 
BRIJ BHUSHAN v. c. I. T. (Tulzapurkar, J.) 
17 
firms fron1 the M.E.S. Department cxclusi\c of the cost of the ;material/stores 
''A 
received for being used, fixed or incorporated in the works undertaken by them. 
[26E·H] 
In Lumpsum contracts of M.E.S. Department 
two salient 
features 
are 
always present namely, ( 1) there is a Schedule 'B' which specifies the items 
-of stores/material to be supplied by 1hc Oepaitment to the contractor solely 
'for being used, fixed or incorporated in the \vorks together with the fixed rates 
, B 
at which the same will be supplied and such supply is governed by General 
Conditions Nos. 10 and 33; apart from the stores/material specified in Schedule 
'B' the contractor also brings his own stores/n1aterial on site for the purposes 
of the works which is also governed by some Paragraphs of General Conditions 
Nos. 10 and 33; and (2) the final financial liability of the Government is fixed 
~on completion of the contract on the hasis of the actual measurements and 
on the basis of the rates \\1hich are already standardised; a detailed 
measure-
C 
nlent is undertaken at the end of the \\-ork at which the Garrison Engineer and 
the As~cssee·s representative remain present and the measurements, are entered 
in Measurement Books and after the n1easurements final bills are prepared as 
per the M.E.S. Schedule and payments are made after making adjustments for 
the advances already ma<le. [24.:\-D) 
From the tender documents

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