1948 (12) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in asking the Income-tax Officer to assess the assessee on receipt basis with regard to contracts carried on and completed during the year of account.
2. Whether the reduction of the estimated profit rate from 40% to 30% by the Tribunal was legal.
3. Whether the Tribunal was right in not applying Rule 9 of Schedule I of the Excess Profits Tax Act to the facts of this case.

Detailed Analysis:

Issue 1: Assessment on Receipt Basis
The Tribunal directed the Income-tax Officer to assess the income on the basis of annual receipts rather than total receipts over three years. The assessee argued that payments were received over three years on an account basis, and the settlement of bills was pending. The Tribunal found that amalgamating receipts under one assessment raised the tax liability unfairly. The High Court upheld the Tribunal's decision, emphasizing that the assessment should be based on receipts during each year to ensure fairness and reduce uncertainty. The Court noted that the Income-tax Officer's method of combining receipts over three years did not align with honest guesswork and failed to consider the timing of payments and the possibility of withheld payments due to unsatisfactory work.

Issue 2: Reduction of Estimated Profit Rate
The Income-tax Officer estimated a 40% profit rate, while the Tribunal reduced it to 30%, citing the general rate adopted in similar cases. The High Court found that the Tribunal's reliance on its decisions in other cases was not relevant evidence for this case. The Income-tax Officer's estimate was based on local knowledge and comparisons with similar works, and the Tribunal did not conduct further inquiries or present relevant evidence to justify the reduction. Therefore, the High Court concluded that the Tribunal's decision to alter the profit rate was a mistake of law, and the original 40% rate should stand.

Issue 3: Application of Rule 9 of Schedule I of the Excess Profits Tax Act
The Tribunal did not apply Rule 9, which pertains to the performance of contracts extending beyond the accounting period. The High Court agreed with the Tribunal, noting that Rule 9 was not applicable as the contracts in question were completed within the accounting period. The Court affirmed that the Tribunal's decision not to apply Rule 9 was correct.

Conclusion:
The High Court answered the questions as follows:
1. Affirmative: The Tribunal was right in asking the Income-tax Officer to assess the assessee on a receipt basis.
2. Negative: The reduction of the profit rate from 40% to 30% by the Tribunal was not legal.
3. Affirmative: The Tribunal was right in not applying Rule 9 of Schedule I of the Excess Profits Tax Act.

The parties were ordered to bear their own costs due to the peculiar circumstances of the case.