Itc/8/2003 Of Mr.m.ramaqkrishna Reddy v. The Commissioner Of Income Tax, Ap

THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAMI.T.C.No.8 of 2003 ORDER:(per the Hon’ble Sri Justice L.Narasimha Reddy) This I.T.C is filed by the assessee under Section 256(2) of theIncome Tax Act, 1961 (for short ‘the Act’). The applicant was awarded a civil contract by the KarnatakaHousing Board, Gulbarga. The value of the contract wasRs.28,97,650/-. The case of the applicant is that on account of paucityof time and funds, he has awarded sub contracts to several personsand the amount paid to them was Rs.27,18,820/-. In the returns filed for the Assessment Year 1990-91, theapplicant has shown income of Rs.53,080/-. The Assessing Officer didnot agree with that and levied tax at 12.5% of the value of the contract. The applicant carried the matter in appeal before theCommissioner (Appeals) and the same was allowed through orderdated 02.09.1993. The Department challenged the order of theCommissioner by filing I.T.A.No.1752/Hyd/93. The appeal wasallowed through order dated 18.03.1998. The applicant filed Reference Application No.61/Vizag/1998under Section 256(1) of the Act, before the Income Tax AppellateTribunal, Visakhapatnam, with a request to refer the followingquestions to this Court for answer: 1.Whether on the facts and in the circumstances ofthe case, the Honourable Income-tax AppellateTribunal is justified in holding that the contract amountsreceived by the assessee from the ExecutiveEngineer, Karnataka Housing Board, Gulbarga are tobe considered for assessment in the hands of theassessee, inspite of the fact that the assesseeentrusted the work to the sub-contractors inaccordance with the agreements entered into. 2.Whether the Honourable Income-tax AppellateTribunal is justified in coming to such a conclusionbasing on irrelevant considerations ignoring more relevant considerations like (a) agreements enteredinto by the assessee with the sub-contractors, (b)depositions of the sub-contractors, wherein theystated that they undertook the sub-contract works and(c) filing of returns of income by the sub-contractorsadmitting the income from the sub-contract works. 3. Whether the Honourable Income-tax AppellateTribunal is justified in ignoring the evidence producedbefore the I.T authorities and in coming to a conclusionthat the net income of the assessee would be 12.5% ofthe net contract receipts received by the assesseefrom the Executive Engineer, Karnataka HousingBoard, Gulbarga. Through its order dated 15.01.2001, the Tribunal has dismissedthe application. Hence, this I.T.C. before this Court. Heard Sri Shiva Karthikeya, learned counsel for the applicantand Sri J.V. Prasad, learned counsel for the respondent. The factual background that led to filing of this I.T.C has alreadybeen furnished. A perusal of the questions, which are sought to bereferred, may at the first blush,give an impression that they are purequestions of fact. However, on a close analysis, it emerges that thematter is not that simple. The applicant has furnished the names of the sub contractors aswell as the copies of the agreements. It was also pleaded that the subcontractors are themselves the assesses and they have shown theamounts received by them under such sub contracts, in their returns. This fact was not seriously doubted or disputed. The Commissionertook note of the relevant record and allowed the appeal. The thrust before the Tribunal was mostly on the capacity of thesub contractors. At more places than one, it was observed that thefinancial capacity of the sub contractors does not permit them ofundertaking works of that magnitude. Such observations can be madein respect of anyone and everyone. There is no index to determine thecapacity of an individual. Ultimately, one has to be guided by the The applicant has furnished the names of the sub contractors aswell as the copies of the agreements. It was also pleaded that the subcontractors are themselves the assesses and they have shown theamounts received by them under such sub contracts, in their returns. This fact was not seriously doubted or disputed. The Commissionertook note of the relevant record and allowed the appeal. The thrust before the Tribunal was mostly on the capacity of thesub contractors. At more places than one, it was observed that thefinancial capacity of the sub contractors does not permit them ofundertaking works of that magnitude. Such observations can be madein respect of anyone and everyone. There is no index to determine thecapacity of an individual. Ultimately, one has to be guided by the returns or books of account. The Tribunal did not make an endeavourto verify whether the sub contractors or any of them were assesses andthey have shown the amounts referable in the sub contracts awardedby the applicant in the returns submitted by them. The rejection of theclaim of the applicant may bring about a situation where the amountpaid by the Housing Board under the contract is assessed in the handsof the sub contractors as well as in the hands of the applicant. The lawdoes not permit such a course. On the answers emerging from thequestions referred to above, a clear picture, referable to relevantquestions of law, would emerge. We, therefore, allow the I.T.C and set aside the order passed bythe Tribunal in the Reference Application. The Tribunal is directed torefer the questions to this Court for answer. There shall be no order asto costs. The miscellaneous petitions filed in this I.T.C shall also standdisposed of. ____________________ L.NARASIMHA REDDY, J Date: 23.09.2014va _____________________ CHALLA KODANDA RAM, J