T.V.R.TATACHARI, J. - (1.) THIS is an application by the assessee, M/s Tirath Ram Ahuja (Pvt.) Ltd., under S. 256(2) of the IT Act, 1961, praying that the Tribunal, Delhi Bench, may be directed to state the case and refer to this High Court the following questions : "1. On the facts and circumstances of the case, was the sum of Rs. 11,11,100 received by the assessee in the nature of revenue income ? 2. If the answer to the above is against the assessee, was the Tribunal justified in holding that neither profit nor loss of the work was to be taken into account in the assessment of income ?"
(2.) THE assessee is a private limited company, and it carries on the business of engineers and contractors. It entered into a contract with the Government of Jammu & Kashmir on September 7, 1964, for the construction of a bridge across a river for an amount of Rs. 33,50,300 as per terms and conditions set out in a letter given by the Chief Engineer, dated June 8, 1964. The contract was to be completed in a period of eighteen months from the date of the placing of the order. As it was rainy season at the time the contract was entered into, much work could not be done in that season. After the rainy season was over, the assessee started the work in December, 1964, and the same went on till August, 1965, when war broke out between Pakistan and India and the former completely occupied the area of the site of construction. The staff, labour and other personnel of the assessee -company, therefore, evacuated, machinery and materials were pulled out whenever possible and the work was abandoned. Subsequently, on April 19, 1968, the assessee entered into a supplemental agreement with the Government of Jammu & Kashmir, and the work was restarted. During the period of work in the financial year 1964 -65, the assessee incurred an expenditure of Rs. 2,33,320 in addition to the expenditure of Rs. 84,829 on over -heads, in all a sum of Rs. 3,18,149. This amount was carried forward to the next year, i.e., financial year 1965 -66 (asst. year 1966 -67). Further work was done in the latter year upto August, 1965, and the total value of the work done came to Rs. 12,62,941. As already stated, the work had to be abandoned in August, 1965. The value of the machinery that could not be salvaged in the process of evacuation was put by the assessee at Rs. 80,180. Thus, the total expenditure incurred by the assessee up to the date of the abandonment of the work in August, 1965, came to Rs. 13,43,121. As against the said amount, the assessee -company received from the Government a sum of Rs. 11,11,100 by way of advances as well as a sum of Rs. 5,39,200 as secured advance against materials stocked at the site of the work. We are not concerned with the receipt of Rs. 5,39,200 in the present reference.
(3.) IN the assessment proceedings for the financial year 1965 -66 (asst. year 1966 -67), the assessee claimed the entire expenditure of Rs. 13,43,121 to be a business loss, and the receipt of Rs. 11,11,100 to be repayable advances and not income. The ITO held that the sum of Rs. 11,11,100 was the income of the assessee, and that the total expenditure was Rs. 9,45,024 after making certain deductions, and that the difference of Rs. 1,66,076 was profit of the assessee in respect of the contract in the relevant assessment year. Thus, in the place of a business loss of Rs. 13,43,121 claimed by the assessee, the ITO determined the income at Rs. 1,66,076. Against the said assessment order, the assessee preferred an appeal to the AAC who held that the total receipts should have been taken as Rs. 16,30,300, i.e., Rs. 11,11,100 plus Rs. 5,19,200 and the total expenditure should have been taken as Rs. 13,43,224 and that there was thus a profit of Rs. 2,87,076 permitting some further deductions, with which we are not concerned, the AAC enhanced the income determined by the ITO by Rs. 42,000. As regards the sum of Rs. 11,11,100 the AAC agreed with the view taken by the ITO that it was in the nature of income and not in the nature of repayable advances as claimed by the assessee.;