2003 (9) TMI 66 - HC - Income Tax

Section 194C - introduced in the Income-tax Act, 1961, with effect from April 1, 1972 applicability on professional people who renders services - section 194C which was introduced in the Income-tax Act, 1961, w.e.f. April 1, 1972, makes provision for deduction of tax at source on payment to contractors or sub-contractors - A bare perusal of section 194C shows that the said provision really deals with contractors who are businessmen, e.g., building contractor, or contractor who does work of transportation or loading of goods, or for supply of materials - The context of that provision shows that it is not dealing with professionals like lawyers, doctors, accountants, etc., and it does not refer to payment of fees to professionals like lawyers, chartered accountants, doctors, engineers, etc.

Summary

Issues: Interpretation of Section 194C of the Income-tax Act, 1961 regarding deduction of tax on payment to contractors and sub-contractors for professional services.

In this judgment delivered by the High Court of Allahabad, the court addressed the issue of whether deduction of tax under Section 194C of the Income-tax Act, 1961 should be made in respect of fees for professional services. The petitioners, representing professional bodies, argued that Section 194C only applies to contractors and sub-contractors carrying out work, not professionals providing services like lawyers, chartered accountants, doctors, etc. They contended that the legislative intent behind Section 194C does not cover payment for professional services. The court analyzed the relevant part of Section 194C which specifies deductions of tax at source for payments to contractors and sub-contractors. The court examined the word "contractor" in the context of the provision and concluded that it refers to businessmen engaged in contract work, not professionals. The court highlighted that the relationship between professionals and their clients differs from that of a principal and contractor. The judgment emphasized that the word "work" in Section 194C encompasses a broader scope beyond works contracts, as established in a previous Supreme Court decision. The court referred to decisions in similar cases from other High Courts to support its interpretation.

The court rejected the argument that Section 194C should apply to professionals providing services, emphasizing that the provision is intended for contractors engaged in specific types of work, such as building, transportation, or material supply. The judgment cited examples to illustrate how one word can have multiple meanings and stressed that the term "contractor" in Section 194C pertains to business-oriented contractors, not professionals like lawyers or accountants. The court referenced previous decisions from different High Courts that aligned with its interpretation, further supporting its conclusion. Ultimately, the court quashed the impugned circular that extended the application of Section 194C to professionals, ruling in favor of the petitioners. The judgment concluded by allowing the writ petition without any costs awarded.