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Issues Involved:
1. Validity of Circular No. 666, dated October 8, 1993/March 8, 1996, issued by the Central Board of Direct Taxes (CBDT). 2. Applicability of section 194C to various types of contracts, including transport contracts. Summary: Issue 1: Validity of Circular No. 666 The petitions challenge the validity of Circular No. 666, dated October 8, 1993/March 8, 1996, issued by the CBDT. The circular clarified that the term "any work" in section 194C includes all types of contracts such as transport, service, labour, material, and works contracts. The petitioners argue that this interpretation creates substantial liability on transport contractors, while the respondents claim it is merely clarificatory. Issue 2: Applicability of Section 194C Section 194C mandates that any person responsible for paying any sum to a resident contractor for carrying out any work must deduct tax at source. The term "work" was expanded by Explanation III, inserted by the Finance Act, 1995, to include advertising, broadcasting, telecasting, carriage of goods and passengers by any mode of transport other than railways, and catering. Judicial Interpretations: 1. Bombay High Court: In Bombay Goods Transport Association v. CBDT [1994] 210 ITR 136, it was held that section 194C does not apply to mere carriage of goods contracts. 2. Orissa High Court: In Sethi Transport v. CBDT [1997] 226 ITR 274, the court agreed with the Bombay High Court, holding that section 194C does not extend to contracts for mere carriage of goods. 3. Calcutta High Court: In Calcutta Goods Transport Association v. Union of India [1996] 219 ITR 486, it was concluded that mere transportation of goods does not fall under "work" as envisaged by section 194C. 4. Delhi High Court: In Delhi Goods Transport Association v. CBDT [1995] 80 Taxman 525, it was held that tax on carriage of goods cannot be levied based on the circular dated March 8, 1994. 5. Punjab and Haryana High Court: In Ekonkar Dashmesh Transport Co. v. CBDT [1996] 219 ITR 511, the court dissented from the above judgments, holding that the income derived by the contractor for "carrying out the work" is covered by section 194C. Court's Analysis: The court noted that the judgment in Associated Cement Co. Ltd. [1993] 201 ITR 435 (SC) was related to loading and unloading of goods, not transport contracts. The interpretation that transport contractors were not liable for deduction of tax u/s 194C was prevalent until April 1, 1994. The court emphasized that the term "work" refers to activities involving labour and physical force, not mere transportation of goods. Conclusion: The court held that the inclusive definition of "work" provided by Explanation III, inserted by the Finance Act, 1995, applies only from July 1, 1995. Therefore, the circulars issued by the CBDT extending the scope of section 194C to transport contracts for the period from April 1, 1994, to June 30, 1995, were not valid. The petitions were accordingly allowed.
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