1998 (10) TMI 68 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of "any work" u/s 194C(1) of the Income-tax Act, 1961.
2. Applicability of section 194C(1) to transport contracts without loading and unloading services.
3. Validity of CBDT circulars in light of Supreme Court's decision in Associated Cement Co. Ltd. v. CIT.

Summary:

1. Interpretation of "any work" u/s 194C(1) of the Income-tax Act, 1961:
The primary issue in these appeals is whether a transport contract for mere carriage of goods without loading and unloading services amounts to carrying out "any work" within the meaning of section 194C(1) of the Income-tax Act, 1961. The petitioners contended that such contracts do not fall under "any work" as per section 194C(1).

2. Applicability of section 194C(1) to transport contracts without loading and unloading services:
The petitioners relied on circulars dated May 29, 1972, and September 26, 1972, which clarified that section 194C applied only to works contracts and not to transport contracts. The Bombay High Court in Bombay Goods Transport Association v. CBDT [1994] 210 ITR 136 held that section 194C(1) does not apply to transport contracts simpliciter. However, the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435 held that "any work" in section 194C(1) means any work and not just works contracts, thus including transport contracts.

3. Validity of CBDT circulars in light of Supreme Court's decision in Associated Cement Co. Ltd. v. CIT:
The Central Board of Direct Taxes (CBDT) issued Circular No. 681 on March 8, 1994, withdrawing the earlier circulars and stating that section 194C applies to all types of contracts, including transport contracts. The Supreme Court's decision in Associated Cement Co. Ltd. clarified that "any work" has a wide import and is not confined to works contracts. The Kerala High Court held that the Bombay High Court's interpretation was incorrect and that transport contracts fall within the ambit of section 194C(1).

Conclusion:
Following the Supreme Court's decision in Associated Cement Co. Ltd. [1993] 201 ITR 435, the Kerala High Court concluded that transport contracts simpliciter are covered under section 194C(1), and thus, deduction at source at the rate of two per cent. from amounts credited to the contractor's account is applicable. The appeals were allowed, and the impugned judgment dated November 9, 1995, was set aside.