1994 (7) TMI 353 - HC - Income Tax

Summary

Issues involved: Interpretation of section 194C of the Income-tax Act, 1961 and the validity of Circular No. 681 dated 8-3-1994 issued by the Board.

Interpretation of Section 194C:
The judgment addressed the scope of deduction of income-tax at source from payments to a contractor as per section 194C of the Income-tax Act, 1961. Circulars issued by the Board, including Nos. 86, 93, and 108, had initially limited the application of section 194C to payments for works contracts. However, the Supreme Court's decision in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 4351 prompted the Board to release Circular No. 681 on 8-3-1994, providing new guidelines in light of the court's ruling and reiterating Circular No. 558 dated 28-3-1990.

Validity of Circular No. 681:
The petitions challenged the jurisdiction of the Board to issue Circular No. 681, effective from 1-4-1994, for interpreting the provisions of the Act. The petitioners argued that the Board exceeded its authority in issuing the circular, which was viewed as providing guidelines on the applicability of section 194C based on the Supreme Court's judgment.

Court's Decision:
The judgment emphasized that the interpretation of law falls outside the Board's purview, and any interpretation by the Board is not binding on assessing authorities or courts. The circular was deemed advisory in nature, and the assessing authority was directed to independently decide on the deductibility of 2% of payments to contractors, considering relevant laws and the Supreme Court's judgment, without being bound by the circular. The petitions were disposed of accordingly, with no costs imposed.