1994 (9) TMI 59 - HC - Income Tax

Contemporanea Expositio, High Court, Income Tax Act, Income Tax Authorities, Tax At Source, Words And Phrases, Writ Petition

Summary

Issues Involved:
1. Preliminary objections regarding the enforceability of Section 194C and the locus standi of the petitioner.
2. Interpretation of Section 194C of the Income-tax Act, 1961.
3. Validity of Circulars Nos. 666 and 681 issued by the Central Board of Direct Taxes (CBDT).

Detailed Analysis:

1. Preliminary Objections:
The respondents raised two preliminary objections:
(i) The petitioner has ample remedy under the Income-tax Act to question the enforceability of Section 194C.
(ii) The petitioner does not suffer any injury under Section 194C as they are only required to deduct a percentage of the sum payable to another person and hand it over to the State.

The court rejected these objections, stating that if a statutory authority acts without jurisdiction, the action can be challenged directly under Article 226 of the Constitution. The court cited the case of Calcutta Discount Co. Ltd. v. ITO, emphasizing that the High Courts have the duty to provide relief in fit cases without requiring the aggrieved party to undergo a lengthy statutory process.

2. Interpretation of Section 194C:
Section 194C pertains to the deduction of income-tax at source on payments made to contractors and sub-contractors for carrying out any work. The petitioner contended that Section 194C does not apply to payments made to brokers as it is applicable only to payments made for any work and not for services rendered or commissions paid.

The court examined the language of Section 194C and the historical context, including previous circulars and legislative proposals. It was noted that the term "any work" has a wide import but is not intended to include professional services. The court referred to the Supreme Court's decision in Associated Cement Co. Ltd. v. CIT, which clarified that "any work" is not confined to "works contract" but does not extend to professional services.

The court emphasized the distinction between "work" and "service," noting that "work" involves tangible, physical activity, whereas "service" involves intellectual or mental activity. The court concluded that the term "any work" in Section 194C does not cover professional services or brokerage.

3. Validity of Circulars Nos. 666 and 681:
The impugned circulars issued by the CBDT purported to extend the scope of Section 194C to include payments made to commission agents, brokers, and other professionals. The court held that the CBDT had misinterpreted the Supreme Court's decision in Associated Cement Co. Ltd.'s case and had overstepped its authority by issuing these circulars.

The court applied the doctrine of contemporanea expositio, which allows for the interpretation of statutes based on the understanding of contemporary authorities. It was noted that previous circulars and legislative attempts had consistently excluded professional services from the ambit of Section 194C.

The court concluded that the CBDT does not have the power to enlarge the scope of statutory provisions through administrative instructions. The impugned circulars were found to be beyond the provisions of Section 194C and were therefore quashed.

Conclusion:
The court quashed Circulars Nos. 666 and 681 to the extent that they govern payments to commission agents and brokers for services rendered. It declared that Section 194C does not apply to such payments and restrained the respondents from enforcing the circulars accordingly. The writ petition was allowed, and the rule was made absolute with no costs.