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TMI Blog1994 (12) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... of the writ petition, on the ground that the 1st petitioner is not actually carrying on the business and affidavit in support of the writ petition is not filed by the 2nd or the 3rd petitioners. 4. Since, admittedly, the 2nd petitioner is affected by the impugned circular, we reject the preliminary objection; non-filing of an affidavit on behalf of the 2nd petitioner can be ignored as an irregularity, since, question involved in the writ petition is purely one of law and basic facts are undisputed. 5. On merits, it was contended, by the learned counsel for the petitioners that carriage of goods for transportation cannot come within the scope of the words, 'Carrying out any work' and, therefore, section 194C is not attracted to the payment made for carriage or transport of goods. The word 'work' connotes the bringing out of a tangible object as in the case of a construction work. This apart, the petitioners rely on the earlier circulars issued by the 1st respondent, immediately on the enactment of section 194C clarifying that transport operation would not be covered by section 194C. Petitioners also rely on section 44AE of the Act, indicating that the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garded as a strong circumstance supporting the construction which we are placing on that sub-section. (p. 1932) 9. This doctrine was applied by this Court to the impugned circulars, and the earlier exposition made by the Ist respondent, in S.R.F. Finance Ltd. v. CBDT [1994] (4) Apex Decisions (Delhi) 489. 10. In S.R.F. Finance Ltd.'s case (supra), the Bench has referred to the earlier circular issued by the first respondent. In fact the Board specifically clarified stating that a transport contract cannot ordinarily be considered as contract for carrying out any work and as such no deduction in respect of income-tax is required to be made from payments made under such a contract. In the year 1991, an attempt was made to widen the scope of the provision relating to tax deduction at source by introducing section 194H. By this section payments by way of commission or brokerage were sought to be covered by the procedure similar to section 194C. But this provision also did not include payments made for rendering services such as carrying the goods by transport operators. Subsequently section 194H was deleted by the Finance Act, 1992. Recently, in a decision rendered by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as observed in S.R.F. Finance Ltd.'s case (supra). Carriage of goods in no way involves any intellectual activity, it is a physical act of carrying goods. 15. It is unnecessary to go into the distinction sought to be made out by Mr. Pandey, relying on the decision in S.R.F. Finance Ltd.'s case (supra). The observations made in the context of a particular case cannot be stretched for a purpose for which the observation was not aimed at. In fact we find a discussion on this aspect of interpreting, in the very decision rendered by the Court in S.R.F. Finance Ltd.'s case (supra). The observation made in a decision shall have to be appreciated in the background of the facts of the said case. 16. In the result, the writ petition is allowed and it is declared that the impugned circular is ultra vires the provisions of section 194C insofar as it purports to cover the cases of actual carriage of goods for hire. Mr. Sharma, the learned counsel appearing for the petitioner, fairly submitted that in a case where the dominant activity is loading or unloading and the carriage of goods is only incidental, different considerations may apply. Therefore, we confine our declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r would be rendering services and, therefore, they are not carrying out any work and, therefore, they are not governed by section 194C. The revenue contended that the position taken by the petitioners is not tenable in law and the transport contractors are only carrying out work and their activities cannot be equated to rendering any service in the sense in which it was appreciated in S.R.F. Finance Ltd.'s case (supra), and regarding the main contention, the revenue contended that after the judgment of the Supreme Court in Associated Cement Co. Ltd.'s case (supra), the revenue has taken a different view and, therefore, the petitioners cannot rely upon the circulars issued by the CBDT and putting forth a plea that the revenue itself had understood the term in a particular way in favour of the petitioners and, therefore, the revenue now cannot turn round and bring them into the tax net. It was further contended that a new provision has been introduced as section 44AE with effect from 1-4-1994 and, therefore, when a specific provision has been enacted and the transport operators are obliged to file returns, there is no point in applying section 194C to such cases. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to two per cent of such sum as income-tax on income comprised therein. (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income- tax on income comprised therein. Explanation - For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called 'suspense account' or by any other name, in the books of account of the person liable to pay such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made as if for services rendered or commission paid to commission agents. As in this case and also in that case, the revenue contended that Associated Cement Co. Ltd.'s ease (supra) would take in professional services also within the term 'any work' mentioned in section 194C. At para 4.16 my learned Brother, while dealing with the submission made, has pointed out the distinction in a very beautiful manner and that paragraph reads as follows: Mr. Syali is right in pointing out the qualitative differences between the subject, referred as work and the subject referred as service. The two words convey different ideas. In the former, i.e., work, the activity is predominantly physical; it is tangible). In the activity referred as services dominant feature of the activity is intellectual, or at least, mental. Certainly work also involves intellectual exercise, to some extent. Even a gardener has to bestow sufficient care in doing his job; so is the case with a mason, carpenter or a builder. But the physical (tangible) aspect is more dominant than the intellectual aspect. In contract, in the case of rendering any kind of service, intellectual aspect plays the dominant rol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransport contractors do not fall within the purview of the said section. The controversy has arisen recently with the issuance of circular by the CBDT being Circular No. 681, dated 8-3-1994-[1994] 73 Taxman 277 (St.). The uncontroverted position is that prior to the issuance of the above circular there were circulars and clarifications from the CBDT to the effect that section 194C was not applicable to payments made for carriage of goods to the transport operators. (p. 338) On 29-5-1972 in Circular No. 86, the Deputy Secretary to the Government of India soon after the enactment of section 194C issued a circular stating that the deduction of income-tax should be made from sums paid for carrying out any work or for supplying labour for carrying out any work and it was stated that provisions of section 194C would apply to only in relation to the works contract and the labour contracts and will not cover contracts for sale of goods. Various trade associations and members of the public sought clarifications on several points relating to the scheme of tax deduction at source from payments made to contractors and subcontractors in certain cases. One of the points on which clarificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the revenue, these observations of the Supreme Court would make the contracts for carrying out any work such as transport operators, transport contracts, service contracts, labour contracts, material contracts, as well as works contracts, etc., come within the ambit of section 194C. In para 11, the Bombay High Court noted two facts in Associated Cement Co. Ltd.'s case (supra). There the contractor was to be paid at a flat rate for loading packed cement bags into wagons or trucks. This rate was fixed on the basis of daily basic wages, dearness allowances, etc., and the clause dealt with in the agreement between the parties stipulated reimbursement by the appellant to the contractors in case of certain increase in the dearness allowance, etc., payable by the contractor to the workmen employed by him. The cement company paid the contractor the amount stipulated at a flat rate as well as amounts by way of reimbursement under clause 13 of the agreement. It was found out that the deduction of tax at source made by the appellant under section 194C(1) fell short of the deductions required to be made thereunder. When a show-cause notice was issued, the stand taken by the cement co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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