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TMI Blog1993 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding supply of labour for carrying out any work) in pursuance of a contract between the contractor and the specified Organisation is liable to deduct two per cent. of such sum as income-tax as required under that sub-section. The facts which have led to the need for our decision on the said question are briefly these : The Associated Cement Co. Ltd., the appellant, issued a letter dated November 5, 1973, to Mr. S. P. Nag, contractor, Jhinakpani, containing the terms and conditions of a contract, of loading packed cement bags from its packing plants Nos. 1 and 2 into wagons or trucks. Under clause 12 of those terms and conditions, there was a stipulation that the contractor shall be paid a sum for his work at a flat rate of 41 paise for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 276B(1), 201 and 221 of the Act in respect of the assessment years 1973-74 and 1974-75 for short deductions out of the sums paid to the contractor without observing the requirement of section 194C(1) of the Act. Another notice dated May 8, 1978, relating to the assessment years 1974-75 to 1977-78 of a similar nature, was also served on the principal officer of the appellant. The appellant impugned both the said notices in a writ petition filed under articles 226 and 227 of the Constitution before the High Court of judicature at Patna, but that writ petition was dismissed by the High Court by its order dated March 8, 1979. The appellant has, therefore, filed this appeal by special leave before this court seeking the quashing of the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly refuted by Dr. S. Narayanan, learned counsel for the Revenue. This is how the question mentioned at the outset needs our decision. Section 194C(1) of the Income-tax Act, on the proper construction of which the decision on the aforesaid question should necessarily rest, runs thus: " 194C(1). Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor ) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and (a) the Central Government or any State Government or (b) any local authority ; or (c) any corporation established by or under a Central, State or Provincial Act or (d) any company ; or (e) any co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract in Formulations 1 and 2 could credit that sum to his account or make its payment to him in any other manner. (4) But, when the person referred to in Formulation-3 either credits the sum referred to therein to the account of or pays it to the contractor, he shall deduct out of that sum an amount equal to two per cent. as income- tax on income comprised therein. Thus, when the percentage amount required to be deducted under the sub-section as income-tax is on the sum credited to the account of or paid to a contractor in pursuance of a contract for carrying out a work or supplying labour for carrying out a work, of any of the organisations specified therein, there is nothing in the sub-section which could make us hold that the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractor the income or profits derived by the contractor from such contract is determined on the value of the contract as whole and cannot be determined by considering several items that go to form such value of the contract but in our view where certain stores/ material is supplied at fixed rates by the Department to the contractor solely for being used or fixed or incorporated in the works undertaken on terms and conditions mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/material so supplied. Therefore, since no element of profit was involved in the turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee firms, the income or profits derived by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. Hence, on the express language employed in the sub-section, it is impossible to hold that the amount of two per cent. required to be deducted by the payer out of the sum credited to the account of or paid to the contractor has to be confined to his income component out of that sum. There is also nothing in the language of the sub-section which permits exclusion of an amount paid on behalf of the Organisation to the contractor according to clause 13 of the terms and conditions of the contract in reimbursement of the amount paid by him to workers, from the sum envisaged therein, as was suggested on behalf of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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