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TMI Blog1994 (9) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities under the Act to give effect to the provisions of section 194C as against the commission agents, brokers, lawyers, chartered accountants and others. According to the petitioner, section 194C does not govern the amounts payable to the brokers. The petitioner further contends that section 194C is applicable only to the payments made to any person for any work and not the payments made as fee for services rendered or the commission paid to a commission agent or a broker. The respondents, on the other hand, rely on the language of section 194C to contend that even the professional services are covered by the term "any work" referred to in section 194C of the Act and that the Supreme Court has given such an interpretation to the said provision in a decision referred as Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435 (SC). Having regard to the importance of the matter and the wide scope of the impugned circulars, several writ petitions are pending in various courts. In this court, there are a few more writ petitions filed on behalf of the advocates and other professionals. At the time of hearing this writ petition, we permitted others interested in the subject-matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Board of Direct Taxes, the highest authority in the hierarchical set up of the Income-tax Department. In view of sections 118 and 119, no Income-tax Officer would have the courage (or audacity) to ignore these circulars. It will be a futile exercise for any assessee to challenge the binding nature of these circulars, before the Income-tax Officers. The threat posed by the impugned circulars, is real and any person affected by them should not be denied access to this court to seek appropriate relief at the very moment the threat is posed against him. As per article 265 of the Constitution of India, no tax shall be levied or collected except by authority of law. The words, " levy " and " collection" are words of wide amplitude in the context of this article, so as to cover any process employed to collect any amount purporting to be a tax. If the procedure employed is unauthorised, the process of collection will render it an illegal levy or illegal collection and, hence, unconstitutional. Dr. Narayanan then contended that the petitioner in no way suffers any financial injury ; he is statutorily directed to deduct a certain sum and pay it over to the State, towards the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal or individual right of the petitioner himself, though in the case of some of the rights like habeas corpus or quo warranto, this rule may have to be relaxed or modified. But a personal right need not be in respect of a proprietary interest ; it can also relate to the interest of a trustee. That apart, in exceptional cases, as the expression 'ordinarily' indicates, a person who has been prejudicially affected by an act or omission of authority can avail of a writ even though he has no proprietary or even fiduciary interest in the subject-matter thereof." The preliminary objections are, accordingly, rejected. On merits : Section 194C reads as follows : 194C. Payments to contractors and sub-contractors.--(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-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid before the 1st day of June, 1972 ; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society. (4) Where the Assessing Officer is satisfied that the total income of the contractor or the sub-contractor justifies the deduction of incometax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the contractor or the sub-contractor in this behalf, give to him such certificate as may be appropriate. (5) Where any such certificate is given, the person responsible for paying the sum referred to in sub-section (1) or sub-section (2) shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be. " This section was introduced in the year 1972. Immediately thereafter the scope of the said provision was explained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Notes on Clauses explaining the above section stated that the person responsible for paying by way of brokerage or commission or fees or other remuneration for professional services, etc., will be required to deduct therefrom income-tax at the rate in force. But this proposal was withdrawn and the speech given by the Finance Minister on July 24, 1967, specifically stated that the proposal for deducting the tax at source from the brokerage and commission, fee for professional services and interest on loans, etc., was given up because it would involve considerable expenditure to earn brokerage, commission or professional fee and deduction of tax at source would result in hardship. Another consideration stated by the Finance Minister was that it would involve considerable administrative and clerical work. Again, by the Finance Bill, 1987, section 194E was sought to be introduced requiring deduction of tax at source from "other incomes" which included commission or brokerage as well as fee for professional services, fee for technical services, rent, etc. This proposal was also not pursued and it was dropped when the Act was ultimately passed. In the proposed section 194E, there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of section 194C, they cannot be nullified, only because, during the earlier years, the Board took a different view and expressed the same through the circulars issued earlier. The Board has issued the impugned circulars, solely basing on its understanding of the judgment of the Supreme Court in Associated Cement Co. Ltd.'s case [1993] 201 ITR 435. According to the Board, the Supreme Court has attributed a wide meaning to the relevant words found in section 194C and, therefore, the words "carrying out any work" would include, the rendering of any service in pursuance of an engagement for the same. After referring to the decision of the Supreme Court in Associated Cement Co. Ltd.'s case [1993] 201 ITR 435, the Board states, in the impugned Circular No. 666 dated October 8, 1993 : " Thus, the provisions of section 194C are applicable to all types of contracts for carrying out any work, such as transport contracts, service contracts, labour contracts, material contracts as well as works contracts, etc." It is practically repeated in paragraph 7 of Circular No. 681, dated March 8, 1994. Therefore, it has to be seen whether the inference drawn by the Board from the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preceding it and the idea contained in it normally emanates from the earlier process of consideration which leads into the next step. A sentence may reflect a particular reasoning. Every reason is a link to the ultimate conclusion, linking the thought process to each other, from its commencement to the end. Therefore, to lift a sentence from a judgment, as if it is an independent provision in a statute and emphasise it as declaring the law, will result in unanticipated and unexpected consequences. In Deputy Chief Controller of Imports and Exports v. K. T. Kosalram, AIR 1971 SC 1283, at page 1289, the Supreme Court observed : " In our opinion, dictionary meanings, however helpful in understanding the general sense of the words, cannot control where the scheme of the statute or the instrument considered as a whole clearly conveys a somewhat different shade of meaning. It is not always a safe way to construe a statute or a contract by dividing it by a process of etymological dissection and after separating words from their context to give each word some particular definition given by lexicographers and then to reconstruct the instrument upon the basis of those definitions. What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 contrast, in the case of rendering any kind of "service", the intellectual aspect plays the dominant role. The vocation of a lawyer, doctor, architect or a chartered accountant (there are other similar vocations also) involves deep intellectual exercise and physical skill involved in their vocational activities is minimal. A dancer's performance no doubt involves physical movement ; but all the movements are projections of the talent which is natural, or acquired by training. A surgery certainly involves physically visible and tangible work ; but, inherently, it is the mental skill developed by the intellectual exercise that permeates the operation. Language is a vehicle of conveying ideas. The English language has developed particular terms and usages to convey particular ideas. The same word may convey a different meaning when placed in a different context. Therefore, the meaning conveyed by a word has to be gathered from the context in which the word is used. The long established and recognised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered to another and, indeed one of the dictionary meanings of the word 'service' is work. In the case before us, by loading packed cement into trucks and wagons, work was being done by the contractor and, in a manner of saying, it was service rendered to the company. However, that does not make any difference as the contract was to supply labour 'for carrying out a work' which was loading of packed cement into trucks and wagons." The petitioner mainly relied on the difference between the concept of works contract and contract for sale of goods, that was prevalent during the relevant period ; (until the Constitution was amended). In the case of a works contract, sale of goods was incidental and the dominant activity was rendering of services in bringing out the goods (as in the case of a contractor engaged to construct a building). The High Court did not accept the application of the above analogy to the case before it, having regard to the language of section 194C. The High Court pointed out, "in the present case, the contract was one which needed labour for its execution, namely, loading for which payments had to be made. Therefore, the only conclusion is that in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out a work, of any of the organisations specified therein, there is nothing in the sub-section which could make us hold that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to 'works contract' as was argued on behalf of the appellant. We see no reason to curtail or to cut down the meaning of the plain words used in the section. 'Any work' means any work and not a 'works contract', which has a special connotation in the tax law. Indeed, in the sub-section, the 'work' referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the Legislature that the 'work' in the sub-section is not intended to be confined to or restricted to 'works contract', 'work' envisaged in the sub-section, therefore, has a wide import and covers 'any work' which one or the other of the organisations specified in the sub-section can get carried out through a contractor under a contract and further it includes obtaining by any of such organisations supply of labour under a contract with a contractor for carrying out its work which would have fallen outside the 'work', but for its specific inclusion in the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the contractor is for the transfer of materials used in the construction and towards the services rendered by him in constructing the building. Similarly, when a carpenter is asked to supply a table, the consideration payable to him comprises the cost of the timber and other materials used and the remuneration for the job of converting these materials into a table. However, if the timber and other materials are supplied and the carpenter is asked to make a table, he is paid towards his services in making the table. In the case of a building, if the contractor is engaged to perform the construction work, but the entire materials are supplied by the person engaging the contractor, the contractor is paid for supplying the labour and supervising the construction work. While the former type of cases fall within the category of works contract, the latter type are considered as contract for "services". The concept of works contract loomed large, earlier, in sales tax law. In State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560 ; [1958] 9 STC 353, the Supreme Court held that the Legislature had no competence to levy sales tax on the sale of materials involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter gets fixed deposits to be kept with the petitioner. Can it be said that securing (or procuring) fixed deposits is "carrying out any work" ? In a loose sense, any activity can be referred as "work" and in that sense, a broker can be said to be "carrying out the work of getting fixed deposits". But, having regard to the normal usage, such a sentence would look artificial, crude and rustic. It will not be a language normally used while enacting a fiscal law. A broker is engaged to procure something. He is carrying on the "business" of securing or getting something to another. An estate agent does not carry out the work of getting an estate ; he carries on the business of searching and getting an estate. In the case of a broker, the employment he carries on is not a "work" but, a business or "services". A "broker" is a professional middleman and he carries on a "profession". Any word in a taxing statute is not to be understood by reference to its several dictionary meanings. The word used in a fiscal law, is to be understood (in the absence of any definition) in its popular sense ; the sense in which the relevant word is usually and normally understood. Further, the word or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue is not being precluded from putting forward the present contention on grounds of estoppel. The practice of the Department in assessing the poles to duty (except in cases where they were exempt as the conditions in the exemption notifications were fulfilled) and the issue of notifications from time to time (the first of which was almost contemporaneous with the insertion of item 26AA) are being relied upon on the doctrine of contemporanea expositio to remove any possible ambiguity in the understanding of the language of the relevant statutory instrument : See K. P. Varghese v. ITO [1981] 131 ITR 597 ; [1982] 1 SCR 629 ; AIR 1981 SC 1922, State of Tamil Nadu v. Mahi Traders [1989] 1 SCR 445, Collector of Central Excise v. Andhra Sugar Ltd. [1989] (Supp) 1 SCC 144 and Collector of Central Excise v. Parle Exports P. Ltd. [1989] 1 SCC 345 ; AIR 1989 SC 644. Applying the principle of these decisions, that a contemporaneous exposition by the administrative authorities is a very useful and relevant guide to the interpretation of the expressions used in a statutory instrument, we think the assessee's contention that this products fall within the purview of item 26AA should be uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctric Inspector v. Laxminarayan Chopra, AIR 1962 SC 159. The court referred to Coke as laying down that the maxim "contemporanea expositio" was applied to construe ancient statutes, but not to interpret Acts which are comparatively modern. The court also pointed out that the fundamental rule of construction is to find out the "expressed intention" of the Legislature. The question before the Supreme Court pertained to the scope of the words used in the Electricity Act, 1910, and the Telegraph Act ; the court held that it was necessary to extend the meaning of the words used earlier, to the new situations created by the developments that have taken place in the society, in order to advance the real intention of the law makers. The decision of a two-judge Bench of the Supreme Court in Doypack Systems Pvt. Ltd. v. Union of India [1989] 65 Comp Cas 1 ; AIR 1988 SC 782 (paragraph 60), no doubt, supports the proposition advanced by Dr. Narayanan, to some extent. But, there the court had not referred to other decisions of the Supreme Court on this question. A Division Bench of the Bombay High Court has already taken a similar view in Chamber of Income-tax Consultants v. Central Board o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts must be read as a whole and the observations from the judgments should be considered in the light of the questions which were before the court. As observed by the Supreme Court in CIT v. Sun Engg. Works P. Ltd. [1992] 198 ITR 297, it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete 'law' declared by the Supreme Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision. It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment." In paragraph 12 of the judgment, the High Court applied the doctrine of contemporanea expositio to the circulars issued by the Board in the year 1972, explaining the scope of section 194C. While issuing the im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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