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TMI Blog1994 (7) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular by the Central Board of Direct Taxes being Circular No. 681 of March 8, 1994. The uncontroverted position is that prior to the issuance of the above circular there were circulars and clarifications from the Central Board of Direct Taxes to the effect that section 194C was not applicable to payments made for carriage of goods to the transport operators. For a proper appreciation of the controversy, it may be expedient to set out some of the provisions of the Act, the relevant circulars and guidelines issued by the Central Board of Direct Taxes from time to time after the coming into force of section 194C and during the last two decades of its operation. Section 194C of the Act provides for deduction of tax at source from payments to contractors and sub-contractors. The said section, so far as relevant, reads as follows : " S. 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 G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts " and will not cover contracts for sale of goods. Thereafter, another circular was issued by the Deputy Secretary to the Government of India being Circular No. 93 dated September 26, 1972. The said circular was issued in response to enquiries from various trade associations and members of the public seeking clarifications on several points arising out of the scheme of tax deduction at source from payments made to contractors and sub-contractors in certain cases. The points on which enquiries were made and clarifications given in the matter are set out in the said circular. One of the points on which clarification was sought pertained to transport contracts. The following was the clarification : " A transport contract cannot ordinarily be regarded as a '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 case of a composite contract involving transport as well as loading and unloading, the entire contract will be regarded as a 'works contract' and income-tax will have to be deducted from payments made thereunder. Where, however, the element of labour provided for loadi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract ". In reply, the Central Board of Direct Taxes forwarded to the petitioners a copy of its Circular No. 681 dated March 8, 1994, for information and guidance. The said circular contains instructions in the matter of deduction of tax at source on payments to contractors and sub-contractors under section 194C of the Act in the light of the Supreme Court's decision in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435. By the above circular, the Board withdrew its earlier Circulars Nos. 86 and paragraph 11 of Circular No. 108. It was, however, clarified that the said circular explaining the provisions of section 194C would apply with effect from April 1, 1994. This circular, so far as it is relevant, reads as follows : " Circular No. 681, dated March 8, 1994. Subject : Deduction of income-tax at source under section 194C of the Income-tax Act, 1961, from payments made to contractors/sub-contractors--Supreme Court judgment dated March 23, 1993, in Associated Cement Co. Ltd. v. CIT--Instructions--Regarding. Sub-section (1) of section 194C of the Income-tax Act, 1961, lays down that any person responsible for paying any sum to any resident (hereinafter referred to as 'contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave petition against the judgment in Writ Petition No. 2909 of 1978 of the Patna High Court in the case of Associated Cement Co. Ltd. v. CIT [1979] 120 ITR 444. The Patna High Court, while dismissing the writ petition of the aforesaid company, observed that 'in a very broad sense, a work done by one person is service rendered to another and indeed one of the dictionary meanings of the word " service " is work'. 7. The conclusion flowing from the aforesaid judgments of the Supreme Court and the Patna High Court is that the provisions of section 194C would apply to all types of contracts including transport contracts, labour contracts, service contracts, etc. In the light of these judgments, the Board have decided to withdraw their abovementioned Circulars Nos. 86 and 93 and paragraph 11 of Circular No. 108 and issue the following guidelines in regard to the applicability of the provisions of section 194C :-- (i) The provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, materials contracts and works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for the past two decades. The decision of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 435, according to learned counsel, in no way justifies such a departure. Learned counsel further submitted that the meaning of section 194C is further clear from the legislative intent which can be gathered also from the amendment sought to be made by Parliament in the year 1987 by the insertion of section 194E of the Act by the Finance Bill, 1987, and the introduction of section 194H in the Act by the Finance (No. 2) Act, 1991, with effect from October 1, 1991, which was, however, made inoperative with effect from June 1, 1992. By the insertion of section 194E, Parliament intended to provide for deduction of tax at source on payments by way of fees or professional services or royalty or fees for technical services or loan or commission (not being insurance commission referred to in section 194D). The proposal to insert the said section was later withdrawn on account of the representations made on behalf of various professional bodies. However, the provision was, in fact, made in the Act in the year 1991 by the insertion of section 194H for deduction of tax on payments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that its earlier interpretation was not correct. According to him, a grievance on this account can be made only if such a departure is made retrospectively which is not the case here. Mr. Jetley further submitted that section 194C should be construed by this court de hors the circulars or the judgment of the Supreme Court and, so construed, the words " any work " will have to be interpreted to include all services including transport services. Counsel submitted that the circulars of the Board cannot detract from the Act and in case of any conflict, the provisions of the Act ought to be given effect ignoring the circulars. Reliance was placed in this connection on the decision of the Supreme Court in Kerala Financial Corporation v. CIT [1994] 210 ITR 129 ; [1994] 2 Scale 1026. Mr. Jetley referred to the meaning of the word " contract " as also the word " work " as given in various dictionaries such as Black's Law Dictionary, Chambers Dictionary and the Oxford Dictionary in support of his contention that the word " contract " is wide enough to include a contract for carriage of goods and the word " work " includes services also. We have carefully considered the rival submissions. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of a composite contract involving transport as well as loading and unloading, the entire contract will be regarded as a " works contract " and income-tax will have to be deducted from payments made thereunder. Where, however, the element of labour provided for loading and unloading is negligible, no income-tax will be deductible. In answer to another question it was even clarified that pipeline/pumping charges for use of pipelines owned and operated by port trusts for movement of petroleum products by pipeline from refinery to port installations would not fall within the purview of section 194C of the Act. Again, on October 13, 1972, in a letter written to the petitioner-association itself, it was specifically stated that the provisions of section 194C were not applicable in respect of transport contractors. The same view was reiterated in yet another letter of February 3, 1982. There is no change in the situation during the last 20 years to justify a departure from the above interpretation of section 194C given by the Central Board of Direct Taxes and accepted by the taxpayers. The Central Board of Direct Taxes has reviewed the above instructions and changed the interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction of tax at source made by the appellant under section 194C(1) of the Act fell short of the deductions required to be made thereunder. On a show-cause notice being issued the appellant contended that it was not liable to deduct any amount under the said section as the payments were not in respect of " works contracts ". It is in this context that the Supreme Court observed : " . . . . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt itself observed : " It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this 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 of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasoning. " In Associated Cement Co.'s case [1993] 201 ITR 435, the controversy before the Supreme Court was limited to the applicability of section 194C to labour contracts. The various circulars of the Central Board of Direct Taxes were not before the Supreme Court. The Supreme Court interpreted section 194C de hors those circulars. It did not approve the narrow construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only works contracts but also " labour contracts ". The Supreme Court made it clear that " labour contracts " would have fallen outside the " work " envisaged by section 194C but for its specific inclusion in sub-section (1). In the light of the above discussion, we are of the clear opinion that the provisions of section 194C of the Act are not applicable to contracts for mere carriage of goods which do not include any other services like loading or unloading. The circular of the Board No. 681 dated March 8, 1994, in our opinion, is based on an erroneous reading of the decision of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 435 and certain observations made therein. We, therefore, hold that the said circular is illegal and without jurisdiction in so far as it requires deduction of tax at source under section 194C to contracts for mere carriage of goods which do not include any other services like loading and unloading and are not in anyway connected with any work to be performed by the carrier. In the result, this writ petition is allowed and rule is made absolute in the above terms. Under the facts and circumstances of the case, there shall be no order a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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