Calcutta High Court
Calcutta Goods Transport Association ... vs Union Of India (Uoi) And Ors. on 14 November, 1994
Equivalent citations: [1996]219ITR486(CAL)
Author: Ruma Pal
Bench: Ruma Pal
JUDGMENT Ruma Pal, J.
1. The issue involved in this writ petition is whether common carriers of goods by road are liable to deduction of tax at source under Section 194C of the Income-tax Act, 1961 (hereinafter referred to as "the Act").
2. Petitioner No. 1 is a registered society representing goods carriers and transporters in the State of West Bengal. According to the petitioners, the members of petitioner No. 1 are common carriers of goods. Except for transporting goods, such members do not carry out any other work in connection with the goods transported such as loading and unloading of the goods,
3. Section 194C of the Act was introduced in 1972. Briefly stated, Section 194C provides for the deduction of two per cent. on account of income-tax on the income comprised in payments made to contractors and subcontractors "for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor" and specified concerns or authorities.
4. On May 29, 1972, a circular was issued by the Government of India explaining the scope and ambit of, inter alia, Section 194C. In so far as it is material the circular (Circular No. 86 (see [1972] 84 ITR (St.) 99, dated May 29, 1972) provided :
"(ii) The deduction of income-tax will be made from sums paid for carrying out any work or for supplying labour for carrying out any work. In other words, the new provision will apply only in relation to 'works contracts' and 'labour contracts' and will not cover contracts for sale of goods.... The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale. . . .
(iii) Contracts for rendering professional services by lawyers, physicians, surgeons, engineers, accountants, architects, consultants, etc., can also not be regarded as contracts 'for carrying out any work' and, accordingly, no deduction of income-tax will be made from payments relating to such contracts."
5. On September 26, 1972, a second circular was issued by the Ministry (Circular No. 93 (see [1972] 86 ITR (St.) 30), dated September 26, 1972) in response to several inquiries received from various trade associations. One of the enquiries was whether the requirement of deduction of income-tax at source applied to transport contracts. The answer was as follows ;
"A transport contract cannot ordinarily be regarded 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 case of a composite contract involving transport as well as loading and unloading, the entire contract will be regarded as '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."
6. The scope and effect of Section 194C were also explained by the Board by its Circular No. 108 dated March 28, 1973, in a language which was materially identical with Circular No. 93 of 1972 (see [1972] 86 ITR (St.) 30).
7. The Finance Bill of 1987 proposed to insert Section 194E by subjecting fees for professional services, royalty, fees for technical services, rent, commission or brokerage and payment for goods supplied to the Government or local authorities or public undertakings above specified limits subject to deduction at source. Section 194E, however, was not ultimately enacted.
8. In 1991, Sections 194G and 194H were introduced in the Act by which payment of commission on sale of lottery tickets and payment of commission, brokerage, etc., were made subject to deduction of income-tax at source. Subsequently, the provisions ceased to have effect in respect of such payments made on and after July 1, 1992, as far as such contracts are concerned. It is undisputed, that from the time of introduction of Section 194C till 1993 neither the Government nor the transporters subjected payments made to mere transporters to tax deduction at source. On March 23, 1993, the Supreme Court had to consider the question whether payment to a contractor for loading packed cement bags into wagons and trucks came within the purview of Section 194C(1) of the Act in the case of Associated Cement Co. Ltd. v. CIT . The Supreme Court held that the case squarely fell within the provisions of Section 194C(1). The Supreme Court negatived the submission that Section 194C(1) of the Act only applied to "works contracts". The Supreme Court construed Section 194C(1) and said that no ambiguity was found in the language employed in the sub-section and went on to say (page 440) :
"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-section."
9. On the basis of this decision of the Supreme Court, on October, 8, 1993 (see [1993] 204 ITR (St.) 40), a circular was issued by the Ministry of Finance giving instructions regarding deduction of tax at source under Section 194C in which it was only stated, inter alia, (see [1993] 204 ITR (St.) 40, 42) :
" It is clarified that the term 'any work' in Section 194C has to be understood in its natural meaning, i.e., any work means 'any work and not only a works contract' which has a special connotation in the tax law.
This has been clearly enunciated by the Supreme Court of India in its judgment dated March 23, 1993, in Civil Appeal No. 2860 (NT) of 1979-Associated Cement Co. Ltd. v. CIT . 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."
10. This was followed by Circular No. 681 (see [1994] 206 ITR (St.) 299) dated March 8, 1994, issued by the Central Board of Direct Taxes which stated that the earlier circulars issued on the question of deduction of income-tax at source under Section 194C would have to be reviewed in the light of the judgment of the Supreme Court in Associated Cement Co. Ltd. v. CIT . The Central Board of Direct Taxes said that the conclusion flowing from the judgment of the Supreme Court was that the provisions of Section 194C would apply to all types of contracts including transport contracts, labour contracts, service contracts, etc., and that in the light of the judgment, the Board had decided to withdraw the earlier circulars issued in this regard. Fresh guidelines were issued with regard to the applicability of the provisions of Section 194C. Some of the guidelines which are material for the purposes of this writ petition are contained in paragraphs 7 and 8 of the Board circular and read as follows (see [1994] 206 ITR (St.) 299, 300) :
"(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 contracts. . . .
(iii) The provisions of Section 194C would not apply in relation to payments made for hiring or renting of equipment, etc.
(iv) The provisions of Section 194C would not apply in relation to payments made to banks for discounting bills, collecting/receiving payments, through cheques/drafts, opening and negotiating letters of credit and transactions in negotiable instruments.
(v) Service contracts would be covered by the provisions of this section since service means doing any work as explained above.
(vi) The provisions of this section will not cover contracts for sale of goods.
8. It may be noted that,--
(i) The term 'service contracts' would include services rendered by such persons as lawyers, physicians, surgeons, engineers, accountants, architects, consultants, etc. . . .
(ii) The term 'transport contracts' would, in addition to contracts for transportation and loading/unloading of goods, also cover contracts for plying of buses, ferries, etc., along with staff (e.g., driver, conductor, cleaner, etc.). Reference in this regard is also invited to Board's Circular No. 558 dated 28th March, 1990 (see [1990] 183 ITR (St.) 158)."
11. However, contracts for sale were kept outside the purview of the section and the Board reiterated the stand taken by them in 1972 that whether a particular contract was a contract for work and labour or for sale should be decided the light of the principles laid down by the Supreme Court in the case of State of Punjab v. Associated Hotels of India Ltd. .
12. The challenge of this writ application is directed at the circular dated October 8, 1993, and the circular dated March 8, 1994.
13. According to the petitioners, the only basis for the issuance of the impugned circulars was the judgment of the Supreme Court. It is contended-that the Supreme Court's judgment had been wrongly interpreted in the impugned circulars. It is submitted that the Supreme Court had not in terms held that carriage of goods is work within the meaning of Section 194C and that unless the contract was for carrying out work the section would not be applicable. It is argued that the Supreme Court did not define the word "work" nor did it say that the word should be given the widest possible meaning. According to the petitioners the word "work" may be used in two senses--it may mean either the labour which is bestowed upon a thing or a thing itself upon which labour is bestowed. It is also contended that the expression in parenthesis "including supply of labour for carrying out any work" furnished intrinsic evidence as to the meaning of the word "work" and that, therefore, the word "work" for purposes of Section 194C must involve bestowing labour on a thing and by way of expansion supply of labour for the purpose. It is submitted that those species of work which do not involve labour are not intended to be covered by Section 194C. It is further submitted that every species of work was not covered under Section 194C as was evident from Sections 192 and 194D of the Act. The petitioners have also argued that the judgment of the Supreme Court must be read as a whole and the observations therein have to be considered in the light of the question before the court. It is pointed out that the contemporaneous exposition contained in the circulars issued by the Ministry and the Board at the time of and subsequent to the enactment of Section 194C were not before the Supreme Court. Finally, it is submitted that works involving service are not covered by Section 194C nor are common carriers contractors within the meaning of the section. According to the petitioners, transportation does not involve bestowing any labour on the goods carried but it was a service rendered for reward. Several decisions have been cited by the petitioners in support of their arguments which will be noted subsequently.
14. The respondents have submitted that the application is not maintainable as the issue would have to be decided with reference to the specific terms of each contract of transport. The respondents have said that such a mass petition should not be entertained by this court. Secondly, it is submitted that the decision of the Supreme Court could not be limited to the facts of the case before it as it had in fact, construed Section 194C as a matter of law. The Supreme Court had in no uncertain terms said that there was no ambiguity in the section. Therefore, there was no scope for applying any principles of construction such as the principle of contemporanea expositio. Thirdly, it is submitted that the Supreme Court had clearly held that the phrase "any work" could not be given a narrow or restricted meaning. Besides, it is argued, the plain meaning of the section would show that the words "any work" were unqualified by any limiting factor. Finally, it is submitted that no prejudice would be suffered by the transporters if payment was made subject to tax deducted at source as it was a liability which would have to be met by the transporters in any event.
15. It may be mentioned that although the directions were given for filing of affidavits, no affidavit in opposition has been filed by the respondents to the petition.
16. The initial point taken by the respondents which is by way of a preliminary objection is without merit. The issue to be decided does not relate to the particular terms of any contract but relates to a statement of law the answer to which would affect the members of petitioner No. 1. The answer does not involve any question of fact as such but turns on the interpretation of Section 194C. The writ petition, therefore, is maintainable and the first submission of the respondents is rejected.
17. As far as the merits of the case are concerned, the matter is not res integra. Division Benches of two High Courts have had occasion to consider the interpretation of Section 194C in the background of the decision of the Supreme Court in the case of Associated Cement .
18. Before the Bombay High Court in the case of Chamber of I. T. Consultants v. CBDT [1994] 209 ITR 660, the challenge was to the validity of Circular No. 681 (see [1994] 206 ITR (St.) 299), dated March 8, 1994, in so far as it sought to subject payment of fees for professional services to the provisions of Section 194C of the Act. After considering these earlier circulars issued by the Central Board of Direct Taxes as well as the infructuous attempt by the Government to specifically subject fees for professional services to the incidence of deduction of tax at source in 1987, the court held that the Supreme Court in the case of Associated Cement :
". . . . did not intend to give an extended meaning to the expression 'any work' so as to include professional services within its ambit. The Supreme Court interpreted the expression 'any work' to decide whether it was confined to works contract as argued by the appellant before it or it was applicable to labour contracts also. It is in this context that the Supreme Court observed that 'any work' means any work and not only a 'works contract'. The above observation of the Supreme Court cannot be interpreted out of context to include payments made to professionals like advocates, solicitors, chartered accountants, tax practitioners, doctors, surgeons, engineers, etc., for the services rendered by them. Neither are such persons rendering professional services known as 'contractors' or 'sub-contractors' nor are payments made to them for the services rendered by them termed as 'payment for carrying out any work' or for 'supply of labour for carrying out any work' either in common parlance or in legal terminology. It will be a total misnomer to describe such professionals as 'contractors' or 'sub-contractors'. If the contention of the Revenue in this regard is accepted, a solicitor or an advocate on record will have to be described as a 'contractor' and counsel briefed by him in the matter a 'sub-contractor'. An interpretation which leads to such a ridiculous result cannot be a proper interpretation of the section."
19. The Bombay High Court also held that the judgment of the Supreme Court would have to be read in the context in which it was delivered and that the context before the Supreme Court was whether the words "any work" used in Section 194C were restricted to "works contract". The Bombay High Court also was of the view that the circulars issued by the Central Board of Direct Taxes during the last two decades explaining the scope and ambit of Section 194C were clearly in the nature of contemporanea expositio and that an interpretation of a taxing statute which had been acted upon and accepted should not be easily departed from except for compelling reasons.
20. A similar view was taken by the Division Bench of the Delhi High Court in S. R. F. Finance Lid v. CBDT . The issue before the High Court was whether payments made to commission agents and brokers could be brought within the purview of Section 194C of the Act. The High Court held that the observations of the Supreme Court must be read in the factual background of the cases in which the observations were made and in the light of the respective contentions and that to lift a sentence from a judgment as if it is an independent provision in a statute and emphasise it as declaring the law would result in unanticipated and unexpected consequences. It was also held by the Delhi High Court that there was a qualitative difference between "work" and "services". It was held that the two words convey different ideas. The court said (page 881) :
"If the term 'any work' in Section 194C by itself covers any kind of service, the words found in the bracket, in sub-section (1) of Section 194C will have to be treated as otiose or superfluous. Supply of labour to carry out any work, is a concept that falls within the concept of 'service' ; if so, why should Parliament include these words in the bracket, to give an expanded meaning to the term 'any work'. The Supreme Court in Associated Cement Co. Ltd's case clearly pointed out that but for the specific inclusion of those words (i.e., 'including supply of labour for carrying out any work'), in Section 194C, obtaining of supply of labour for carrying out the work would have fallen outside the word 'work'. The concluding part of the Supreme Court observation quoted above brings out the true purport of the term 'any work' in Section 194C."
21. The conclusion arrived at was that the term "any work" does not cover "services". Reliance was also placed on the doctrine of contemporanea expositio to hold that the intention of the Legislature in enacting Section 194C was not to apply it to payment of fees for professional or technical services.
22. The third decision is again of the Bombay High Court (Bombay Goods Transport Association v. CBDT [1994] 210 ITR 136) in which the Bombay High Court had to consider the very issue which is now before this court, namely, whether a contract for mere carriage of goods which does not include any other services like loading or unloading can be said to be a contract for carrying out "any work" within the meaning of Section 194G of the Act, in addition to the facts noted in the earlier decision and legislation subsequent to the enactment of Section 194C.
23. In this decision, the Bombay High Court noted that the petitioner association had written a letter seeking a specific clarification from the Commissioner, Bombay, in regard to the applicability of Section 194C to transport contractors. In reply, the Commissioner had informed the petitioners stating in unequivocal and categorical terms that he had been directed to state that the provisions of Section 194C are not applicable in respect of the transport contractors. The Bombay High Court also noted that in 1982, the Undersecretary to the Government of India, Ministry of Finance, in reply to a query from a transporter had said that if the contracts are purely transport contracts involving only transportation of goods entrusted for carriage to the transport operators, the provisions of Section 194C would not be applicable to such payments. The Bombay High Court said that the circulars issued by the Central Board of Direct Taxes provided a useful aid to construction of the statute to ascertain the true intention of the Legislature as well as the intention of those incharge of its administration. It was said (see page 150 of 210 ITR) :
"Mr. Jetley, learned counsel for the respondents, stated that we should interpret Section 194C without reference to the circulars of the Central Board of Direct Taxes and the decision of the Supreme Court because the particular aspect of the matter which is the subject-matter of controversy in the present case was not a question involved in Associated Cement Co. Ltd.'s case . We have carefully considered the above submission and read and re-read the provisions of Section 194C. We, however, do not find anything in it to justify the interpretation which is sought to be put on it by the Central Board of Direct Taxes. In our opinion, the expression 'any work' used in Section 194C means 'works contracts' and 'contracts for work', i.e., 'labour contracts' but not 'service contracts' or 'transport contracts'."
24. On the basis of the reasoning in these decisions the second and third submissions of the respondents noted earlier are liable to be rejected. The three decisions have with one voice limited the ratio decidendi in the case of Associated Cement to the facts of the case before the Supreme Court and the specific issue which was to be resolved on the basis of such facts. The three decisions have also held that the Supreme Court had not held that the phrase "any work" was to be understood in the widest possible sense.
25. These decisions have not been sought to be distinguished by the respondent. In my opinion, the reasoning in the three decisions appears unexceptionable and I adopt the same with respect.
26. I am also of the view that the decision of the Supreme Court in Associated Cement's case has not been correctly understood or interpreted by the Central Board of Direct Taxes or the Government in the impugned circulars. The applicability of Section 194C hinges on the meaning of the word "any work" in that section.
27. The bedrock of the respondents' submission is the decision of the Supreme Court in the case of Associated Cement . But, as the petitioners correctly submitted, the Supreme Court did not in fact define the words "any work" in the decision at all.
28. The word "work" has been used as a noun in Section 194C, not as a verb. In New Shorter Oxford English Dictionary, 1993 edition, the noun "work" has been given three meanings, namely :
"(i) Act, action, process ;
(ii) Product, result. A thing, structure, or result produced by the operation, action, or labour of or of a person or other agent; things made collectively, creation, handiwork ;
(iii) A place or premises where industrial activity, esp. manufacture, is carried on,"
29. The third meaning clearly has no application. We are concerned with the first two meanings of the word.
30. Similarly, in Stroud's Judicial Dictionary, 5th edition, the definition of "work" culled out from diverse decisions has been stated as follows ;
"The word 'work' may be used in two senses; it may mean either the labour which a man bestows upon a thing, or the thing upon which the labour is bestowed."
31. The first sense of the word as defined in the dictionary is the wider one. The question is whether all acts, actions and processes are sought to be covered under Section 194C. If not the word "work" will have to bear the meaning assigned in the second sense.
32. The definition of the words "carry out" would also assist in fixing the meaning of the word "work" in Section 194C. "Carry out" has been defined in New Shorter Oxford English Dictionary (1993) as "perform, conduct to completion and put into practice".
33. There are thus two distinct senses in which the word may be understood. The fact that two meanings are possible to be given to a word means that there is an ambiguity in the word itself. Even assuming that the decision of the Supreme Court is not restricted to the facts of the case before it as held by the three decisions noted earlier, it is clear that without the word "any work" being defined the applicability of Section 194C to a given situation cannot be determined. The closest to a definition-by the Supreme Court of the phrase "any work" in the decision of Associated Cement's case has been quoted earlier in this judgment, viz., that "any work" means any work. This does not take the matter any further. The Supreme Court has not gone on to clarify or explain or define as to the sense in which the word was being used by the Supreme Court. Once the sense of the word "work" is determined it must be held that any such work would be within the ambit and scope of Section 194C as held by the Supreme Court.
34. The subsisting possibility of two interpretations to the word "work" even after the decision in Associated Cement's case would allow for the utilisation of recognised aids for construction to clarify the ambiguity and to elicit the intention of Parliament. In this case, the circulars issued by the Government and the Central Board of Direct Taxes clearly point to the meaning of the word "work" as intended to be used in Section 194C.
35. That the word "work" does not have the widest possible connotation is also clear from the fact that Parliament had sought to bring professional services and other such "works" in the wider sense within the net of tax deduction at source. If such "work" were already covered by Section 194C, it was wholly unnecessary to introduce separate statutory provisions in this regard. The only conclusion that follows from this is that the word "work" is to be understood in the limited sense as product or result. The carrying out of work indicates doing something to conduct the work to completion or an operation which produces such result. The petitioners have correctly submitted that the word "work" as used in Section 194C has been used in this sense. That is also why the specific extension to supply of labour was necessary.
36. That being so the mere transportation of goods by a common carrier does not affect or result in the goods carried nor are the goods affected thereby and as such cannot be brought within the scope of Section 194C.
37. The last submission of the respondents is also unacceptable. The question of prejudice is immaterial in considering the impact of a statutory provision. The challenge of the petitioners is to the action of the authorities as being beyond the scope of Section 194C. If the action is not competent the fact that no prejudice is suffered is of no consequence.
38. For all these reasons the writ application must be allowed. Let writs issue as prayed for in terms of prayers (a), (b) and (c) in so far as it relates to payment to common carriers merely transporting goods. It is also declared that common carriers of goods by road are not liable to deduction of tax at source under Section 194C of the Income-tax Act, 1961, and the provisions of the section are not applicable to them.
39. There will be no order as to costs.
40. Let a xerox copy of this judgment duly signed by the Assistant Registrar of this court be given to the parties upon their undertaking to apply for the certified copy of the judgment and on payment of usual charges.