Bombay High Court
Advertising Agency Association Of ... vs Central Board Of Direct Taxes And Others on 29 March, 1994
Equivalent citations: [1994]210ITR152(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. This writ petition has been field by the Advertising Agency Association of India, an association of advertising agencies from all over India and its President, Diwn Arun Nanda. The petitioners have challenge Circular No. 681 (see [1994] 206 ITR (St.) 299), dated March 8, 1994, of the Central Board of Direct Taxes in so far as it purports to make the provisions of section 194C of the Income-tax Act, 1961, applicable to payments made to the advertising agencies for professional services rendered by them.
2. The arguments were advanced before us by learned counsel for the petitioner in regard to the scope and ambit of section 194C of the Act. It was stated that the said section had throughout been construed by the Ministry of Finance and by the Central Board of Direct Taxes as not applicable to payments made to advertising agencies for professional services rendered by them. It was a long 20 years after the incorporation of section 194C in the Act that the Central Board of Direct Taxes has reversed its interpretation purportedly on the basis of the decision of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435.
3. We have considered the submissions of Mr. Bharucha, learned counsel for the petitioners. We had occasion to deal with the scope and ambit of section 194C of the Act in regard to fees paid to professionals like solicitors, advocates, chartered accountants, etc., in Writ Petition No. 1052 of 1994 - Chamber of Income-tax Consultants v. CBDT [1994] 209 ITR 660, filed by the Chamber of Income-tax Consultants and others. We have delivered judgment in the above case on July 14, 1994. In the above judgment, we have set out the provisions of section 194C of the Act and have dealt at length with various circulars issued from time to time both by the Ministry of Finance and by the Central Board of direct Taxes in regard to the applicability of the provisions of section 194C. We had also occasion to deal with the said section in another Writ Petition No. 1277 of 1994 - Bombay Goods Transport Association v. CBDT [1994] 210 ITR 136, filed by the Bombay Goods Transport Association challenging the very same circular of the Central Board of Direct Taxes dated March 8, 1994, with regard to the applicability of section 194C to payments made to transport operators for carriage of goods. In the petition filed by the Chamber of Income-tax Consultants and others, we have held that section 194C does not apply to payments by way of professional fees. In the petition filed by the Bombay Goods Transport Association by our judgment dated July 28 and 29, 1994. We have held that the provisions of section 194C do not apply to contracts for more carriage of goods, i.e., transport contracts. The ratio of the above two decisions squarely applies to the case of payments made to advertising agencies for professional services rendered by them.
4. In this connection, it may be expedient to mention that by Circular No. 93 (see [1972] 86 ITR (St.) 30), dated September 26, 1972, issued by the Deputy Secretary to the Government of India in reply to a query whether the requirements of section 194C would apply to payments made to advertising agents rendering professional services, it has been categorically stated that service contracts not involving carrying out of any work are outside the scope of section 194C. Earlier also, by Circular No. 86 (see [1972] 84 ITR (St.) 99), dated May 29, 1972, it was made clear that the provisions of section 194C are applicable only to works contracts and labour contracts. There is no change in the law since then. Further, the above interpretation has been accepted and acted upon both by the Revenue and the assessee including the petitioners. It is only recently on March 8, 1994, that the Central Board of Direct Taxes by Circular No. 681 (see [1994] 206 ITR (St.) 299) withdrew its earlier circulars on the point purportedly on the basis of the decision of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 435.
5. We have discussed the decision of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 435, in our above two judgments. There, we have come to a clear conclusion that the Supreme Court in the said judgment has in no way extended of amplified the scope of section 194C of the Act. It has merely held that the said section is not confined to works contracts but also applies to labour contracts. This is also the interpretation given by the Central Board of Direct Taxes throughout in the past. The Supreme Court in the case was required to consider the question of applicability of section 194C to labour contracts because the contention of the assessee there was that the said section was applicable only to works contracts. It was this contention that was repelled by the Supreme Court. In other words, as aforesaid, the Supreme Court merely affirmed the interpretation put by the Central Board of Direct Taxes on section 194C of the Act to include not only works contracts but also labour contracts.
6. Following the ratio of the above two decision of this court, we hold that the impugned circular of the Central Board of Direct Taxes, dated March 8, 1994, is illegal and without jurisdiction in so far as it requires deduction at source from payments made to advertising agencies for professional services rendered by them.
7. In the result, this writ petition is allowed in the above terms.
8. Under the facts and circumstances of the case, we make no order as to costs.
9. Certified copy expedited.
10. Mr. Jetley applies for stay of this order for four weeks. Considering the facts and circumstances of the case, the prayer is rejected.