Bombay High Court
Bombay Goods Transport Association And ... vs Central Board Of Direct Taxes And Others on 28 March, 1994
Equivalent citations: [1994]210ITR136(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. This writ petition filed by the Bombay goods Transport Association and its honorary general secretary raises an important question as to whether a contract for mere carriage of goods which does not include any other services like loading or unloading and is not in any way connected with any "work" to be performed by the carrier can be said to be a contract for carrying out any work within the meaning of section 194C of the Income-tax Act, 1961. Though section 194C is in the statute book right from April 1, 1972, there was no controversy about the fact that payments made to transport contractors do not fall within the purview of the said section. The controversy has arisen recently with the issuance of the circular by the Central Board of Direct Taxes being Circular No. 681 (see [1994] 206 ITR (St.) 299) 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.
2. 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 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-operative society.
shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to two per cent. of such sum as Income-tax on income comprised therein.
(2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for payment any sum to any resident (hereafter in this section referred to as 'the sub-contractor') in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent. of such sum as Income-tax on income comprised therein.
(3) No deduction shall be made under sub-section (1) or sub-section (2) from -
(i) any sum credited or paid in pursuance of any contract the consideration for which does not exceed ten thousand rupees; or
(ii) any sum credited or paid 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......"
Soon after the enactment of the above section 194C, a circular was issued by the Deputy Secretary to the Government of India being Circular No. 86 (see [1972] 84 ITR (St.) (9), dated May 29, 1972, to explain the broad effect of the provision. In this circular, it was clearly stated that deduction of Income-tax should be made from sums paid for carrying out any work or for supplying labour for carrying out any work. It was made clear that provisions of section 194C would apply only in relation to "works contracts" and "labour contracts" 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 (see [1972] 86 ITR (St.) 30), 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 (see [1972] 86 ITR (St.) 30, 31) :
"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 loading and unloading is negligible, no Income-tax will be deductible."
The petitioner-association by its letter dated September 8, 1972, also sought specific clarification from the Commissioner of Income-tax, Bombay, in regard to the applicability of section 194C to transport contractors. In reply, the Commissioner of Income-tax by his letter dated October 13, 1972, informed the petitioners as follows :
"With reference to your letter No. BGTA/2/72/1361 dated September 8, 1972, I have been directed to state that the provisions of section 194C are not applicable in respect of transport contractors."
It was again clarified in the year 1982, by the Under Secretary to the Government of India, Ministry of Finance, by letter dated February 3, 1982, in reply to a query from a transporter 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. However, if the contract involves execution of work including supply of labour, it may turn out to be a works contract and the provisions of section 194C will be applicable to it.
It is evident from the above discussion that there was no controversy at any point of time about the fact that the provisions of section 194C were not applicable to payments made to transport operators for carriage of goods from one destination to another. It was for the first time on October 8, 1993, that the Central board of Direct Taxes by its circular sought to clarify in the light of the decision of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435 that "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. On the basis of the above observations of the Supreme Court, it was mentioned that the provisions of section 194C were 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. On receipt of the above circular, the petitioner-association made a representation to the Central Board of Direct Taxes stating that carriage and delivery of goods by transport contractors do not come within the meaning of "works contract". In reply, the Central Board of Direct Taxes forwarded to the petitioners a copy of its Circular No. 681 (see [1994] 206 ITR (St.) 299), dated March 8, 1994, for information and guidance. The said circular contains instructions in the matter of deduction of tax at source on payment 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 withdraw its earlier Circulars Nos. 86 (see [1972] 84 ITR (St.) 90 and 93 (see [1972] 86 ITR (St.) 30) 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 (see [1994] 206 ITR (St.) 299) :
"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') for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the bodies mentioned therein shall, at the time of credit of such sum to the account of the contractor or payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to two per cent. of such sum as Income-tax on the income comprised therein.
2. Sub-section (2) of section 194C of the Income-tax Act, 1961, lays down that when a contractor makes payment of any sum to a resident sub-contractor in pursuance of a contract made with him for carrying out the whole or any part of the work undertaken by the contractor, or, for supplying any labour, the contractor shall deduct an amount equal to one per cent. of such sum as Income-tax on the income comprised therein.
3. Section 194C was introduced with effect from April 1, 1972, Shortly after its introduction, the Board issued Circulars No. 86, dated May 29, 1972 (F. No. 275/9/72-ITJ), No. 93, dated September 26, 1972 (F. No. 275/100/72-ITJ) and No. 108, dated March 20, 1973 (F. No. 131(9)/73-TPL), in this regard.
4. Some of the issues raised in the above-mentioned circulars need to be reviewed in the light of the judgment dated March 23, 1993, delivered by the Supreme Court of India in Civil Appeal No. 2860/(NT) of 1979-Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435.
5. The Supreme Court has held that '..... 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".....'Their Lordships have further held that "any work" means any work and not a "works contract", which has a special connotation in the tax law.... "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".
6. It may be pointed out that this appeal before the Supreme Court was by virtue of a special leave 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 contracts....
8. It may be noted that-....
(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 March 28, 1990.
(iii) The term 'materials contracts' in the context of section 194C would mean contracts for supply of materials where the principal contract is for work and labour and not a contract for sale of materials.
9. Board's Circular No. 86, dated May 29, 1972, and No. 93, dated September 26, 1972, and paragraph 11 of Circular No. 108, dated March 20, 1973, are hereby withdrawn. Board's Circular No. 558, dated March 28, 1990, is reiterated.
10. It clarified that this circular explaining the provisions of section 194C will apply with effect from April 1, 1994. Tax deductions made in accordance with Circulars Nos. 86, 93 and 108 up to March 31, 1994, will be regarded as compliance with the provisions of section 194C....".
By the above circular, the provisions of section 194C are sought to be applied to transport contracts which would include not merely contracts for works like loading, unloading, etc., but contracts for carriage of goods also. This interpretation of section 194C is the subject-matter of challenge in this writ petition.
The petitioners contend that the above circular of the Central Board of Direct Tax is beyond the scope and ambit of section 194C of the Act. It is further submitted that the Central Board of Direct Taxes misinterpreted and misconstrued the ratio of the decision of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 435 and the observations made therein in regard to the meaning of the expression "any work" and has issued the circular on the basis of such erroneous construction of the said judgment. Learned counsel for the petitioners Mr. C. U. Singh submitted before us that the language of section 194C of the Act is clear and unambiguous. It has been correctly interpreted by the Central Board of Direct Taxes throughout in the past and the interpretation has been acted upon both by the Income-tax Department as well as the assessees. There is reason to depart from the interpretation consistently placed on section 194C of the Act for the past two decades. The decision of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 4335, 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 if tax at source on payments by way off 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 by way of commission, brokerage, etc. Commission or brokerage has been defined in the said section to mean any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for service rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing. Professional services are also defined to mean services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA of the Act. Section 194H, however, ceased to be operative with effect from June 1, 1992. The above two sections, i.e., proposed section 194E and section 194H as inserted with effect from October 1, 1991, clearly go to show that what was sought to be introduced by section 194E and what was brought in by section 194H in the net of deduction at source were not covered by the existing section 194C. Had it not been so, there was no necessity of introducing new sections.
Learned counsel submits that the transport services rendered by the members of the petitioner-association do not fall within the scope and ambit of the expression "any work" in section 194C of the Act and, as such, the circular of the Central Board of Direct Taxes seeking to extend the said section to payments made on account of transportation charges is wholly illegal and without jurisdiction. Reliance is placed on the definition of transport in the Motor vehicles Act, 1939, to show that the activities of the transports are known as "transport services." It is also stated on behalf of the petitioners that the decision of the Supreme Court should be read as whole in the context of the before the Supreme Court and, so read, it does not give any different meaning to the words "any work" than had been given by the Central Board of Direct Taxes itself throughout in the past.
In reply Mr. G. S. Jetley, learned counsel for the respondents, submitted that the fact that the Revenue had interpreted section 194C in a particular manner in the past cannot take away its power to interpret the section differently with prospective effect if it is found 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 an, 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 provision 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. The controversy, in our opinion, is in a very narrow compass. Section 194C has been in the statute book almost in the same ever since its inception in the year 1972. It provides for deduction of tax at source on payments made for carrying out any work including supply of labour for carrying out any work in pursuance of a contract between the contractor and the persons specified therein. The crux of the section is "payment made for carrying out any work," which by virtue of specific inclusion also includes supply of labour for carrying out any work. The requirement that such work should be carried out in pursuance of a contract between a contractor and the person/s concerned is an additional requirement. To attract section 194C, it is, therefore, necessary that the payment should be made "for carrying out any work." If this condition is fulfilled then and then only the next condition becomes relevant, i.e., such work should be carried out in pursuance of a contract between the contractor and the person concerned. The work "contract" is word of wide import and includes agreements oral or written. There is no dispute in this case that there is a contract or agreement between the transporter and the owner of the goods for carriage of goods. The case of other petitioner is that "carriage of goods" does not amount to "carrying out any work" and the payments made on that account, therefore, cannot be said to be payments made for carrying out any work. We find force in the above submission. The word "any work" has been interpreted by the Central Board of Direct Taxes itself which is the highest authority under the Income-tax Act for implementation of the provisions of the Act from time to time. It has been made clear in the very first circular on the subject being Circular No. 86 (see [1972] 84 ITR (St.) 99), dated May 29, 1972, that section 194C applies only to works contracts and labour contracts and it does not apply to contracts for sale of goods. In reply to enquiries form various trade associations and members of the public including the petitioner-association, by Circular No. 93 (see [1972] 86 ITR (St.) 30), dated September 26, 1972, it was reiterated that a transport contract cannot ordinarily be regarded as a "contract for crying 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. It was further made clear that 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 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 provision 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 interpretation given by it and acted upon it for more than two decades only on the basis of certain observations of the Supreme Court in the case of Associated Cement Co.'s case [1993] 201 ITR 435. According to the Central Board of Direct Taxes, some of the issues raised in the circulars issued by it earlier from 1972 onwards needed review in the light of the above judgment. Accordingly, by Circular No. 681 (see [1994] 206 ITR (St.) 299), dated March 8, 1994, it opined that the provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts, services contracts, advertisement contracts, broadcasting contracts, telecasting contracts, Labour contracts, materials contracts and works contracts. The term "transport contracts" has been defined to cover in addition to contracts of transport and loading/unloading of goods also contracts for plying buses. The term "services contracts" has also been defined to include services rendered by such persons as lawyers, physicians, surgeons, engineers, accountants, architects, consultants, etc. In Writ Petition No. 1052 of 1994 - Chamber of Income-tax Consultants v. CBDT [1994] 209 ITR (Bom), the very same circular was challenged in so far as it purports to include payments made to professionals on account of services rendered by them by including them in service contracts. By our judgment dated July 14, 1 994, we have held that section 194C is not applicable to payments made to professionals for services rendered by them. We have also discussed the ratio of the decision of the Supreme Court in Associate Cement Co.'s [1993] 201 ITR 435.
We have carefully gone through the decision of the Supreme Court in the aforesaid case in the light of the controversy before it. In the case before the Supreme Court, under the terms and conditions of an agreement between the appellant and a contractor, the contractor was to be paid at a flat rate for loading packed cement bags into wagons or trucks. This rate was fixed on the basis of daily basic wages, dearness allowance, etc., and clause 13 of the agreement stipulated reimbursement by the appellant to the contractor in case of certain increase in the dearness allowance, etc., payable by the contractor to the workmen employed by him. The appellant paid the contractor the amount stipulated at a flat rate as well as amounts by way of reimbursement under clause 13. But the deduction of tax at source made by the appellants 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 "workers." It is in this context that the Supreme court observed (at page 440 of 201 ITR) :
"........ there is nothing in the sub-section which 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 contracts. '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 feet carried out through a contractor under a contract and further it includes obtaining by any of such organisation 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."
In the light of the above, the contention of the appellant that section 194C was not applicable to payments made on account of loading packed cement bags into wagons or trucks was turned down by the Supreme Court. We find that similar was the interpretation of the Revenue itself even in the every first circular issued by it on May 29, 1972, soon after the coming into force of section 194C of the Act. It was clearly stated therein that the provisions of section 194C would apply to "works contracts" and "Labour contracts" were covered by the expression "any work" in section 194C of the Act throughout. In the second circular, the Central Board of Direct Taxes was required to specifically say whether transport contracts would fall within the purview of section 194C or not. The Central Board of Direct Taxes was was always of the clear opinion that though section 194C was applicable to "labour contracts," it was not applicable to transport contracts as, according to it, "transport contracts cannot be said to be contracts for carrying out any work." We do not find anything in the decision of the Supreme Court to justify the reversal of the above view by the Central Board of Direct Taxes by the impugned circular. The Supreme Court has not interpreted the provision of section 194C in the manner it is sought to be interpreted by the Central Board of Direct Taxes to apply to all types of contracts including transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, materials contracts, works contracts, etc. In our opinion, the Central Board of Direct taxes has committed a manifest error of law in interpreting the judgment of the Supreme Court. It is well-settled that the judgment of the Supreme Court has to be read subject to the facts directly presented for consideration before it and not affecting those matters which may lurk in the record. In CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297, at page 320, the Supreme Court 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 consider in the light of the questions which were before this court. A decision of this court takes its colour form the questions involved in the case in which it is rendered and, while applying the decision to a late 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 construction of the expression "any work" to include only "works contracts." There is nothing beyond that in the above judgment of the Supreme Court.
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.'s case [1993] 202 ITR (SC). We have carefully considered the above submission and read and re-raid the provisions of section 194C of the Act. 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."
We may, however, like to make it clear that apart from their binding character, the circulars of the Central Board of Direct Taxes clarifying the scope and ambit of a statutory provision are entitled to considerable weight in interpreting the provisions of the relevant statue unless they go contour to the plain and unambiguous language of the itself. They provide a useful aid to construction of a statute to ascertain the true intention of the Legislature as well as the intention of those in charge of its administration.
The proposed insertion of section 194E in the Act in the year 1987 and insertion of section 194H in the year 1991 further goes to show that, according to the Legislature, section 194C was not applicable to "service contracts" or "contracts" brought within the purview of deduction of tax at source by section 194H of the Act. The observation of the Supreme Court in Associated Cement Co.'s case [1993] 201 ITR 435 to the effect that the "work" envisaged in the sub-section has a wide import and coves "any work" which one or the other of the organisation specified in the sub-section can get carried out through a contractor under a contract cannot be construed in a manner not intended by the Supreme Court. The Supreme Court merely affirmed the interpretation that had been but by the Central Board of Direct Taxes on section 194C of the Act to include 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 it 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 (see [1994] 206 ITR (St.) 299), 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 an without jurisdiction in so far as it requires deduction of tax at source under section 194C to contract of 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 the rule is made absolute in the above terms. Under the facts and circumstances of the case, there shall be no order as to costs.
Mr. Jetley, learned counsel for the respondents, applies for stay of the operation of this order for a period of four weeks for today. We do not find any reason to do so particularly in view of the fact that the operation of the impudent circular of the Central Board of Direct Taxes had been stayed by this court at the time of filing of this writ petition itself which is operative even today.
Issuance of certified copy expedited.