CENTRAL BOARD OF DIRECT TAXES VS COCHIN GOODS TRANSPORT ASSOCIATION, 2000 PTD-KERALA-HIGH-COURT-INDIA 2811 (1998)

(a) Interpretation of statutes---

----Fiscal statute;---When language is clear,. Court should interpret statute on face value---In fiscal matters no res judicata and no estoppel.

So long as the language employed in the statutory provision and moreso in the fiscal statute is clear, the Court should interpret it on the face value and there is no warrant to go behind it. Nothing should be added or subtracted to interpret the plain language and the semantic view alone should betaken.

In fiscal matters there is no res judicata and no estoppel.

(b) Income-tax---

----Deduction of tax at source---Payment to contractors "for carrying but any work"---Provision for deduction of income-tax from payments---Is not restricted to payments in relation to "works contracts"- --Transport contract for mere carriage of goods without loading and unloading facility---Would amount to carrying out "any work" within the meaning of S.194-C(1)---"Any work" in subsection (1) of S. 194C means any work and not a "works contract"---Deduction of tax at source at rate of 2 percent. from amounts credited to account of contractor to be made by person responsible for paying---Indian Income Tax Act, 1961, S.194C(11).---(Bombay Goods Transport Association v. Central Board of Direct Taxes (1994) 210 ITR 136 (Bom.) dissented from].

There is nothing in subsection (1) of section 194C of the Income Tax Act, 1961, to hold that a contract to carry out a work or a contract to supply labour to carry out a work should be confined to works contracts and that the words "any work" occurring in the subsection mean any work and not a "works contract". Therefore, a transport contract simplicter (i.e. a transport contract for mere carriage of goods without loading and unloading facility) would amount to carrying out "any work" within the meaning of section 194C(1) of the Act and, therefore, deduction of tax at source at the rate of two percent. from the amounts credited to the account of the contractor has to be made by a person responsible for paying any sum for the transport contract.

Bombay Goods Transport Association v. Central Board of Direct Taxes (1994) 210 ITR 136 (Bon.) dissented from.

Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) fol.

P. K. Ravindranatha Menon, Senior Advocate and N. R. K. Nair for Appellant.

JUDGMENT

OM PRAKASH, C. J.---These appeals are directed against the impugned judgment, dated November 9, 1995, disposing of all the original petitions giving rise to the instant appeals following the decision of the Bombay High Court in Bombay Goods Transport Association v. CBDT (1994) 210 ITR 136.

The only question for consideration in all these appeals is, whether a transport contract for mere carriage of goods without loading and unloading facility would amount to carrying out "any work" within the meaning of section 194C(1) of the income Tax Act, 1961 (briefly, "the Act"). The contention of the petitioners was that, a mere contract of transport without loading and unloading facility will not amount to carrying out "any work" under section 194C(1) of the Act. Such submission of the petitioners before the learned single Judge was founded on circulars, dated May 29, 1972, and September 26, 1972, which had come to be issued immediately after the insertion of section 194C of the Act. Section 194C, in so far as relevant, reads:

"194C. Payments of contractors and sub-contractors.---(1) Any person responsible for paying any sum to any resident (hereinafter 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 cooperative 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 percent. of such sum as income-tax on income comprised therein."

From subsection (1) of section 194C, it is manifest that, any person responsible for paying any sum to any contractor for carrying out any work, including supply of labour for carrying out any work in pursuance of a contract between the contractor and an organisation as mentioned in clauses (a) to (e), 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 cheque or draft or by any mode, deduct two percent. of the amount so credited to the account of the contractor towards income-tax.

The contention of the petitioners before the learned Single Judge on the strength of Bombay Goods Transport (1994) 210 ITR 136 (Bon.), in which it was held that the provisions of section 194C(1) are not applicable to transport contracts simpliciter, which do not include any other services like loading or unloading was that a transport contract simpliciter not involving a contract of loading and unloading could not be regarded as a "contract for carrying out any work" and, therefore, no deduction at source at the rate of two percent. could be made from any sum credited to their account under section 194C(1) of the Act. .The question for consideration, therefore, is whether the phrase "carrying out any work" occurring in section 194C(1), refers to works contract. The Bombay High Court adverting to the circulars dated May 29, 1972 (see (1972) 84 ITR (St.) 99), and September 26, 1972 (see (1972) 86 ITR (St.) 30), held that, the Central Board of Direct Taxes (acronym-CBDT) all along understood that, section 194(7 applied only to' works contract and that it did not apply to contract for sale of goods. It is not disputed that the circular, dated May 29, 1972 (see (1972) 84 ITR (St.) 99), was issued by the Central Board of Direct Taxes clarifying that section 194(7 applies only to works contract and labour contracts and it does not apply to contracts for sale of goods. In reply to the queries from various trade associations and members of the public the Central Board of Direct Taxes, issued another circular, dated September 26, 1972 (see (1972) 86 ITR (St.) 30), reiterating that, 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 to be made from payments made under such a contract. The Central Board of Direct Taxes further made it 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 the income-tax will have to be deducted from payments made thereunder. These circulars remained in force until March 8, 1994, when Circular No.681 (see (1994) 206 ITR (St.) 299), came to be issued by the Central Board of Direct Taxes. The genesis of the circular, dated March 8,.1994, is the decision of the Supreme Court in Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435. In Associated Cement Co. Ltd.'s case (1993) 201 ITR 435 (SC), the contention of the appellant before the Supreme Court was that, the amount deductible under section 194(7(1) out of the sum credited to the account of or paid to a contractor would arise only when such sums are paid, on account of a contractor executing a works contract, that is, a contract which produces a tangible property. Learned counsel for Associated Cement Co. Ltd. contended before the Supreme Court that, the "work" for the carrying out of which the sum is required to be credited to the account of or paid to a contractor under section 19401) of the Act is only a "works contract". So, the debate before the Supreme Court was whether the words "any work", occurring in subsection (1) of section 194(7, refer to only works contract. Reproducing section 194(7(1), the Supreme Court observed that "no ambiguity is found in the language employed in the subsection" and stated the following formulations (page 439):

(1) A contract may be entered into between the contractor and any of the organisations specified in the subsection.

(2) Contract in Formulation-l could not only be for carrying out any work but also for supply of labour for carrying out any work.

(3) Any person responsible for paying any sum to a contractor in pursuance of the contract in Formulations 1 and 2 could credit that sum to his account or make its payment to him in any other manner.

(4) But, when the person referred to in Formulation 3 either credits the sum referred to therein to the account of or pays it to the contractor, he shall deduct out of that sum an amount equal to two per cent, as income-tax on income comprised therein."

The Supreme Court further held as follows (page 439):

"Thus, when the percentage amount required to be deducted under the subsection as income-tax is on the sum credited to the account of or paid to a contractor in pursuance of a contract for carrying out a work or supplying labour for carrying out a work, of any of the organisations specified therein, there is nothing in the subsection 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 subsection, 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 subsection is not intended to be confined to of restricted to 'works contract'. 'Work' envisaged in the subsection, therefore, has a wide import and covers 'any work' which one or the other of organisations specified in the subsection 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 subsection". (underlining by Court)

As the Supreme Court explicity held in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435, that the words 'any work', occurring -in section 194(7(1), means any work and not a 'work contract' which has a special connotation in the fiscal law, the Central Board of Direct Taxes realised that, it has issued the two circulars, dated May 29, 1972 (see (1972) 84 ITR (St.) 99) and September 26, 1972 (see (1972) 86 ITR (St.) 30) erroneously, that 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 and for correct that mistake; the Central Board of Direct Taxes, issued the circular, dated March 8, 1994 (see (1994) 206 ITR (St.) 299), reviewing the earlier two circulars. The Central Board of Direct Taxes, reviewing the earlier circulars relying on the decision .of the Supreme Court in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435, stated in the circular, dated March 8 1994 (see (1994) 206 ITR (St.) 299) as under (page 300):

"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 para.l1 of Circular No.108 arid 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, material contracts and works contracts . . . . . . "

The question for consideration is whether, in the teeth of the clear enunciation of. the Supreme Court in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435, that there is nothing in section 194C(1) which could induce the Court to hold that, the contract to carry out a work or to supply labour to carry out a work should be confined to works contract and there is no reason to curtail or to cut down the meaning of the plain words, used in the section and that, any work means any work and not a "works contract", which has a special connotation in the tax law, the Bombay High Court was right in taking the view in Bombay Goods Transport's case (1994) 210 ITR 136, different from that of the Supreme Court in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435. Despite the clear finding of the Supreme Court in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435, that the words "any work" mean any work and not a "works contract", the Bombay High Court held that, the provisions of section 194C are not applicable to contracts for mere carriage of goods, that is, transport contracts simpliciter, which do not include any other services like loading or unloading. With respect, we do not agree with the interpretation made by the Bombay High Court in section 194C(1) of the Act, which is diametrically opposed to the view taken by the Supreme Court on the subsection. We do not see any good logic or persuasive force in the reasons given by the Bombay High Court in Bombay Goods Transport's case (1994) 210 ITR 136, for distinguishing the decision of the Supreme Court in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435. The reasons given by the Bombay High Court are: (i) that The Central Board of Direct Taxes changed the interpretation given by it on the circulars, dated May 29, 1972 and September 26, 1972, which it had acted upon for more than two decades only on the basis of certain observations of the Supreme Court in the case of Associated Cement Co. Ltd.'s case (1993) 201 ITR 435, which interpreted section 194C(1) de hors the circulars issued by the Central Board of Direct Taxes earlier; (ii) that, there is nothing in the decision of the Supreme Court to justify the reversal of the view taken by the Central Board of Direct Taxes in the earlier circulars;(iii) that, the Supreme Court has not interpreted the provisions of section 194C in the manner which is sought to be interpreted by The Central Board of Direct Taxes and 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; (iv) that, 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. We have already pointed out that learned counsel for Associated Cement Co., pointedly argued before the Supreme Court that, the "work" for carrying out of which the sum is required to be credited to the account of or paid to a contractor under section 194C(1) of the Act is only a "works contract". Rejecting this contention, the Supreme Court held that, there is nothing in the subsection which could persuade the Court to hold that the contract to carry out a work or the contract to supply labour to carry out a work, should be confined to a "works contract" and that the words "any work" occurring in the subsection, mean any work and not a "works contract". in view of the clearest view taken by the Supreme Court on subsection (1) of section 194C, we find it difficult to agree with the reasoning of the Bombay High Court, which has been followed by the learned Single Judge while disposing of the instant original petitions. So long as the language employed in the statutory provision and more so in the fiscal statute is clear, the Court should interpret that on the face value and there is no warrant to go behind it. Nothing should be added or subtracted to interpret the plain language and semantic view alone should be taken. If these principles are borne in mind, then the only interpretation which could be placed on the subsection is, the one which has been put by the Supreme Court and there is no scope to interpret the subsection in a different manner. The Court should not be obsessed by the fact that for a period of two decades, the Central Board of Direct Taxes viewed section 194C(1) differently under the circulars, dated May 29, 1972 (see (1972) 84 ITR (St.) 99), and September 26, 1972 (see (1972) 86 ITR (St.) 30), which have been reviewed by the circular, dated March 8, 1994 (see (1993) 206 ITR (St.) 299). In fiscal matters there is no res judicata and no estoppel and, therefore, the Central Board of Direct Taxes was free to take a different view and more so, in line with the Supreme Court decision in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435. The Supreme Court and for that matter, any High Court need not take aid of the circulars to interpret section 194C(1) of the Act. The question is not the one as to how section 194C was understood by the Central Board of Direct Taxes before the decision of the Supreme Court in Associated Cement Co. Ltd.'s case. (1993) 201 ITR 435, but the question is as to what is the correct interpretation of section 194C(1) of the Act. After the interpretation of section 194C(1) in unambiguous terms by the Supreme Court, it is not open to any other Court to distinguish the same by making feeble attempt. The learned Single Judge while disposing of the original petitions did not assign any new reason, but he wholly relied upon the decision of the Bombay High Court in Bombay Goods Transport's case (1994) 210 ITR 136, which, in our opinion. does not correctly distinguish the decision of the Supreme Court in Associated Cement Co. Ltd.'s case (1993) 201 ITR 435.

Following the Associated Cement Co. Ltd.'s case (1993) 201 ITR 435 (SC), we hold that, a transport contract simpliciter falls within the ambit of subsection (1) of section 194C and, therefore, deduction at source at the rate of two percent. from the amounts credited to the account of the contractor can be made by a person responsible for paying any sum for the transport contract.

In the result, all the appeals succeed and are allowed. The impugned common judgment, dated November 9 1995, is set aside.

M.B.A./4184/FCAppeals allowed.