RAJESH BALIA,J. - (1.) IN these petitions, common question arise about the validity of Circular No. 666 dt. 8th Oct., 1993 [printed at (1993) 114 CTR (St) 62] and Circular No. 681 dt. 8th March, 1994 [printed at (1994) 117 CTR (St) 229] respectively issued by the Central Board of Direct Taxes (Board for short). The relief claimed is to quash two circulars and grant consequential reliefs to the main relief. The main thrust of contention before this Court is whether the provisions of S. 194C of the IT Act, 1961 (hereinafter referred to as the Act) providing for deduction of tax at source applies to the payment made to a class of persons on whose behalf these petitions have been filed.
(2.) SPL . Civil Appln. No. 4802/94 has been filed on behalf of All Gujarat Federation of Tax Consultants whose members are either Advocates, Chartered Accountants or Tax Consultants by profession and in the course of carrying on their profession, they are engaged by various persons to represent their cases before Tax authorities and Courts. Spl. Civil Appln. No. 5288/94 is on behalf of Income tax Bar Association which consists of Advocates, Chartered Accountants and other practitioners, that is to say, this petition is also by the professionals engaged in the profession of tax consultancy and advocacy which includes Advocates, Chartered Accountants (CA for short) and other practitioners. Spl. Civil Appln. No. 5289/94 is on behalf of Gujarat Institute of Civil Engineers & Architects. The petition represents cause of the persons engaged in the profession of civil engineering and architecture. Spl. Civil Appln. No. 1600/95 is on behalf of Gujarat Chamber of Commerce & Industry. This petition has been filed for the purpose of quashing aforesaid two circulars issued by the Board to the extent it issues instructions to deduct tax at source for the payments made to its members by the persons referred to in S. 149C of the Act falling within the category of contracts for carrying out any work termed as transport contracts, service contracts, advertisement contracts, broadcasting contracts and telecasting contracts and those who are carrying on profession like Advocates, CAs, Engineers, Architects, Doctors, etc. Spl. Civil Appln. No. 874/95 is on behalf of the Tanker Owners & Operators Association while Spl. Civil Appln. No. 14043/94 is on behalf of Akhil Gujarat Truck Transport Association praying for identical reliefs. Chapter XVII of the Act, generally containing various provisions providing for collection of tax through the mode of deduction of tax at source on payments made to certain class of persons mentioned therein. Generally speaking, it provides deduction of tax at source from salaries paid by employer, "interest on securities", dividends, interest other than "interest on securities", etc., etc. Sec. 194C of the Act provides for deduction of tax from payments to contractors and sub contractors. Sec. 194C was brought into existence by Finance Act, 1972 w.e.f. 1st April, 1972. Various amendments have been made in that section since then up to vide Finance Act, 1994 which are not very relevant for the present purpose. Sec. 194C of the Act reads as under : Sec. 194C : (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) for carrying out 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 our under a Central, State or Provincial Act; or (d) any company, or (e) any co operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust, or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under S. 3 of the University Grants Commission Act, 1956 (3 of 1956), 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 an HUF) responsible for paying any sum to any resident (hereinafter 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 any 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. [Explanation. For the purpose of this section, where any sum referred to in Sub S. (1) or sub s. (2) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.........." Contemporaneously with the insertion of S. 194C, to be more precise, before the provision came into force, Circular No. 86 dt. 28th May, 1972 came to be issued by Ministry of Finance expanding the provisions. Relevant part of the Circular reads as under : (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. (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. Soon thereafter, the Board also issued a Circular No. 98 dt. 26th Sept., 1972 clarifying the ambit and scope of new provision in question answer form. The relevant portion of the circular reads as under : Question 5 : Does the requirement apply to transport contract ? Answer : 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 "work 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. Question 7 : Does the requirement apply in relation to payments made to commission agents for arranging sales or to advertising agents rendering professional services ? Answer : No, Service contracts not involving the carrying out of any work are outside the scope of the provision. However, the aforesaid circulars were withdrawn in the year 1993 and a Circular No. 666 dt. 8th Oct., 1993 was issued, relevant portion of which reads as under : "2. According to the provisions of S. 194C of the IT Act, 1961, any person................... It is clarified that carrying out any work includes service contracts and transport contracts......... 5.3 It is clarified that the term "any work" in S. 194C has to be understood in its natural meaning, i.e., any work means "any 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 dt. 23rd March, 1993, in Civil Appeal No. 2860 (NT) of 1979 Associated Cement Co. Ltd. vs. CIT (1993) 111 CTR (SC) 165 : (1993) 201 ITR 435 (SC) : TC 5PS.39. Thus, the provisions of S. 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." Again Circular No. 681 dt. 8th March, 1994 was issued by the Board in the following terms : 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. vs. CIT (1979) 11 CTR (Pat) 211 : (1979) 120 ITR 444 (Pat). 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 S. 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 above mentioned Circular Nos. 86 and 93 and para 11 of circular No. 108 and issue the following guidelines in regard to the applicability of S. 194C : (i) The provisions of S. 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........... (v) Service contracts would be covered by the provisions of this section since service means doing any work as explained above............ (vii) The provisions of this section would apply in relation to payments made to persons who arrange advertisement, broadcasting, telecasting etc......... 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. However, services rendered for which payment is in the nature of salaries which is chargeable under the head of income "A. Salaries" in Chapter IV of the IT Act, 1961, shall not be covered by S. 194C. (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 dt. 28th March, 1990............"
(3.) IT was urged by the learned counsel for the petitioner that though words used in S. 194C makes "any work" of a wider amplitude than the "works contract", none the less, it does not include within its meaning service which cannot be construed as "work", nor "contractor embrace within it the persons who are independently engaged in the professions of advocates, solicitors, chartered accountants, tax practitioners, doctors, surgeons, engineers etc. If during the course of their business activities, persons enumerated under S. 194C cl. (a) to (e), engages such professionals or service agency for securing their special services on the subject or area concerned rendering service on payment of fees or charges, they be equated with carrying on work as contractor for the principal. Context in which words "any work" and "contract" has been used mean carrying out a job on contract basis for principal, which he would have done himself otherwise. Any payment made to any person under agreement for rendering services in the course of his business, therefore, cannot be construed as payment to such person as a "contractor" for doing "work". Learned counsel for revenue vehemently urged that in view of law laid down by their Lordships of Supreme Court in Associated Cement Co. Ltd. vs. CIT (supra), operation of S. 194C cannot be confined to payments made for executing works contract but it extends to payments for any work done under any terms of agreement and with that out line, he urges that any amount received by lawyer for conducting cases or by a doctor for prescribing medicines to the patients or by an architect for drawing a plan of a bungalow or by railway carrying goods from one place to another by charging freight, are all receiving payments made under a contract and they do some work. Therefore, on the plain reading of language of S. 194C as interpreted by their Lordships, all aforesaid categories of persons are included in term 'contract for carrying out any work' and while making any payments to them, any persons enumerated in cl. (a) to (e) of that section, are under in obligation to deduct the amount at a prescribed rate from the payments made to such contractor. Before we advance further, we may notice few more facts. In the Finance Bill, 1987 it was proposed to insert S. 194E in the following terms : "194E. Other incomes : (1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any income by way of (a) fees for professional services, or (b) royalty, or (c) fees for technical services, or (d) rent, or (e) commission (not being insurance commission refected to in S. 194D) or brokerage, or (f) payments for goods supplied to Government or any local authority or any corporation or body established by or under a Central, State or Provincial Act or any company, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate in force : Provided that : (2) In this section : (a) "professional services" means 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 purpose of S. 44AA;....." However, ultimately this proposal did not carry further and had to be dropped due to strong opposition. In Finance Bill, 1995, S. 194C is sought to be amended. To the extent it is relevant for present purposes is reproduced below : "34. (ii) below Sub S. (2), after Expln. II, the following Explanation shall be inserted, namely : Explanation III : For the purposes of this section, the expression "work" shall also include (a) advertising (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering;" By the very same Bill, there is also a proposal to insert S. 194J in the following terms : "194J. (i) Any person, not being an individual or an HUF, who is responsible for paying to a resident any sum by way of : (a) fees for professional services, or (b) fees for technical services, shall, at the time of credit of such sum to the account of the payee 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 ten per cent of such sum as income tax on income comprised therein; Provided that no deduction shall be made under this section............ Explanation : For the purpose of this section, (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of S. 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Expln. 2 to cl. (vii) of Sub S. (1) of S. 9;" It may be noticed that S. 194J now proposed to be inserted is almost in the same terms for the same purpose for which S. 194E was proposed to be inserted by Finance Bill, 1987. ;