V.K.Singhal, J. - (1.) IN this writ petition, Circular No. 681*, dated March 8, 1994, requiring to deduct the tax at source has been prayed to be quashed. IN the said circular, the term "service contract" was defined as service rendered as lawyers, physicians, surgeons, engineers, accountants, architects, consultants, etc. This circular was issued on the basis of the judgment of the Supreme Court in the case of Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435 where the observations were made 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". On the basis of this observation the provision of Section 194C of the INcome-tax Act, 1961, was sought to be applied to professionals.
(2.) THE grievance of the petitioner is that it is contrary to the provisions of the Act. The arguments of both learned counsel for the parties have been heard. This matter was considered by the Bombay, Gujarat, Delhi and Madras High Courts in respect of professionals though the controversy for the transporters, etc., is not before me and this judgment is restricted to the deduction of tax for professionals. Section 1941 has been inserted from July 1, 1995, and is prospective in nature. It has set at rest the controversy. The said provision has not given retrospectivity and, therefore, in respect of the period prior to July 1, 1995, the law as it was existing has to be considered. The Bombay High Court in the case of Chamber of Income-tax Consultants v. Central Board of Direct Taxes [1994] 209 ITR 660, has quashed Circular No. 681 (see [1994] 206 ITR (St.) 299), dated March 8, 1994, observing it to be without jurisdiction in respect of deduction of tax at source under Section 194C for payment of fees for professional services. It was observed that the observations of the apex court in Associated Cement Co. [1993] 201 ITR 435 has to be read as a whole and on the basis of a few lines an interpretation which was accepted and was prevailing for more than a decade cannot be disturbed. The language of Section 194C was considered to be fair and unambiguous leaving no scope for controversy so as to include the payment made on account of professional service. The Gujarat High Court in the case of All Gujarat Federation of Tax Consultants v. CBDT [1995] 214 ITR 276 has also quashed the circular by applying the principle of contemporaneous exposition and observed that the circular cannot extend the scope of Section 194C. The provisions of Section 194C cast a responsibility on any person responsible for paying any sum to any resident (hereafter 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 (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 ; 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 improve ment of cities, towns and villages, or for both ; or (g) any society registered under the Societies Registration Act, 1860, or under any law corresponding to that Act in force in any part of India ; or (h) any trust.
(3.) THIS provision by itself contemplates that there should be a payment to the contractor. With effect from June 1, 1987, the provisions of Section 194E were sought to be inserted providing for deduction of tax in respect of fee for professional services. On opposition, this proposal was dropped. Besides these specific provisions of law which were sought to be inserted by Parliament, Circular No. 86 (see [1972] 84 ITR (St.) 99), dated May 29, 1972, was issued in which it was provided as under (page 100): "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." Another Circular No. 93, dated September 26, 1972 (see [1972] 86 ITR (St.) 30) (was issued) wherein the service contracts were considered to be outside the scope of section. The next circular dated March 20, 1973, provides as under : "Contracts for rendering professional services by lawyers, physicians, surgeons, engineers, accountants, consultants, etc. cannot 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." ;