TMI Blog1993 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... EEVAN REDDY. and N. VENKATACHALA. JUDGMENT The judgment of the court was delivered by VENKATACHALA J. -The short question which needs our decision in this appeal by special leave is whether a person who credits to the account of or pays to a contractor any sum payable by any of the organisations specified in section 194C(1) of the Income-tax Act, 1961 ( " the Act for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the specified Organisation is liable to deduct two per cent. of such sum as income-tax as required under that sub-section. The facts which have led to the need for our decision on the said question are briefly these : The Associated Cem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made thereunder. As the appellant took the stand that it was not liable to deduct any amount under section 194C(1), out of the sums paid on its behalf to the contractor as per clauses 12 and 13 of the contract, the Income-tax Officer, Jamshedpur, served on the principal officer of the appellant a notice dated March 30, 1978, to show cause as to why action should not be taken against the appellant under sections 276B(1), 201 and 221 of the Act in respect of the assessment years 1973-74 and 1974-75 for short deductions out of the sums paid to the contractor without observing the requirement of section 194C(1) of the Act. Another notice dated May 8, 1978, relating to the assessment years 1974-75 to 1977-78 of a similar nature, was also served ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearing immediately after the words " deduct an amount equal to two per cent. of such sum as income-tax " found in the concluding part of that subsection, must be taken to mean the percentage amount deductible on the income received by the contractor under the contract and not on the sum credited to the account of or paid to the contractor in pursuance of the contract. These arguments were, however, strongly refuted by Dr. S. Narayanan, learned counsel for the Revenue. This is how the question mentioned at the outset needs our decision. Section 194C(1) of the Income-tax Act, on the proper construction of which the decision on the aforesaid question should necessarily rest, runs thus: " 194C(1). Any person responsible for paying any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears from its plain reading and analysis, admits of the following formulations : (1) A contract may be entered into between the contractor and any of the organisations specified in the sub-section. (2) Contract in Formulation-I 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Brij Bhushan [1978] 115 ITR 524, this court was concerned with the question whether the cost of materials supplied by the Government for being used in execution of works is liable to be taken into consideration while estimating the income or profits of a contractor. That question was answered by this court thus (at page 533) : " It is true that, ordinarily, when a works contract is put through or completed by a contractor the income or profits derived by the contractor from such contract is determined on the value of the contract as whole and cannot be determined by considering several items that go to form such value of the contract but in our view where certain stores/ material is supplied at fixed rates by the Department to the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the words "on income comprised therein" makes it obvious that the amount equal to two per cent. of the sum required to be deducted is a deduction at source. Indeed, it is neither possible nor permissible for the payer to determine what part of the amount paid by him to the contractor constitutes the income of the latter. It is not also possible to think that Parliament could have intended to cast such impossible burden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. Hence, on the express language employed in the sub-section, it is impossible to hold that the amount of two per cent. required to be deducted by the payer out of the sum credited to the account of or pai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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