TMI Blog2001 (2) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... it relates to transport contracts, i.e., contracts for carriage of goods, is in issue in this appeal. The said circular, inter alia, states that the provisions of section 194C shall apply to all types of contracts for carrying out any work including transport contracts. Section 194C provides for deduction of tax at source from payments to contractors and subcontractors. Section 194C was brought into existence by the Finance Act, 1972, with effect from April 1, 1972. Various amendments have been made in that section since then but the material part relevant for the present purposes reads as under: "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--... (d) any company; or... 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of tax at source was made from payment made to the transport operators/companies as section 194C was not applicable to such transactions. It is, however, not in dispute that the appellant has paid the income-tax. The question has cropped up in view of the penalty proceedings initiated by the Department against the appellant which led to the filing of the writ petition by the appellant challenging the legality and validity of the impugned circular. The period in question is from April 1, 1994, to June 30, 1995. The contention urged before the High Court was that section 194C does not apply to payments made for transport charges for carrying of gods is transportation of goods is not covered by the words "any work" used in the section and by the impugned circular the Central Board of Direct Taxes has illegally withdrawn earlier circulars stating that section 194C is not applicable to such transactions. It was also contended that III was only prospective and does not cover the period in question, i.e., April 1, 1994, to June 30, 1995. Rejecting these contentions, the High Court by the impugned judgment has held that the payment to the transporters for carriage of goods to different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the section. The notices issued to the company to show cause why action should not be taken under sections 276B(1), 201 and 221 for short deduction were challenged in the writ petition filed by the company in the High Court. The writ petition was dismissed by the High Court. On appeal, this court held that section 194C(1) had a wide import and covered "any work" which could be got carried out through a contractor under a contract including the obtaining of supply of labour under a contract with a contractor for carrying out any work. The section was not confined or restricted in its application to "works contracts". There was nothing in the language of the section which permitted exclusion of the amount reimbursed by the company to the contractor under clause 13 from the sum envisaged therein. The facts of the case and observations made in Associated Cement Co. Ltd.'s case [1993] 201 ITR 435 (SC), make it clear that in the said decision, this court was concerned with a work carried through a contractor under a contract which further included obtaining supply of labour under a contract with a contractor for carrying out its work which would have fallen outside "work" but for it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and passengers by any mode of transport other than by railways;..." In view of the above, it is not in dispute that from July 1, 1995, section 194C is applicable to transport contracts as well. The question, however, is whether the aforesaid Explanation is only clarificatory or it makes applicable the provisions of section 194C to the types of contracts in question for the first time from the date of insertion of the Explanation, i.e., July 1, 1995. The Rajasthan High Court in the judgment under challenge has followed the interpretation placed on section 194C by the Kerala High Court in CBDT v. Cochin Goods Transport Association [1999] 236 ITR 993 and the Punjab and Haryana High Court in Ekonkar Dashmesh Transport Co. v. CBDT [1996] 219 ITR 511. The contrary views expressed by the High Courts of Bombay, Calcutta, Karnataka, Gujarat, Madras, Orissa and Delhi quashing the impugned circular have been dissented from in the judgment under challenge. The key words in section 194C are "carrying out any work". Learned counsel for the appellant contended that a word or collection of words should fit into the structure of the sentence in which the word is used or collection of words f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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