TMI Blog1995 (3) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the tax authorities and courts. Special Civil Application No. 5288 of 1994 is on behalf of the Income-tax Bar Association which consists of advocates, chartered accountants and other practitioners, that is to say, this petition is also by professionals engaged in the profession of tax consultancy and advocacy which includes advocates, chartered accountants (" C. A. " for short) and other practitioners. Special Civil Application No. 5289 of 1994 is on behalf of the Gujarat Institute of Civil Engineers and Architects. The petition represents the cause of persons engaged in the profession of civil engineering and architecture. Special Civil Application No. 1600 of 1995 is on behalf of the Gujarat Chamber of Commerce and Industry. This petition has been filed for the purpose of quashing the aforesaid two circulars issued by the Board to the extent it issues instructions to deduct tax at source for payments made to its members by the persons referred to in section 194C of the Act falling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and an institution declared to be a university under section 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 a Hindu undivided family), responsible for paying any sum to any resident (hereafter 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork are outside the scope of the provision. " However, the aforesaid circulars were withdrawn in the year 1993 and a Circular No. 666 dated October 8, 1993, was issued, relevant portion of which reads as under : " 2. According to the provisions of section 194C of the Income-tax 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 section 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 dated March 23, 1993, in Civil Appeal No. 2860/(NT) of 1979-Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435. Thus, the provisions of section 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 dated March 8, 1994, was issued by the Board in the following terms : " 6. It may be pointed out that this appeal before the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y work " of a wider amplitude than " works contract ", none the less, they do not include within their meaning service which cannot be construed as " work ", nor " contractor " embraces within it persons who are independently engaged in professions as advocates, solicitors, chartered accountants, tax practitioners, doctors, surgeons, engineers, etc. If during the course of their business activities, persons enumerated under section 194C, clauses (a) to (e), engage such professionals or service agencies for securing their special services on the subject or area concerned rendering services on payment of fees or charges, they cannot be equated with carrying on work as contractors for the principals. The context in which the words " any work " and " contract " have been used means carrying out a job on a contract basis for principal, which he would have done himself otherwise. Any payment made to any person under an 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 the Revenue vehemently urged that in view of the law laid down by their Lordships of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to strong opposition. In the Finance Bill, 1995, section 194C is sought to be amended. To the extent it is relevant for present purposes, it is reproduced below : " 34. (ii) below sub-section (2), after Explanation 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 the railways ; (d) catering ; " By the very same Bill, there is also a proposal to insert section 194J in the following terms : " 194J. (1) Any person, not being an individual or a Hindu undivided family, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings. The word used in a fiscal law is to be understood in the absence of any definition, in its popular sense, in the sense in which the relevant word is usually and normally understood. Further, the word or the collection of words should fit into the structure of the sentence in which the word is used or the collection is formed. If viewed from that angle, in our opinion, rendering of service in the course of one's own business on being required by others cannot be equated with carrying on any work for others under a contract as contractor merely because he had been paid fees/charges or consideration for any agreement. If that be so, every agreement for consideration, except for sale, shall be an agreement for work on contract wherever consideration is paid. When the railways who are engaged in the business of carrying of goods, book a consignment for being carried from place " X " to place " Y ", it cannot be said that they are acting as contractors for the consignor for carrying of goods. Likewise, when a doctor examines a patient for diagnosing a malady and prescribes medicines and charges a sum of fees, it cannot be said that the doctor is carrying out work of examining the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard of Direct Taxes is the apex body entrusted with the duty of implementing fiscal statutes which fall in the category of direct taxes. It has also authority to issue instructions and guidelines for proper administration of the Act which are binding on all its subordinate authorities and is a limb of the Finance Ministry which is the framer of any fiscal provisions to be enacted. " Contemporanea expositio " is a well-known doctrine for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. The " administrative construction " (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned, such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive. A contemporaneous exposition by the administrative authorities is a very useful and relevant guide to the interpretation of the expressions used in a statutory instrument. The doctrine of contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, vide Circular No. 86 dated May 29, 1972, the Finance Ministry stated that 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. It was also clearly stated that 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 after the issuance of circular dated May 29, 1972, the Board issued Circular No. 93 dated September 26, 1972, with reference to specific queries stating in no uncertain terms 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. It made it clear that in the case of a composite contract involving transport as well as loading a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stricted in its application to 'works contracts'. Their Lordships of the Supreme Court further observed that : " That but for the specific inclusion of those words (i.e., 'including supply of labour for carrying out any work') in section 194C, obtaining of supply of labour for carrying out the work would have fallen outside the word 'work'. " The above observation of the Supreme Court brings out the true purport of the term " any work " in section 194C. On pain of repetition, it may be noticed that in the first circular issued by the Finance Ministry, the position regarding loading and unloading contracts was qualified by stating 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 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, is clearly indicative of the fact that while loading and unloading of goods meant for transport work was the activity falling in the category of carrying out any work, supply of labour simpliciter was only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to which we have arrived independently of it. In our conclusion, we are fortified by a catena of decisions of various High Courts. In Chamber of Income-tax Consultants v. CBDT [1994] 209 ITR 660, the Bombay High Court was concerned with examining the validity and constitutionality of the very same circulars in the context of section 194C with which we are concerned. It related to and arose out of a petition filed by the Chamber of Income-tax Consultants, Forum of Indian Professional Organisations and Chartered Accountants. The Bombay High Court distinguished Associated Cement Co. Ltd.'s case [1993] 201 ITR 435 (SC) in the following terms : " A reading of the above observations of the Supreme Court in the context of the controversy before it makes it absolutely clear that the Supreme Court did not intend to give an extended meaning to the expression 'any work' so as to include professional services within its ambit. The Supreme Court interpreted the expression 'any work' to decide whether it was confined to works contracts as argued by the appellant before it or it was applicable to tabour contracts also. It is in this context that the Supreme Court observed that 'any work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as aids in the construction of the said provision .... The language of section 194C is plain and unambiguous and leaves no scope for any controversy in regard to its interpretation. In such a situation, the earlier circulars of the Central Board of Direct Taxes explaining the scope and ambit of section 194C must be regarded as a strong circumstance in support of the construction that section 194C is not applicable to payments by way of professional fees. " The aforesaid principle was followed and applied by the Bombay High Court again in the case of Bombay Goods Transport Assn. v. CBDT [1994] 210 ITR 136 which related to transport carriers wherein after considering the decision in Associated Cement Co. Ltd.'s case [1993] 201 ITR 435 (SC) and keeping in view 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, observed that (at page 150) : " The controversy before the Supreme Court was limited to the applicability of section 194C to labour contracts. " The Supreme Court did not approve the narrow construction of the expression " any work " to include o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 660. We have been informed that the special leave petition filed against the aforesaid decision of Chamber of Income-tax Consultants [1994] 209 ITR 660 (Bom) has been rejected. As a result of the aforesaid discussion, we hold that engagement for professional service or services simpliciter which do not involve a contract for carrying out any work itself, or a contract for labour for carrying out such services, are not within the purview of section 194C of the Act as it exists. Therefore, contracts for advertising, contract of goods transport simpliciter, persons engaged in the business of broker as commission agent without carrying any work for his principal or professionals rendering professional services by charging fees in the course of their profession, are not amenable to the provisions of section 194C of the Act. The earlier Circular No. 86 dated May 29, 1972, and Circular No. 93 dated September 26, 1972, contemporaneously clarifying the ambit and scope of the provisions concerning service contracts held out the correct view and there was no justification for issuing instructions to alter the said construction on the basis of the decision in the case of Associated Cement C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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