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2001(2) Supreme 204
SUPREME COURT OF INDIA
(From Rajasthan High Court)
S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal, JJ.
M/s. Birla Cement Works -Appellant
versus
The Central Board of Direct Taxes & Ors. -Respondents
Civil Appeal No. 5004 of 1997
Decided on 28-2-2001
Counsel for the Parties :
For the Appellant : S. Ganesh, M.L. Patodi, Praveen Kumar, Advocates.
For the Respondents : T.L.V. Iyer, Sr. Advocate, Ashok K. Srivastava, S.K. Dwivedi, Ms. Sushma Suri, Advocates.
Two interpretations are reasonably possible on the question whether the contract for carrying of goods would come or not within the ambit of the expression "carrying out any work". One of the two possible interpretations of a taxing statute, which favours the assessee and which has been acted upon and accepted by the Revenue for a long period should not be disturbed except for compelling reasons. There can be no doubt that if the only view of Section 194C had been the one reflected in the impugned circular, then the issue of earlier circulars and acceptance and acting thereupon by the Revenue reflecting the contrary view would have been of no consequence. That, however, is not the position. Further, there are no compelling reasons to hold that Explanation III inserted in Section 194C with effect from 1st July, 1995 is clarificatory or retrospective in operation. We hold Section 194C before insertion of Explanation III is not applicable to transport contracts, i.e., contracts for carriage of goods. (Para 12)
JUDGMENT
Y.K. Sabharwal, J.-The legality of circular dated 8th March, 1994 (hereinafter referred to as the impugned circular ) issued by the Central Board of Direct Taxes (CBDT) prescribing fresh guidelines regarding the applicability of Section 194C of the Income Tax Act, 1961 (for short, the Act ) to the extent 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 sub-contractors. 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 material part relevant for the present purposes reads as under :
"Payments to contractors and subcontractors.
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) in pursuance of a contract between the contractor and-
(a) to (c) .........
(d) any company; or
(e) to (j) .........
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. Soon after insertion of Section 194C, a circular dated 29th May, 1972 was issued, inter alia, stating that the provisions of Section 194C would apply only in relation to "work contracts" and "labour contracts" and will not cover contract for sale of goods. Another circular No.93 dated 26th September, 1972 was issued clarifying that the provisions of Section 194C will not be applicable to transport contracts. This circular, inter alia, states that a transport contract cannot ordinarily be regarded as a "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 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. By letter dated 3rd February, 1982, in reply to a query from a transporter, Government of India stated that if the contracts are purely transport contracts involving only transportation of goods entrusted for carriage to the transport operators, provisions of Section 194C would not be applicable to such payments. There is no controversy that according to the understanding of Revenue of Section 194C, right from 1st April, 1972 till issue of the impugned circular, this provision was not applicable to the payments made in respect of transport contracts. It is not disputed that prior to issue of the impugned circular, various circulars and clarifications were issued by the CBDT stating that the provisions of Section 194C were not applicable to payments made for carriage of goods to the transport operators.
3. The appellant manufactures cement. The cement manufactured by the appellant is transported to different destinations through transport operators/companies. Since the appellant did not deduct the tax at source from the payments made by it to the transporters under Section 194C of the Income Tax Act, by letter dated 18th March, 1995 the Income Tax Officer required the appellant to deduct the tax at source from such payments in accordance with the impugned circular. According to the appellant, no deducti
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