The main legal point established in the judgment is the narrow interpretation of the term 'any work' in Section 194C and the impact of circulars on the applicability of tax deductions to different types of contracts.

V. K. Singhal, J.—The validity of Circular No. 666 (see [1993] 204 ITR 40), dated October 8, 1993/March 8, 1996 (see [1994] 206 ITR 299), issued by the Central Board of Direct Taxes is assailed in these petitions and, therefore, all these petitions are disposed of by this common judgment.

2. The Income Tax Officer in W. P. No. 14991-93 of 1994 issued a letter dated November 8, 1993, that in view of the circular dated October 8, 1993 (see [1993] 204 ITR 40), clarification of the term "any work" in Section 194C and the decision of the Supreme Court in the case of The Associated Cement Company Ltd. Vs. The Commissioner of Income Tax, Bihar, Patna and another, AIR 1993 SC 2281, the assessee is requested to deduct tax as per the provisions of Section 194C on all types of contracts such as transport contracts, service contracts, labour contracts, material contracts as well as works contract, etc.

3. The provisions of Section 194C are as under :

"(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--

(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,

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 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 one per cent. of such sum as Income Tax on income comprised therein.

Explanation.--For the purposes of this section, where any sum referred to in Sub-section (1) or Sub-section (2) is credited to any account, whether called 'suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly."

4. Section 194C provides that 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 the Central Government or any State Government ; or any local authority ; or any corporation established by or under a Central, State or Provincial Act ; or any company ; or any co-operative society, 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 sums as Income Tax on income comprised therein. By amendment by the Finance Act, 1995, this amount has been reduced to one per cent. in the case of advertising and in any other case it is two per cent. Explanation III has been inserted by the Finance Act, 1995, with effect from July 1, 1995, and as per Explanation III for the purposes of Section 194C the expression "work" shall inclu