Payment for carriage of goods not exigible to deduction at source.

B.Subhashan Reddy, C.J.: The above batch of writ appeals have been filed questioning the orders of the learned single Judge, in striking down Circular No.681, dated 8.3.19994, issued by the Central Board of Direct Taxes on the ground of it being ultra vires Sec.194-C of the Income Tax Act, 1961 (hereinafter referred to as the Act).

2. Sec.194-C of the Act obligates any person paying any amount due to a contractor in pursuance of a contract, to deduct a particular percentage of amount as income tax. This can be called as tax deduction at source. The assessor, who are transport contractors and entitled for payment for carriage of goods, were aggrieved by the action of the income tax authorities in seeking to deduct the amount at source by invoking Sec.194-C of the Act. Their contention was that the circular, which has been issued authorizing tax deduction at source was illegal and ultra vires, as the substantive law i.e., Sec.194-C of the Act did not authorize any tax deduction at source for mere carriage of goods by transportation in motor vehicles. This contention found favour with the learned single Judge. Accordingly, the said circular was set at naught.

3. Mr.T.C.A. Ramanujam, learned Standing Counsel for Income tax Cases submits that the judgment of the learned single Judge is liable to be set aside. But, we do not accede to his contention for the reasons mentioned infra.

4. Sec.194-C was inserted by Finance Act, 1972 w.e.f., 1.4.1972 authorizing deduction of income tax at source, while making payments to contractors for the work done by them. The expression work has been explained in Explanation III to the above Section, and mere carriage of goods was not at all included in the said explanation. Interpreting the same, a Division Bench of the Bombay High Court in Bombay Goods Transport Association and another v. Central Board of Direct Taxes and others, (1994)210 I.T.R. 136, took the view that the substantive provisions in Sec.194-C does not make mere transportation of goods exigible to deduction at source, and the Circular cannot authorize for doing so and as such the Circular is illegal and ultra vires the Act.

5. Of Course, when the writ appeals were filed a special leave petition was pending before the Supreme Court against the above judgment of the Bombay High Court, but the Supreme Court has now decided in Birla Cement Works v. Central Board of Direct Taxes and others, (2001)248 I.T.R. 216 affirming the view taken by the Bombay High Court.

6. The argument that inasmuch as Finance Act, 1995 was enacted authorizing the deduction even for mere transportation of goods, and as such the Circular is deemed to have been ratified by the Parliament is also liable to be rejected, for the reason that the said Finance Act, 1995, which came into effect from 1.7.1995 is only prospective in operation and not retrospective. It is also clear from the judgment of the Supreme Court, cited supra. In view of the above, all the writ appeals are dismissed. No costs.

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