SETHI TRANSPORT Vs. CENTRAL BOARD OF DIRECT TAXES

JUDGEMENT

(1.) THE petitioners in these seven cases are individuals or firms engaged in the carriage of goods by trucks. In the writ application, they have prayed, inter alia, for a declaration that Circular No. 681 (see [1994] 206 ITR (St.) 299), dated March 8, 1994, issued by the Central Board of Direct Taxes (for short, "the Board"), Ministry of Finance, Government of India, opposite party No. 1, is ultra vires articles 14 and 265 of the Constitution of India and Sections 44AE, 119 and 194C of the Income-tax Act, 1961 (for short "the Act"), and for a direction not to make any deduction from the amount due to the petitioners under Section 194C of the Act. Since the facts and points of law involved in all the cases are similar, they were heard together with the consent of learned counsel for the parties and are being disposed of by this common judgment.

(2.) CIRCULAR No. 681 (see [1994] 206 ITR (St.) 299), dated March 8, 1994, relates to deduction of income-tax at source under Section 194C of the Act from payments made to contractors/sub-contractors. The Board issued the circular purportedly on the basis of the judgment rendered by the Supreme Court on March 23, 1993, in the case of Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435. In the said circular, the Board reviewed its previous circulars like CIRCULAR No. 86 (see [1972] 84 ITR (St.) 99), dated May 29, 1972, and CIRCULAR No. 93 (see [1972] 86 ITR (St.) 30), dated September 26, 1972, in the light of the judgment of the Supreme Court and also considered the decision of the Patna High Court in the case which was confirmed by the Supreme Court. The Board withdrew its CIRCULARs Nos. 86 (see [1972] 84 ITR (St.) 99) and 93 (see [1972] 86 ITR (St.) 30) arid paragraph 11 of CIRCULAR No. 108 and reiterated the Board's CIRCULAR No. 558 (see [1990] 183 ITR (St.) 158), dated March 28, 1990, and issued some fresh guidelines in regard to the applicability of the provision of Section 194C. The guidelines which are relevant for the purpose of the present cases are to the effect that the provisions of Section 194C shall apply to all types of contracts for carrying out any work including transport contracts ; the term "transport contracts" would, in addition to contracts for transportation and loading and unloading of goods, also cover contracts for plying of buses, ferries, etc., along with staff (driver, conductor, cleaner, etc.).

(3.) WE have carefully perused the judgments in the aforementioned decided cases. WE are in respectful agreement with the decision of the Bombay High Court that in Associated Cement Co.'s case [1993] 201 ITR 435, the Supreme Court only considered the point whether the expression "any work" used in Section 194C is confined to "works contracts" or not. The court did not specifically consider the question whether any other type of contract like carriage contract, advertisement contract, etc., comes within the purview of Section 194C. WE are also in agreement with the view taken by the Bombay High Court that Section 194C does not extend to contracts for mere carriage of goods. Therefore, the circular of the Board extending Section 194C to contracts for mere carriage of goods is based on a misreading and misconstruction of the judgment of the Supreme Court. Further, while purporting to clarify the legal position, as laid down by the Supreme Court, the Board has introduced a definition of the term "transport contracts" which was not considered by the Supreme Court. The Board has also not given any other reason for reversing its previous circulars. WE may add here that whether a particular case would come within the purview of Section 194C of the Income-tax Act or not depends upon the facts and circumstances of the case, the stipulations in the agreement between the parties, and other relevant factors. The Board's circular to the effect that transport contracts in general come within the purview of Section 194C is erroneous and illegal.