PETITIONER: ASSOCIATED CEMENT COMPANY LTD. Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX BIHAR, PATNA AND ANR. DATE OF JUDGMENT23/03/1993 BENCH: VENKATACHALA N. (J) BENCH: VENKATACHALA N. (J) JEEVAN REDDY, B.P. (J) CITATION: 1993 AIR 2281 1993 SCR (2) 538 1993 SCC (2) 556 JT 1993 (2) 411 1993 SCALE (2)161 ACT: Income tax Act 1961. Section 194C-Sub-section (1)-Scope of-Contract between Contrator and specified organisations for carrying out "any work"-Expression "any work" has a wide import and cannot be restricted to works contract-Payment to Contractor for carrying out "any work"-Sum credited or paid to Contractor- Liability of payer to deduct two percent tax is not confined to Contractor's income component. HEADNOTE: The appellant-Company issued a letter to its Contractor containing the terms and conditions of a contract of loading packed cement bags from its Packing Plants Into wagons or trucks. Under Clause 12 there was a stipulation that the Contractor shall be paid a sum for his work at a flat rate of 41 paise for each tonne of cement handled In Packing Plant No.1 and 30 paise for each tonne of cement handled in Packing Plant No.2 Clause 13 thereof, which contained a recital that the rate of loading in Clause 12 had been worked out on the basis of daily basic wages of Rs.2.35 paise, DA of Rs.1.21 paise and H.R.A of Rs.0.50 paise per day per worker, stipulated a terms of reimbursement by the appellant to the Contractor of the difference in DA over the amount of Rs.1.21 paise and annual increment etc. payable from mouth to month to every worker by him. The Contractor carried out his work and the appellant made payments of the sums payable to him under the contract. But no deductions of tax were made under Section 194C(1) of the Income Tax Act, 1961. The Income Tax Officer served two notices One in respect of assessment years 1973-74 and 1974-75 and the other for 1974-75 to 1977-78 on the principal officer of the appellant-Company to show cause as to why action should not be taken against the appellant for non-compliance with Section 194C(1).The appellant filed a Writ Petition before the High Court of Patna seeking the quashing of the notices but the same was dismissed. In appeal to this Court it was contended on behalf of the appellant 538 539 that (1) the 'work' for the carrying of which the sum is required to be credited to the account of or paid to a Contractor under Section 194C(1) of, the Act' is only a 'works contract' and hence deduction "under that sub- section could arise only to the extent where the sum credited to the account of or paid to a Contractor for, executing such works contract' is comprised of the element of Income of the Contractor, (2) that the words 'on income. comprised therein ',appearing immediately after the words' deduct an amount equal to two per cent of such sum as income tax in the concluding part of the sub-section must be taken to mean the percentage amount deductible on the Income received by the Contractor under the contract and not on the sum credited 'to the account of 'or paid to the Contractor. Dismissing the appeal, this Court, HELD.- 1. Them is nothing fit sub-section (1) of Section 194C to show that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to 'works contract'.There is no mason to curtail or to cut down the meaning of plain words used in the Section. .Any work' means any work and not &."works- contract', which has a special connotation in the tax law. 'Work' envisaged In the sub- section, therefore has. a wide import and covers 'any work' which one or the other of the organisations specified in the sub-section can get carried out through a Contractor under a contract and further It includes obtaining by any of such organisations supply of labour under a contract with a Contractor for carrying out its work which, would have fallen outside the 'work', but forks specific inclusion in the sub-section. [544 B-E] Brij Bhushan Lal Parduman Kumar etc. v. C.I. T., Haryana, Himachal Pradesh and New Delhi [1979] 2 S.C.R. 16, distinguished. 2. The words in the sub-section 'on income comprised therein' appearing Immediately after the words 'deduct an amount equal to two per cent of such sum as income tax' from their purport, cannot be understood as the percentage amount deductible from the income of the Contractor out of the sum credited to his account or paid to him in pursuance of the co Moreover the concluding part of the sub-section requiring deduction of an amount equal to two per cent of such sum as income-tax by, use of the words 'on income comprised therein' makes It obvious that the amount equal to-two per cent of the sum required to be deducted Is a 540 deducts at source. Hence on the express language employed in the sub-section, it, is impossible to hold that the amount of the two per cent required to be deducted by the prayer out of the sum credited to the account of or paid to the Contractor has to be confined to his income component out of that sum, [545 D-G] 2.1. There is also nothing in the language of the sub- section which permits exclusion of, an amount paid on behalf of the organisaiton to the Contractor according to, the termsand conditions ofthe contract in reimbursement, of. the amount paidby to workers,from, the sum envisaged therein. [545 G-H, 546-A] JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2860(NT) of
1979.
From the Judgment and Order dated 8.3.1979 of the, Patna
High Court in Civil writ jurisdiction case No.2909 of
1978.
V.A. Babde, R.F. Nariman and Ms. Kamakshi (For Gagrat & Co.)
for the appellant.
Dr. S. Narayan P. Parmeshwaran and Manoj Prasad for the
Respondents.
The Judgment of the Court was delivered by,
VENKATACHALA, J. The short, question which needs our
decision in this appeal by special leave is whether a person
who credits to the account of or pays to a contractor any
sum payable by any of the organisations specified in section
194C(1) of Income Tax Act, 1961 ‘the Act’ for carrying out
any work including supply of labour for carrying out any
work) in pursuance of a contract between the contractor and
the specified organisation is liable to deduct two per cent
of such sum as income tax as required under that sub-
section.
The facts ‘which, have lad to the need for our decision on
the said question are briefly these. The Associated Cement
Company Ltd. the appellant, issued a letter dated 5th
November, 1973 to Mr.S.P Nag contractor Jhiakpani Containing
the terms and conditions of a contract of leading packed
cement bags,from its Packing Plants. Nos.1 & 2 into wagons
or trucks. Under clause. 12 of those terms and conditions,
there
541
was a stipulation that the contractor shall be paid a sum
for his work at a flat rate of 41 paise for such tonne of
cement handled in Packing Plant No.1. and 30 paise for each, tonne o
f cement handled in Packing Plant No.2. Clause
13 thereof, which contained a recital that the rate of
loading in clause 12 had been worked out on the basis of
daily basic wages of Rs.2.35 paise, D.A. of Rs. 1.21 paise
and H.R.A. of Rs.0.50 paise, per day per worker stipulated a
term of reimbursement by the appellant to the contract of
the difference in D.A. over the amount of Rs.1.21 paise and
annual increment etc. payable from month to month to every
worker by him as per the Second Wage Board Recommendation.
As the contractor carried out his work according to the
terms and conditions in the contract during the years 1973-
74 and 1974-75, the appellant made payments of the sums
payable to him under clause 12 of the contract and the sums
reimbursable to him under clause 13 thereof But the
deductions made ‘under section 194C(1) of the Act by the
appellant out of the sums paid or reimbursed to the
contractor fell short of the deductions required to be made
thereunder. As the appellant took the stand that it was not
liable to deduct any amount under section 194(1), out of the
sums paid on its behalf to the contractor as per clauses
12 & 13 of the contract, the Income Tax Officer, Jamshedpur,
served on the principal officer of the appellant a notice
dated 30th March, 1978 to show cause as to why action should
not be taken against the appellant under sections 276B(1),
281 and 221 of the Act in respect of assessment years 1973-
74 and 1974-75 for short deductions out of the sums paid to
contractor without observing the requirement of section
194C(1) of the Act. Another notice dated 8th May,
1978.relating to the assessment years 1974-75 to 1977-78 of
a similar nature, was also served on the principal officer
of the appellant. The appellant, although impugned both the
said notices in a Writ Petition filed under Articles 226 and
227 of the Constitution before the High Court of Judicature
at Patna, that Writ Petition was dismissed by the High Court
by its order dated 8th March, 1979. The appellant has,
therefore, filed this appeal by special leave before this
Court seeking the quashing of the notices which it had
unsuccessfully impugned before the High Court, in its Writ
Petition.
It was argued by Mr. V.A. Bobde, the learned senior counsel
appearing for the appellant, that the amount deductible
under section 194C(1) out of the sums credited to the
account of or paid to a contractor would arise only when
such sums are paid, on account of a contractor executing a
works contract, that is, a contract which produces a
tangible property.
542
According to him, the ‘work’ for the the carrying of which
the sum is required to be credited to the account of or paid
to a contractor under section 194C(1) of the Act is only a
‘works contract’ and hence deduction under that sub-section
could arise only to the extent where the sum credited to the
account of or paid to a contractor for executing such ‘works
contract’ is comprised of the element of income (profit) of
the contractor, as held by this Court in Brij Bhushan Lal
Parduman Kumar etc. v. Commissioner of Income Tax Haryana,
Himachal Pradesh and New Delhi-III, [1979] 2 SCR 16 and not
otherwise. It was also his argument that the words in the
sub-section ‘on income comprised therein’, appearing
immediately after the words ‘deduct an amount equal to two
per cent of such sum as income-tax’ found in the concluding
part of that sub-section, must be taken to mean the
percentage amount deductible on the income received by the
contractor under the contract and not on the sum credited to
the account of or paid to the contractor in pursuance of the
contract. These arguments were, however, strongly refuted
by Dr. S. Narayan, the learned counsel for the Revenue. It
is how, the question mentioned at the outset needs our
decision.
Section 194C(1) of the Income Tax Act on the proper
construction of which the decision on the aforesaid question
should necessarily rest, runs thus:
‘194C(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-, or
(f) any authority, constituted in India by
or under any law,
543
engaged either for the purpose of dealing with
and satisfying the need for housing
accommodation or for the purpose of planning,
development or improvement of cities, towns
and villages, or for both; or
(g) any society registered under the
Societies Registration Act, 1860 (21 of 1860)
or under any law corresponding to that Act in
force in any part of India; or
(h) any trust; or
(i) any University established or
incorporated by or under a Central, State or
Provincial Act 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.”
No ambiguity is found in the language employed in the
subsection. What is contained in the sub-section, as
appears from its plain reading and analysis admit of the
following formulations:
(1) A contract may be entered into between
the contractor and any of the organisations
specified in the sub-section.
(2) Contract in Formulation 1 could not
only be for carrying out any work but also for
supply of labour for carrying out any work.
(3) Any person responsible for paying any
sum to a contractor in pursuance of the
contract in Formulations 1 and 2, could credit
that sum to his account or make its payment to
him in any other manner.
(4) But, when the person referred to in
Formulation-3 either credits the sum referred
to therein to the account
544
of or pays it to the contractor, he shall
deduct out of that sum an amount equal to two
per cent as income-tax on income comprised
therein.
Thus, when the percentage amount required to be deducted
under the sub-section as income-tax is on the sum credited
to the account of or paid to a contractor in pursuance of a
contract for carrying out a work or supplying labour for
carrying out a work, of any of the organisations specified
therein, there is nothing in the sub-section which could
make us hold that the contract to carry out a work or the
contract to supply labour to carry out a work should be
confined to ‘works contract’ as was argued on behalf of the
appellant. We see no reason to curtail or to cut down the
meaning of plain words used in the Section. “Any work”
means any work and not a ‘works-contract”, which has a
special connotation in the tax law. Indeed, in the sub-
section, the ‘work’ referred to therein expressly includes
supply of labour to carry out a work. It is a clear
indication of legislature that the ‘work’ in sub-section is
not intended to be confined to or restricted to ‘works
contract’. ‘Work’ envisaged in the sub-section, therefore,
has wide import and covers ‘any work’ which one or the other
of the organisations specified in the sub-section can get
carried out through a contractor under a contract and
further it includes obtaining by any of such organisations
supply of labour under a contract with a contractor for
carrying out its work which, would have fallen outside the
‘work’, but for its specific inclusion in the sub-section.
In Brij Bhushan (supra) this Court was concerned with the
question whether the cost of materials supplied by the
Government for being used in execution of works is liable to
be taken into consideration while estimating the income or
profits of a contractor. That question was answered by this
Court, thus:
“It is true that ordinarily when a works
contract is put through or completed by a
contractor the income or profits derived by
the contractor from such contract is
determined on the value of the contract as a
whole and cannot be determined by considering
several items that go to form such value of
the contract but in our view where certain
stores/material is supplied at fixed rates by
the Department to the Contractor solely for
being used or
545
fixed or incorporated in the works undertaken
on terms and conditions mentioned above, the
real total value of the entire contract would
be the value minus the cost of such
stores/material so supplied. Therefore, since
no element of profit was involved in the
turnover represented by the cost of
stores/material supplied by the M.E.S. to the
assessee firms, the income or profits derived
by the assessee firms from such contracts will
have to be determined on the basis of the
value of the contracts represented by the cash
payments received by the assessee firms from
the M.E.S. Department exclusive to the cost of
the material’/stores received for being used,
fixed or incorporated in the works undertaken
by them.”
The above decision cannot be of any help to the appellant
for it does not lay down that the percentage amount
deductible under section 194C(1) should be out of the income
of the contractor from the sum or sums credited to the
account of or paid to him. The words in the sub-section ‘on
income comprised therein’ appearing immediately after the
words deduct an amount equal to two per cent of such sum as
income-tax’ from their purport, cannot be understood as the
percentage amount deductible from the income of the
contractor out of the sum credited to his account or paid to
him in pursuance of the contract. Moreover, the concluding
part of the sub-section requiring deduction of an amount
equal to two per cent of such sum as income-tax, by use of
the words ‘on income comprised therein’ makes it obvious
that the amount equal to two per cent of the sum required to
be deducted is a deduction at source. Indeed, it is neither
possible nor permissible to the payer to determine what part
of the amount paid by him to the contractor constitutes the
income of the latter. It is not also possible to think that
the Parliamer’ could have intended to cast such impossible
burden upon the payer nor could it be attributed with the
intention of enacting such an impractical and unworkable
provision. Hence, on the express language employed in the
sub-section, it is impossible to hold that the amount of two
per cent required to be deducted by the payer out of the sum
credited to the account of or paid to the contractor has to
be confined to his income component, out of that sum. There
is also nothing in the language of the sub-section which
permits exclusion of an amount paid on behalf of the
Organisation to the contractor according to clause 13 of the
terms and conditions of the contract in reimbursement of the
amount
546
paid by him to workers, from the sum envisaged therein, as
was suggested on behalf of the appellant.
For the foregoing reasons, our decision on the question
under consideration, is held in the affirmative and in
favour of the Revenue.
In the result, this appeal fails and is dismissed directing
the appellant to pay the costs of the respondent the
Revenue in this appeal. Advocate’s fee is fixed at Rs-3000.
T.N.A. Appeal dismissed.
547