Commissioner Of Income Tax(Tds),, Jaipur v. M/S Rajasthan Vidyut Utpadan Nigam Ltd., Ctpp (Rvunl)Chaabra, District Baran

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 363 / 2011 COMMISSIONER OF INCOME TAX(TDS),, JAIPUR ----Appellant Versus M/S RAJASTHAN VIDYUT UTPADAN NIGAM LTD., CTPP (RVUNL)CHAABRA, DISTRICT BARAN, ----Respondent Connected With D.B. Income Tax Appeal No. 563 / 2011 C I T (Tds) Jaipur ----Appellant Versus Raj Vidyut Utpadan Nigam Ltd ----Respondent _____________________________________________________ For Appellant(s) : Mr. R. B. Mathur For Respondent(s) : Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 25/04/2017 1.In both these appeals, common questions of law and factsare raised, hence they are decided by this common judgment. 2.By way of these appeals, the Department has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeals preferred by the Department. 3.This Court while admitting the appeals framed the followingsubstantial questions of law:- Appeal No. 363/2011 “Whether on the facts and circumstances of the casethe ITAT was justified in law in holding that thepayments made by the assessee were not liable to bededucted at source u/s 194C of the Income Tax Act,1961?” Appeal No. 563/2011 Whether Tribunal was justified in law in directingdeletion of interest payable under Section 201 (1A) ofthe Income Tax Act by the assessee when according tothe Revenue, payments in question attracts theprovisions of Section 194C of the Act. 4.Counsel for the appellant contended that even if the viewtaken by the Tribunal is contrary to law, the same is required to beentertained and the contract which was given for TDS is requiredto be deducted. 5.However, counsel for the respondent has relied upon the circular No. 681, dated 8[th] March, 1994 which reads as under: “1. Sub-section (1) of section 194C of the Income-taxAct, 1961, lays down that any person responsible forpaying any sum to any resident (herein-after referredto as ”contractor”) for carrying out any work (includingsupply of labour for carrying out any work) inpursuance of a contract between the contractor and thebodies mentioned therein shall, at the time of credit ofsuch sum to the account of the contractor or paymentthereof in cash or by issue of a cheque or draft or byany other mode, whichever is earlier, deduct an amountequal to 2 per cent. of such sum as income-tax on theincome comprised therein. 2. Sub-section (2) of section 194C of the Income-taxAct, 1961, lays down that when a contractor makespayment of any sum to a resident sub-contractor inpursuance of a contract made with him for carrying outthe whole or any part of the work undertaken by thecontractor, or, for supplying any labour, the contractorshall deduct an amount equal to 1 per cent. of suchsum as income-tax on the income comprised therein. 3. Section 194C was introduced with effect from 1stApril, 1972. Shortly after its introduction, the Boardissued Circulars No. 86, dated 29th May, 1972 (F. No.275/9/72-ITJ), No. 93, dated 26th September, 1972 (F. No. 275/100/72-ITJ), and No. 108, dated 20th March,1973 (F. No. 131(9)/ 73-TPL), in this regard. 4. Some of the issues raised in the above-mentionedcirculars need to be reviewed in the light of thejudgment dated March 23, 1993, delivered by theSupreme Court of India in Civil Appeal No. 2860(NT) of1979- Associated Cement Co. Ltd. v. CIT [1993] 201ITR 435. 3. Section 194C was introduced with effect from 1stApril, 1972. Shortly after its introduction, the Boardissued Circulars No. 86, dated 29th May, 1972 (F. No.275/9/72-ITJ), No. 93, dated 26th September, 1972 (F. No. 275/100/72-ITJ), and No. 108, dated 20th March,1973 (F. No. 131(9)/ 73-TPL), in this regard. 4. Some of the issues raised in the above-mentionedcirculars need to be reviewed in the light of thejudgment dated March 23, 1993, delivered by theSupreme Court of India in Civil Appeal No. 2860(NT) of1979- Associated Cement Co. Ltd. v. CIT [1993] 201ITR 435. 5. The Supreme Court has held that “. . . there isnothing in the sub-section which could make us holdthat the contract to carry out a work or the contract tosupply labour to carry out a work should be confined to‘ works contract ‘ . . .”. Their Lordships have furtherheld that ” ‘ Any work ‘ means any work and not a ‘work contract ‘, which has a special connotation in thetax 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 inthe sub-section can get carried out through acontractor under a contract and further it includesobtaining by any of such organisations supply of labourunder a contract with a contractor for carrying out itswork which would have fallen outside the ‘ work ‘ butfor its specific inclusion in the sub-section”. 6. It may be pointed out that this appeal before theSupreme Court was by virtue of a special leave petitionagainst the judgment in Writ Petition No. 2909 of 1978of the Patna High Court in the case of AssociatedCement Co. Ltd. v. CIT [1979] 120 ITR 444. The PatnaHigh Court, while dismissing the writ petition of theaforesaid company, observed that ” In a very broadsense, a work done by one person is service renderedto another and indeed one of the dictionary meaningsof the word ‘ service ‘ is work “. 7. The conclusion flowing from the aforesaid judgmentsof the Supreme Court and the Patna High Court is thatthe provisions of section 194C would apply to all typesof contracts including transport contracts, labourcontracts, service contracts, etc. In the light of thesejudgments, the Board have decided to withdraw theirabove mentioned Circulars Nos. 86 and 93 and para 11of Circular No. 108 and issue the following guidelines inregard to the applicability of the provisions of section194C:– (i) The provisions of section 194C shall apply to alltypes of contracts for carrying out any work includingtransport contracts, service contracts, advertisementcontracts, broadcasting contracts, telecasting contracts,labour contracts, materials contracts and workscontracts. (ii) No deduction at source under section 194C shall berequired to be made if the consideration for thecontract does not exceed the prescribed amount whichat present is Rs. 10,000 (ten thousand only). (iii) The provisions of section 194C would not apply inrelation to payments made for hiring or renting ofequipments, etc. (iv) The provisions of section 194C would not apply inrelation to payments made to banks for discountingbills,collecting/receivingpaymentsthroughcheques/drafts, opening and negotiating letters ofcredit and transactions in negotiable instruments. (v)Service contracts would be covered by the provisions ofthis section since service means doing any work asexplained above. (vi) The provisions of this section will not covercontracts for sale of goods. (iii) The provisions of section 194C would not apply inrelation to payments made for hiring or renting ofequipments, etc. (iv) The provisions of section 194C would not apply inrelation to payments made to banks for discountingbills,collecting/receivingpaymentsthroughcheques/drafts, opening and negotiating letters ofcredit and transactions in negotiable instruments. (v)Service contracts would be covered by the provisions ofthis section since service means doing any work asexplained above. (vi) The provisions of this section will not covercontracts for sale of goods. (a) Since contracts for the construction, repair,renovation or alteration of buildings or dams or layingof roads or airfields or railway lines or erection orinstallation of plant and machinery are in the nature ofcontracts for work and labour, income-tax will have tobe deducted from payments made in respect of suchcontracts. Similarly, contracts granted for processing ofgoods supplied by the Government or any otherspecified person, where the ownership of such goodsremains at all times with the Government or suchperson, will also fall within the purview of this section.The same position will obtain in respect of contracts forfabrication of any article or thing where materials aresupplied by the Government or any other specifiedperson and the fabrication work is done by a contractor. (b) Where, however, the contractor undertakes tosupply any article or thing fabricated according to thespecifications given by the Government or any otherspecified person and the property in such article orthing passes to the Government or such person onlyafter such article or thing is delivered, the contract willbe a contract for sale and as such outside the purviewof this section. (c) In State of Himachal Pradesh v. Associated Hotels ofIndia Ltd. [1972] 29 STC 474, the Supreme Courtobserved that where the principal objective of workundertaken by the payee of the price is not the transferof a chattel qua chattel, contract is of work and labour.The test is whether or not the work and labourbestowed end in anything that can properly become thesubject of sale ; neither the ownership of the materialsnor the value of skill and labour as compared with thevalue of the materials is conclusive although such matters may be taken into consideration indetermining, in the circumstances of a particular case,whether the contract is, in substance, one of work andlabour or one for the sale of a chattel. A buildingcontract or a contract under which a movable is fixed toanother chattel or on the land, where the intentionplainly is not to sell, the article but to improve the landor the chattel and the consideration is not for thetransfer of the chattel, but for the labour and workdone and the material furnished, the contract will beone of work and labour. In case of doubt, whether aparticular contract is a contract for work and labour orfor sale, the matter should be decided in the light ofthe principles laid down by the Supreme Court in theabove mentioned case. (vii) The provisions of this section would apply inrelation to payments made to persons who arrangeadvertisement, broadcasting, telecasting, etc. (viii) The provisions are wide enough to cover not onlywritten contracts but also oral contracts. (ix) Where the total payment under the contract islikely to exceed Rs. 10,000 for the entire period duringwhich the contract will remain in force, income-tax willhave to be deducted at source. In a case where, at thetime when the contract was entered into, it wasexpected that the total payment thereunder would notexceed Rs. 10,000 but later on it is found that thepayment exceeds that amount, deduction should bemade in respect of earlier payments as well. (vii) The provisions of this section would apply inrelation to payments made to persons who arrangeadvertisement, broadcasting, telecasting, etc. (viii) The provisions are wide enough to cover not onlywritten contracts but also oral contracts. (ix) Where the total payment under the contract islikely to exceed Rs. 10,000 for the entire period duringwhich the contract will remain in force, income-tax willhave to be deducted at source. In a case where, at thetime when the contract was entered into, it wasexpected that the total payment thereunder would notexceed Rs. 10,000 but later on it is found that thepayment exceeds that amount, deduction should bemade in respect of earlier payments as well. (x) The percentage deduction prescribed in law is withreference to the amount of payment and not ” incomecomprised in the payment “. The person responsible formaking payment, therefore, is not required to estimatethe income comprised in the payment. (xi) In a case where advance payments are madeduring the execution of a contract and such paymentsare to be adjusted at the time of final settlement ofaccounts, tax will have to be deducted at the time ofmaking advance payments if the total payment is likelyto exceed Rs. 10,000. (xii) Where any contractor is the recipient of anyamount under a contract but the income of therecipient is not subject to income-tax, such contractormay obtain a certificate from his Assessing Officerunder section 194C(4) for receiving payment withoutdeduction of tax at source. (xiii) Every contractor, other than an individual or aHUF, who is responsible for paying any sum to any sub-contractor (who is resident in India), in pursuance of acontract with such sub-contractor for carrying out or for the supply of labour for carrying out, wholly or in part,of the work undertaken by the contractor or forsupplying whether wholly or partly any labour whichthe contractor had undertaken to supply, will berequired to deduct income-tax at the rate of 1 per cent.of such sum. 8. It may be noted that– (i) The term ” service contracts ” would include servicesrendered by such persons as lawyers, physicians,surgeons,engineers,accountants,architects,consultants, etc. However, services rendered for whichpayment is in the nature of salaries which is chargeableunder the head of income ” A. Salaries ” in Chapter IVof the Income-tax Act, 1961, shall not be covered bysection 194C. (ii) The term ” transport contracts ” would, in additionto contracts for transportation and loading/unloading ofgoods, also cover contracts for plying of buses, ferries,etc., along with staff (e.g., driver, conductor, cleaner,etc.). Reference in this regard is also invited to Board’sCircular No. 558, dated 28th March, 1990. (iii) The term ” materials contracts ” in the context ofsection 194C would mean contracts for supply ofmaterials where the principal contract is for work andlabour and not a contract for sale of materials. 9. Board’s Circular No. 86, dated 29th May, 1972, andNo. 93, dated 26th September, 1972, and para 11 ofCircular No. 108, dated 20th March, 1973, are herebywithdrawn. Board’s Circular No. 558, dated 28th March,1990, is reiterated. 10. It is clarified that this circular explaining theprovisions of section 194C will apply with effect from1st April, 1994. Tax deductions made in accordancewith Circulars Nos. 86, 93 and 108 up to 31st March,1994, will be regarded as compliance of the provisionsof section 194C.” 6.He also relied upon the judgment of Karnataka High Court inCIT Vs. Karnataka Power Transmission Corporation Ltd., (2012)208 Taxman 73 (Kar.), and another judgment of Karnataka HighCourt in CIT Vs. Executive Engineer (2016) 282 CTR (Kar) 318against which Mr. Mathur, counsel for the respondents submitsthat SLP No. 4749/2016 is admitted. The order passed in the aforesaid SLP has been shown to us. 10. It is clarified that this circular explaining theprovisions of section 194C will apply with effect from1st April, 1994. Tax deductions made in accordancewith Circulars Nos. 86, 93 and 108 up to 31st March,1994, will be regarded as compliance of the provisionsof section 194C.” 6.He also relied upon the judgment of Karnataka High Court inCIT Vs. Karnataka Power Transmission Corporation Ltd., (2012)208 Taxman 73 (Kar.), and another judgment of Karnataka HighCourt in CIT Vs. Executive Engineer (2016) 282 CTR (Kar) 318against which Mr. Mathur, counsel for the respondents submitsthat SLP No. 4749/2016 is admitted. The order passed in the aforesaid SLP has been shown to us. 6.1. The other questions raised are not admitted. In that view ofthe matter, second judgment relied upon in Hindustan Coca ColaBeverage (P) Ltd. Vs. CIT, (2007) 163 Taxman 355 (SC) is notrequired to be considered. 7.We have heard the counsel for the parties. 8.In view of Karnataka High Court judgment (supra), the issueis answered in favour of assessee subject to result of the SLP.Parties will be governed by the decision of the Supreme Court inthe SLP. 9.It is made clear that even if the judgment is in favour of theDepartment, reasonable notice be given to the assessee and AOwill follow the law declared by the Supreme Court in the aforesaidSLP. The appeals are accordingly disposed of. A copy of this judgment be placed in the connected appeal. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. /bm gandhi 177-178