M/S NANGAL PUBLIC CARRIER OPERATOR UNION & ANR V. UNION OF INDIA & ORS

CWP/508/1995

AI Insights

The case involves multiple writ petitions challenging the validity of circular No.681 dated March 8, 1994, which directed the deduction of tax at source from amounts to be received by transporters under contracts with private companies. The petitioners argued that their contracts, executed before the enactment of Explanation III to Section 194C of the Income Tax Act, 1961, should not be subjected to this circular, citing the Supreme Court's decision in Birla Cement Works v. Central Board of Direct Taxes. The respondents contended that the circular was applicable, referencing the Supreme Court's earlier decision in Associated Cement Co. Ltd. v. CIT. The High Court, after considering the precedents and arguments, sided with the petitioners, affirming that the circular did not apply retrospectively to contracts executed before July 1, 1995.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 684900 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 23-08-2013
• Assessment Year: misc
• Other Referred Cases: Birla Cement Works v. Central Board of Direct Taxes and others, Associated Cement Co. Ltd. v. CIT, Bombay Goods Transport Association & Anr. v. Central Board of Direct Taxes, Calcutta Goods Transport Association v. Union of India, V.M. Salgaocar & Bros. Ltd. & Ors. v. Income Tax Officer & Ors.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: URVASHI DHUGGA
• Assessee Lawyers: ALOK MITTAL
• Keywords: Tax deduction at source; Transport contracts; Circular No.681; Explanation III
• Section: 194(C)

Judgement Text

"CWP No.508 of 1995 -: 1 :- IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH 1. CWP No.508 of 1995 M/s Nangal Public Carrier Operator Union and another ... Petitioners v. Union of India and others ... Respondents 2. CWP No.3973 of 1995 Today Advertising Pvt. Ltd. ... Petitioners v. The Central Board of Direct Taxes and another ... Respondents 3. CWP No.14218 of 1995 The New Janta Truck Operator's Union ... Petitioners v. Central Board of Direct Taxes and others ... Respondents Date of decision: August 23, 2013. CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Shri Alok Mittal, Advocate, for the petitioners. Ms. Urvashi Dhugga, Advocate for the respondents. Rajive Bhalla , J. (Oral): By way of this order, we shall dispose of CWP Nos.508 and 3973 of 1995 and 14218 of 1994 as they involve adjudication of the same question of law, namely, the validity of circular No.681 Kadyan Vinod Kumar 2013.08.31 10:07 I attest to the accuracy and integrity of this document Chandigarh CWP No.508 of 1995 -: 2 :- dated 8.3.1994 directing the deduction of tax at source from amounts to be received by transporters who have executed contracts to transport goods with a private company. Counsel for the petitioners submits that controversy in the present petitions is squarely covered in favour of the petitioners by a judgment of the Hon'ble Supreme Court in Birla Cement Works v. Central Board of Direct Taxes and others, (2001) 248 ITR 216. While considering the ambit of circular No.681 dated 8th March, 1994, the Hon'ble Supreme has held that the circular does not apply to transport contracts executed prior to coming into effect of Explanation III inserted in Section 194-C of the Income Tax Act, 1961 with effect from 1st July, 1995. Counsel for the respondents, however, submits that a similar controversy was answered by the Hon'ble Supreme Court in Associated Cement Co. Ltd. v. CIT, (1993) 201 ITR 435 by holding that transport contracts, labour contracts, service contracts, etc. are covered by Section 194-C of the Income Tax Act, 1961 and, therefore, the writ petitions may be dismissed. We have heard counsel for the parties and perused the impugned circular. The Hon'ble Supreme Court has already held in Birla Cement Works case (supra) that the circular making Section 194-C applicable to transport contracts shall not apply to Kadyan Vinod Kumar 2013.08.31 10:07 I attest to the accuracy and integrity of this document Chandigarh CWP No.508 of 1995 -: 3 :- transactions that pre-date enactment of Explanation III in Section 194-C on 1.7.1995, the controversy in the present petition is covered in favour of the petitioners by the judgment in Birla Cement Works' case (supra). While deciding the controversy in Birla Cement Works case (supra), the Hon'ble Supreme Court considered the judgment in Associated Cement Co. Ltd.'s case (supra) and after holding that the said judgment relates to deduction of tax at source from payments made for loading and unloading of goods, held as follows:- “The key words in Section 194C are \"carrying out any work\". Learned counsel for the appellant contended that a word or collection of words should fit into the structure of the sentence in which the word is used or collection of words formed. The contention is that in the context of Section 194C, carrying out any work indicates doing something to conduct the work to completion or something which produces such result. The mere transportation of goods by a carrier does not affect the goods carried thereby. The submission is that by carrying the goods, no work to the goods is undertaken and the context in which the expression \"carrying out any work\" has been used, makes it evident that it does not include in it the transportation of goods by a carrier. In Bombay Goods Transport Association & Anr. v. Central Board of Direct Taxes [(1994) 210 ITR 136], the Bombay High Court quashing the impugned circular has held that the expression \"carrying out any work\" would not include carrying Kadyan Vinod Kumar 2013.08.31 10:07 I attest to the accuracy and integrity of this document Chandigarh CWP No.508 of 1995 -: 4 :- of goods. In Calcutta Goods Transport Association v. Union of India [(1996) 219 ITR 486], similar view has been expressed by the Calcutta High Court. It has also been pointed out in this decision that the Parliament had sought to bring professional services and other works within the net of tax deduction at source. If such \"works\" were already covered by Section 194C, it was wholly unnecessary for the parliament to introduce separate statutory provisions in this regard and, thus, it follows that the word \"work\" is to be understood in the limited sense as product or result. The carrying out of work indicates doing something to conduct the work to completion or an operation which produces such result. In V.M. Salgaocar & Bros. Ltd. & Ors. v. Income Tax Officer & Ors. [(1999) 237 ITR 630], the Karnataka High Court has concurred with the views expressed by the Bombay and Calcutta High Courts. The High Courts of Gujarat, Madras, Orissa and Delhi have also expressed similar views. On the other hand, as already noticed, Rajasthan High Court in the judgment under appeal has expressed the contrary view relying upon the decision in Associated Cement Co. Ltd.'s case {1993}201 ITR 435 (SC). Two interpretations are reasonably possible on the question whether the contract for carrying of goods would come or not within the ambit of the expression \"carrying out any work\". One of the two possible interpretations of a taxing statute, which favours the assessee and which has been acted upon and accepted by the Revenue for a long period should not be disturbed except for compelling reasons. There can be no doubt that if the only Kadyan Vinod Kumar 2013.08.31 10:07 I attest to the accuracy and integrity of this document Chandigarh CWP No.508 of 1995 -: 5 :- view of Section 194C had been the one reflected in the impugned circular, then the issue of earlier circulars and acceptance and acting thereupon by the Revenue reflecting the contrary view would have been of no consequence. That, however, is not the position. Further, there are no compelling reasons to hold that Explanation III inserted in Section 194C with effect from 1st July, 1995 is clarificatory or retrospective in operation. We hold Section 194C before insertion of Explanation III is not applicable to transport contracts, i.e., contracts for carriage of goods. For the aforesaid reasons the appeal is allowed, the impugned circular to the extent it relates to transport contracts is quashed. The parties are left to bear their own costs.” We, therefore, have no hesitation in holding that the controversy in these writ petitions has to be decided in terms of the ratio recorded by the Hon'ble Supreme Court in Birla Cement Works case (supra). As a consequence, the writ petitions are allowed in terms of the ratio recorded in Birla Cement Works v. Central Board of Direct Taxes and others, (2001) 248 ITR 216. [ Rajive Bhalla ] Judge [Dr. Bharat Bhushan Parsoon] August 23, 2013. Judge kadyan Kadyan Vinod Kumar 2013.08.31 10:07 I attest to the accuracy and integrity of this document Chandigarh "