Case: M/S.Birla Cement Works Vs. Central Board Of Direct Taxes

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 the Legislature that the "work" in the sub-section is not intended to be confined to or restricted to "works contract". "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 for its specific inclusion in the sub-section." 7. It is evident that ACCs case (supra) was not in respect of transport contracts. The controversy therein was deduction of tax at source from payments made for loading and unloading of goods. The question whether the expression "carrying out any work" would include therein carrying of the goods or not, was not in issue in ACCs case. That is precisely the question in the present case. The decision in ACCs case has not been correctly understood by the CBDT. It would not be correct to come to the conclusion, as CBDT did, that question involved is covered by the decision in the case of ACC. 8. Section 194C was amended by the Finance Act, 1995 with effect from 1st July, 1995. Explanation III was inserted. So for relevant for present purpose, the said explanation reads as under : "Explanation III. - For the purposes of this Section, the expression "work" shall also include : (a) ... (b) ... (c) carriage of goods and passengers by any made of transport other than by railways; (d) ..." 9. In view of above, it is not in dispute that from 1st July, 1995 Section 194C is applicable to transport contracts as well. The question, however, is whether the aforesaid explanation is only clarificatory or it makes applicable the provisions of Section 194C to the types of contracts in question for the first time from the date of insertion of the explanation, i.e., 1st July, 1995. 10. The Rajasthan High Court in the judgment under challenge has followed the interpretation placed on Section 194C by Kerala High Court in Central Board of Direct Taxes v. Cochin Goods Transport Association, 1999(236) ITR 993 and the Punjab and Haryana High Court in Ekonkar Dashmesh Transport Co. and others v. Central Board of Direct Taxes and another, 1996(219) ITR 511. the contrary views expressed by the High Courts of Bombay, Calcutta, Karnataka, Gujarat, Madras, Orissa and Delhi quashing the impugned circular has been dissented in the judgment under challenge. 11. 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 and another 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 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 and Bros. Ltd. and others v. Income Tax Officer and others, 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 ACCs case (supra). 12. 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 view of Section 194C had been the one reflected in the impugned 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]On appeal, this Court held that Section 194C(1) had a wide import and covered "any word" which could be got carried out through a contractor under a contract including the obtaining of supply of labour under a contract with a contractor for carrying out any work. The Section was not confined or restricted in its application to "work contracts". There was nothing in the language of the Section which permitted exclusion of the amount reimbursed by the company to the contractor under clause 13 from the sum envisaged therein. The facts of the case and observations made in ACCs case make it clear that in the said decision, this Court was concerned with a work carried through a contractor under a contract which further included obtaining 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. Under these circumstances, it was said : "......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 the 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 the Legislature that the "work" in the sub-section is not intended to be confined to or restricted to "works contract". "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 for its specific inclusion in the sub-section."7. It is evident that ACCs case (supra) was not in respect of transport contracts. The controversy therein was deduction of tax at source from payments made for loading and unloading of goods. The question whether the expression "carrying out any work" would include therein carrying of the goods or not, was not in issue in ACCs case. That is precisely the question in the present case. The decision in ACCs case has not been correctly understood by the CBDT. It would not be correct to come to the conclusion, as CBDT did, that question involved is covered by the decision in the case of ACC.8. Section 194C was amended by the Finance Act, 1995 with effect from 1st July, 1995. Explanation III was inserted. So for relevant for present purpose, the said explanation reads as under : "Explanation III. - For the purposes of this Section, the expression "work" shall also include : (a) ... (b) ... (c) carriage of goods and passengers by any made of transport other than by railways; (d) ..."9. In view of above, it is not in dispute that from 1st July, 1995 Section 194C is applicable to transport contracts as well. The question, however, is whether the aforesaid explanation is only clarificatory or it makes applicable the provisions of Section 194C to the types of contracts in question for the first time from the date of insertion of the explanation, i.e., 1st July, 1995.10. The Rajasthan High Court in the judgment under challenge has followed the interpretation placed on Section 194C by Kerala High Court in Central Board of Direct Taxes v. Cochin Goods Transport Association, 1999(236) ITR 993 and the Punjab and Haryana High Court in Ekonkar Dashmesh Transport Co. and others v. Central Board of Direct Taxes and another, 1996(219) ITR 511. the contrary views expressed by the High Courts of Bombay, Calcutta, Karnataka, Gujarat, Madras, Orissa and Delhi quashing the impugned circular has been dissented in the judgment under challenge.11. 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 and another 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 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 and Bros. Ltd. and others v. Income Tax Officer and others, 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 ACCs case (supra).12. 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 view of Section 194C had been the one reflected in the impugned 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.