Case ID: 7041

Judgment:
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. section 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. vs 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. section 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 (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 (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.

Summary:
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. vs C.I. T.	 Haryana	 Himachal Pradesh and New Delhi [1979] 2 S.C.R. 16	 distinguished. 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]