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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

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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.

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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

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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

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             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

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             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

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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