Common carriers of goods by road exempt from tax deduction under section 194C

The court held that common carriers of goods by road are not liable to deduction of tax at source under section 194C of the Income-tax Act, 1961. The court found that the term "work" in the section should be interpreted narrowly to refer to the product or result of labor, excluding services like transportation. Therefore, the writ application was allowed, declaring that the provisions of section 194C are not applicable to common carriers of goods by road.

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Issues Involved:
1. Whether common carriers of goods by road are liable to deduction of tax at source u/s 194C of the Income-tax Act, 1961.

Summary:

Issue 1: Applicability of Section 194C to Common Carriers of Goods by Road

The primary issue in this writ petition is whether common carriers of goods by road are liable to deduction of tax at source u/s 194C of the Income-tax Act, 1961. The petitioners, representing goods carriers and transporters in West Bengal, argue that their members only transport goods and do not perform any additional work such as loading and unloading.

Section 194C, introduced in 1972, mandates a 2% tax deduction on payments made to contractors and sub-contractors for carrying out any work, including the supply of labor. Initial government circulars (Circular No. 86 dated May 29, 1972, and Circular dated September 26, 1972) clarified that the section applied to works and labor contracts but not to contracts for the sale of goods or professional services.

The Supreme Court's decision in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435 expanded the interpretation of "any work" to include not just works contracts but any work performed under a contract. This led to Circular No. 681 dated March 8, 1994, which stated that section 194C applies to all types of contracts, including transport contracts.

The petitioners challenge this interpretation, arguing that the Supreme Court did not explicitly define "any work" to include transportation of goods. They contend that transportation does not involve labor on the goods carried but is a service rendered for reward. The respondents argue that the Supreme Court's decision should be applied broadly and that the term "any work" is unambiguous.

The court found that the issue does not involve specific contract terms but rather the interpretation of section 194C, making the writ petition maintainable. The court referred to decisions from the Bombay High Court (Chamber of I. T. Consultants v. CBDT [1994] 209 ITR 660 and Bombay Goods Transport Association v. CBDT [1994] 210 ITR 136) and the Delhi High Court (S. R. F. Finance Ltd. v. CBDT [1995] 211 ITR 861), which limited the scope of the Supreme Court's decision to the facts of the case and held that "any work" does not include professional services or mere transportation of goods.

The court concluded that the term "work" in section 194C should be understood in a limited sense, referring to the product or result of labor, not services like transportation. Therefore, common carriers of goods by road are not liable to deduction of tax at source u/s 194C.

Judgment:

The writ application is allowed. It is declared that common carriers of goods by road are not liable to deduction of tax at source u/s 194C of the Income-tax Act, 1961. The provisions of the section are not applicable to them. There will be no order as to costs.

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