1. The assessee has filed these two appeals against consolidated order of CIT(A), dt. 5th August, 1997, on common grounds, namely, non-applicability of provisions of s. 194C; interpretation of CBDT Circular No. 681, dt. 8th March, 1994; holding the assessee as assessee in default under s. 201; charging interest thereunder ignoring the fact that tax had been paid on the income accruing or arising upon the payment made by the supplier which amount of tax was much more than the amount of TDS.2. The brief facts are that the assessee, Chief Electoral Officer, Haryana, Chandigarh, made payments for preparation and supply of photo identity cards. The payments were made to Haryana State Electrical Development Corporation Ltd. (HARTRON) for preparation and supply of duly laminated photo identity cards together with a duplicate thereof for the purpose of record. The assessee did not deduct tax at source on the said payments. AO issued a show-cause notice dt. 2nd December, 1996, asking the assessee to explain the reasons for non-deduction of tax at source. Vide reply dt. 10th December, 1996, the assessee submitted that no TDS was deducted at source as the supply order was to be considered as supply of goods and not as a contract payment, in view of the CBDT Circular No. 681 dt. 8th March, 1994, para 7 (vi-B), wherein it is mentioned that where the contractor undertakes to supply any article or thing fabricated according to the specification given by the Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of s. 194C of the IT Act. AO, however, declined to accept the plea taken by the assessee and held that preparation of photo I-cards could not be treated as contract for sale. He referred to para 7(i) of CBDT Circular No. 681, wherein it was mentioned that the provisions of s. 194C shall apply to all types of contracts for carrying out any work including transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, material contracts and work contracts. He, therefore, held the assessee to be an assessee in default and liable to pay tax to the credit of the Central Government tinder s. 201. AO also held the assessee to be liable to pay simple interest @ 15% p.a. under s. 201(1A). He computed the tax for financial year 1994-95 at Rs. 20,13,810 and interest at Rs. 6,60,390. For financial year 1995-96, tax computed was Rs. 78,070 and interest at Rs. 16,510.
3. On first appeal, the assessee referred to the communication dt. 24th May, 1994, from the Chief Electoral Officer, Haryana, to the managing director, HARTRON. Specific attention of the CIT(A) was invited to the fact that HARTRON was to arrange preparation of photo I-cards an then supply the same to the assessee and that I-cards had to be made in a particular manner and was required to indicate particulars of each voter. It was submitted that the contract provided that 90% of the amount due will be paid by way of running payments after receipt of lots of 10,000 each and balance payment would be made within three months after completion of the work. The assessee urged that the contract was for sale of goods. Attention was also invited to CBDT Circular No. 681, para 7(vi)(b). Learned CIT(A) considered the submissions and observed that the said circular had been held to be illegal and thus struck down by Hon'ble Bombay High Court in the case of Advertising Agency Association of India vs. CBDT (1994) 210 ITR 152 (Bom). Hon'ble Delhi High Court in the case of S. R. F. Finance Ltd. vs. CBDT (1995) 211 ITR 861 (Del) and Hon'ble Madras High Court in the case of Madras Bar Association & Ors. vs. CBDT (1995) 216 ITR 240 (Mad). The CIT(A) thus held that the assessee could not be given the benefit under the impugned circular and that decision was to be taken with reference to the provisions of s. 194C. He also held that the provisions were quite clear and have to be considered in the light of judgment of Hon'ble Supreme Court in the case of Associated Cement Co.
Ltd. vs. CIT (1993) 201 ITR 435 (SC). In view of the above decision, CIT(A) held that in the case of the assessee the contract was certainly for carring out of work and that preparation of photo I-cards could not be held as production of an article which is then sold for a certain consideration. CIT(A) further referred to the specification of size in relation to I-cards, the paper to be used, photo graph of the elector and its size, emblem of the Election Commission of India to be printed, code number representing the State and the constituency and other details to be incorporated in the I-cards. He held that the description of the job clearly indicated that it was not merely a contract for sale of goods but it was a contract for carrying out of certain work which was necessary to be done for the purpose of preparation of the card. He also held that Circular No. 681 had been held to be illegal as far as TDS on fees for professional services, contract for carriage, advertisement, etc. He observe that the nature of operation to be performed in the present case indicated that the contract was for carrying out of work. With reference to the condition for payment of 90% on delivery of lots of 10,000 each, CIT(A) held that the same represented only a mode of payment and that the same would not change the character of assignment as one for work and not one for purchase of goods. He further held that if that would be the case, there Would be no contract for sale and that drafting a contract in a particular manner could change a contract for work into a contract for sales and that would make the provision absurd. CIT(A) ultimately held that the provisions of s. 194C were applicable in this case and AO was justified in passing order under s. 201 of the Act.
4. Learned counsel Shri P. C. Jam contended before us that the provisions of s. 19.4C of the Act are not applicable in this case and that the assessee was not liable for deduction of tax at source and, therefore, the tax authorities are wrong in holding that the assessee should have deducted tax at source and also pay interest @ 15% under s.
201(IA). In the alternative he submitted that if the assessee was liable to pay tax on interest under s. 201(IA) should be levied keeping in view the facts and circumstances of the case. Learned counsel referred to the provisions of ss. 194C, 200 and 201. He submitted that the provisions of s. 201 would be attracted in case of such person as is required by or under the Act to deduct tax at source. He submitted that the provisions of s. 201 were not a code in itself and that the same come into play only because of statutory provisions of s. 194C. He pointed out that under s. 194C. He pointed out that under s. 194C, liability to deduct tax is fastened on any person responsible for paying any sum to any resident (ref. in the section as contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the resident and the Central Government or any State Government or any local authority, etc. He submitted that in the present case the supplier was not carrying out any work, as mentioned in s. 194C but was making sales of I-cards to the assessee. He submitted that the Chief Electoral Officer, Haryana, a wing of Government of Haryana, placed an order for supply of I-cards with HARTRON in pursuance of directions of the Chief Election Commissioner of India (CEC). He submitted that the supplier, i.e.
HARTRION, is wholly owned Corporation of the State Government and it was engaged for manufacturing, preparing and supply of I-cards. He referred to the various clauses of the agreement placed at pp. 45-51 of the paper-book, to bring out the distinction between carrying out of work and making sale of I-cards by the supplier to the assessee. He highlighted that cls. 2 and 3 of the agreement provided that material is to be arranged by contractor/supplier and that, as per cl. 5, the risk was that of the contractor, as it was provided that if material used is not in accordance with the specifications, then I-cards prepared would be rejected and such I-cards will be destroyed by the contractor at his expenses in the presence of any officer authorised by the Government and that contractor shall not be entitled to any kind of payment or damage with regard to rejected I-cards. He submitted that the ownership of I-cards did not pass to the assessee till the tests were carried out and I-cards were accepted. He also emphasised that the machinery and other infrastructure was on contract and that contractor, was engaged in the manufacturing activities of producing the cards, as per specifications laid down by the Government. He referred to cl. 10 of the said agreement, wherein it is provided that the Government will pay Rs. 14 for every complete I-card supplied by the contractor as per supply order along with duplicate legible miniature of the card on A-4 sheet. He thus emphasised that supply of I-card was hallmark of the agreement. He also referred to the relevant clauses to emphasise that I-cards were to be prepared as per the specifications of the Government and that it was not the case of contractor for doing job work on labour charges for executing the job. He referred to the letter by CEO Haryana to the Managing Director, HARTRON (p. 52 of the paper-book), where specifications for preparation of I-cards have been indicated. He emphasised that HARTRON had made preparation and supply of I-cards under a scheme evolved by the Government on directions of CEC. Learned counsel referred to p. 37 of the paper-book, where copies of Form ST VIII and relevant challans indicating payment of sales-tax are placed.
Learned counsel thus submitted that supply of I-cards had been shown as sales and 'D' form was issued by the assessee treating the transaction as sale of goods under the Sales of Goods Act (ref. Pp. 38-44 of the paper-book). He urged that the Government is thus exempted from the provisions of s. 194C of the Act in this case. Learned counsel submitted that there was a basic distinction between the expressions 'work' and 'supply'. He submitted that in the case of carrying out of work, property does not pass to the assessee as he is already the owner of the same. As against this, in case of supply the contractor is the owner and the property in goods passes to the buyers when goods are actually delivered and payment is received by the supplier. Similarly, he argued that there was a difference in the expression 'work contract' and 'supply contract'. He emphasised that in the first case contractor would charge for the work done and that he does not have a right to withhold the goods. In the second case, the contractor also charges for the cost of goods and the cost in consolidated one representing labour involved in the manufacture of goods and the cost of goods. He pointed out that in the latter case if delivery is not taken supplier can retain the goods and that he cannot force the buyer to take delivery.
He then referred to Circular No. 681 (pp. 61-65 of the paper-book), in particular to para 7(vi), whereunder it is clarified that the provisions of s. 194C will not cover contracts for the sale of goods.
In particular, he referred to cl. (b) of item VI of para 7, wherein it is clarified that where the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specific person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of the section. He also referred to sub-cl.
(c) of cl. (vi), wherein the decision of Hon'ble Supreme Court in the case of Associated Hotels of India Ltd. (1972) 29 STC 474 (SC) has been mentioned. It is observed by the apex Court that 'the test is whether or not the work and labour bestowed in anything that can properly become the subject of sale; neither the ownership of the materials nor the value of skill and labour as compared with the value of the materials is conclusive although such matters may be taken into consideration in determining in the circumstances of a particular case, whether the contract is, in substance, one of work and labour or one for the sale of a chattel.' Learned counsel thus emphasised that in view of the above provisions of the circular, which are still valid, in the present case the contract is primarily of manufacturing and supplying I-cards to the assessee. Learned counsel also relied on the following case law : (i) Startronics & Enterprises (P) Ltd. vs. DY CIT (1995) 82 Taxman 87 (Ahd). - wherein it was held by the Tribunal that data processing and print-out was production of an article or thing as contemplated by s. 32A(2).
(ii) CIT vs. Ajay Printew (P) Ltd., (1965) 58 ITR 811 (Guj). - wherein it was held that business of printing of balance sheets, dividend warrants, etc, required by companies is a business which consists wholly of 'manufacture of goods' within the meaning of s.
23A, Expln. 2(ii) of the Indian IT Act, 1922.
(iii) CIT vs. D. K. Kondke (1991) 192 ITR 128 (Bom). - wherein it was held that production of cinematograph films amounts to manufacture of an article or goods.
(iv) CIT vs. Shaw Wallace & Co. Ltd. (1993) 201 ITR 17 (Cal). - wherein it was held that computer is a complicated machine and not an office appliance and that the computer division of the assessee is an industrial undertaking entitled to investment allowance.
(v) CIT vs. East India Hotels Ltd. (1994) 209 IM 854 (Cal). - Wherein it was held that exclusive catering unit of the assessee supplying eatables in bulk for consumption of air passengers was a unit entitled to special deduction under s. 80J and the food prepared by a caterer for supply to parties can be said to be merchandise.
(vi) CIT vs. Steel Tubes of India Ltd. (1997) 228 ITR 38 (MP). - wherein decision in (1993) 201 ITR 17 (Cal)(supra) was followed.
(vii) CIT vs. Elemech Industrial Constructions (1998) 229 ITR 503 (AP). - wherein it was held that fabrication of raw material like steel rods and steel sheets supplied by contractors into steel structures as per specifications and designs given in the process of such fabrication involved manufacturing and that the assessee was an industrial company and entitled to investment allowance.
In view of the above case law, learned counsel emphasised that in this case HARTRON was working according to the specifications laid down by the assessee and manufacturing and supplying I-cards accordingly and, therefore, the case falls outside the purview of the provisions of s.
194C of the Act.
4.1. Learned counsel mentioned another facet of his arguments by referring to the object of the provisions of s. 194C and submitted that the object was to collect tax @ 2% on income comprised in the payment made to contractors and that s. 194C was not a charging section. He referred to the Budget Speech of the Finance Minister, reproduced in (1972) 83 ITR 208 (St), wherein the last paragraph Hon'ble Minister mentioned that, "I hope, this alliance between the Revenue Department and the contractors will lead to prompt payments all round". He also referred to the Commentary by Sampath Iyengar, Ninth Edn., Vol. 5, p.
6221, where instruction No. 1234 issued by CBDT has been mentioned. He submitted that in the present case, contractor has paid taxes due on the amount of contract. He submitted that for asst. yr. 1995-96, contractor has paid the amount of Rs. 88.78 lakhs as advance-tax (p. 82 of the paper-book) and for the next asst. yr. 1996-97, total tax paid by the contractor is Rs. 52,80,832 (pp. 101-102 of the paper-book). He, therefore, submitted that the object and purpose of s. 194C is squarely met in the present case as the contractor has paid more than what was due under the provisions of the section ibid. He also referred to the provisions of s. 194C(4), whereunder a person can apply to the AO for not deducting any tax at source. He further referred to the provisions of s. 191, wherein it is provided that 'in the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct. Learned counsel pointed out that direct payment of tax has been made, though by contractor. He, therefore, submitted that in essence the provisions of s. 194C r/w s. 191 have been complied with and that default, if any, is only of technical nature and the issue is academic when the payment has actually been made. He referred to the decision of the Tribunal in the case of Munak Investment (P) Ltd. vs. ITO (1997) 58 TTJ (Chd) 33 : (1995) 55 ITD 429 (Chd), wherein it was held that principal liability for payment of income-tax was of the person who received income and since such person had paid tax on income so received, even if technically default for not deducting tax at source continued, such a default disappeared as soon as the other person discharged this liability.
4.2. Learned counsel then advanced the third facet of his arguments to the effect that the assessee was under bona fide belief, having regard to the facts and the circumstances of the case, that it was not liable to act tax at source. He relied on the decision of the Tribunal in the case of Philips India Ltd. vs. ITO (1996) 56 TTJ (Bom) 267 : (1996) 59 ITD 390 (Bom), wherein it was held that where the assessee acted honestly and fairly in forming opinion that the amount of Rs. 50,000 was deductible under s. 10(10B) and did not act tax at source, the assessee's case fell beyond ken of s. 201. He also referred to the legal opinion obtained (pp. 57-61 of the paper-book), whereby the assessee was advised that as the transactions had the character of sale even though the rate was inclusive of sales-tax, no deduction of tax at source was involved in the present order for supply of photo I-cards.
He, therefore, urged that the assessee acted under bona fide belief that it was not required to deduct tax at source.
4.3. Learned counsel went on to advance fourth facet of his arguments that levy of interest under s. 201(1A) was in any case not justified.
He referred to the said and submitted that simple interest at 15% p.a.
was leviable on the amount of tax not deducted from the date on which such tax was deductible to the date on which such tax is actually paid.
He submitted that in this case, both the dates, i.e. when tax was deductible and when tax is actually paid, are not ascertainable and, therefore, no interest could be charged under the said provisions. He emphasised that chargeability of tax and collection thereof forms an integrated code. He referred to the aforesaid decisions of the Tribunal in (1997) 58 TTJ (Chd) 33 (1995) 55 ITD 429 (Chd)(supra) and the decision in the case of CIT vs. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC), wherein it was observed that charging section and the computations provisions together constitute an integrated code and when there was a case to which the computation provisions cannot apply at all, it was evident that such a case was not intended to fall within the charging section. In view of the foregoing, learned counsel urged that the order of CIT(A) upholding the charging of tax and interest ought to be set aside.
5. Learned Departmental Representative, Shri Rakash Goyal, on the other hand, relied on orders of the tax authorities. He submitted that the case of the assessee squarely and clearly fell within the provisions of s. 194C and it was a clear case of carrying out of work as ordered by the assessee and could not be treated as a case for sale of goods. He also submitted that photo I-cards is a legal document, which is required to be handed over by the contractor to the assessee and it cannot withhold the same under any circumstances. With reference to second argument of learned counsel, learned Departmental Representative emphasised that it was a case of consolidated charges for labour involved in the preparation of I-cards as also cost of material and the case was covered under s. 194C of the Act. He also highlighted that each I-card was a different item in itself as it was to contain various particulars of the voters, name of the constituency, etc, and that it could not be treated as a case of supply/sale of goods. He pointed out that marketing of the commodity was an essential ingredient in the case of sale of goods and that individual I-card lack this essential ingredient. He submitted that there was relationship of principal and agent between the asseessee and HARTRON. He also submitted that if plea of learned counsel for the assessee were to be accepted, then no contract could be covered within the framework of s. 194C of the Act.
Learned Departmental Representative pointed out that in similar facts other parties have deducted tax at source. He filed copies of Form No.16A in the case of Electronic Systems Punjab Ltd., which treated the same type of job as job contract and deducted tax at source on payments made to M/s. Deep Advertising. The amount paid there was Rs. 97,99,821 and the tax deducted @ 2% was Rs. 1,95,996. Learned Departmental Representative also emphasised that the words 'supply order' used in the agreement would not make any difference. He also emphasised that so also the rate for each card provided in the said agreement should not make any difference. He submitted that the process of manufacturing involved in preparing I-cards could not determine that it is a case of supply of goods and not of work contract. He also pointed out that the assessee had not paid any sales-tax nor has deducted tax at source on payments made to HARTRON. Learned Departmental Representative also pointed out that Circular No. 681 has been held to be illegal by various Courts and that if the said circular is violative of the provisions of the statute, it could not be treated as a valid circular and that the plea of learned counsel for the assessee on this account ought not to be accepted. Learned Departmental Representative relied on the following case law : (a) Associated Cement Co. Ltd. vs. CIT (supra). - wherein it has been observed that s. 194C had a wide import and covered 'any work' 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 and that the said section was not confined or restricted in its application to 1works contracts'.
(b) Chamber of Income-tax Consultants & Ors. vs. CBDT & Ors. (1994) 209 ITR 660 (Bom). - wherein it was observed that the circulars issued by the CBDT during the last two decades explaining the scope and ambit of s. 194C are clearly in the nature of contemporaneous exposition which can legitimately be used as aids in the construction of the said provision. In the ultimate analysis, Hon'ble High Court held that Circular No. 681 is illegal and based on an erroneous reading of the observations of the Supreme Court in Associated Cement Co. Ltd.'s case (supra) and is without jurisdiction insofar as it requires deduction of tax at source under s. 194C in respect of payments of fees for professional services.
(c) Bombay Goods Transport Association & Ors. vs. CBDT (1994) 210 ITR 136 (Bom). - wherein it was held that the provisions of s. 194C are not applicable to contractors for mere carriage of goods which do not include any other services like loading or unloading and that Circular No. 681 is illegal and without jurisdiction insofar as it requires deduction of tax at source in the case of contracts for mere carriage of goods.
(d) S. R. F. Finance Ltd. vs. CBDT (supra). - wherein it was held that Circular No. 666 dt. 8th October, 1993, and No. 681, dt. 8th March, 1994 were void to the extent that they cover payments to commission agents and brokers for the services rendered by them and were liable to be quashed. It was observed by Hon'ble High Court that the word 'work' may have different and wider meanings but one has to find out the real meaning of the word in the context of its setting in s. 194C. (e) Madras Bar Association & Ors. vs. CBDT (1995) 216 ITR 240 (Mad).
- wherein it was observed that the provisions of s. 194C(1) have the effect of not taking within their purview the category of services rendered in return for the fee paid in contract to a work performed for a price as its consideration. It was held that there was no warrant whatsoever for the assumption made in Circular No. 681 insofar as it purports to issue directions in paras 7 and 8 extending scope of s. 194C and that it was to be quashed as being.
violative of Arts. 14 and 265 of the Constitution of India and opposed to s. 194C in so far as it required deduction at source from payments made by way of professional fees to advocates, solicitors, chartered accountants, tax practitioners, etc. for the services rendered by them. It further held that said circular as illegal insofar as it required deduction of tax of payments made to advertising agency or agents rendering professional services.
(f) Ekonkar Dashmesh Transport Co. vs. CBDT (1996) 219 ITR 511 (P&H). - wherein it was held that Circular No. 681 was legal and valid insofar as it provides that 'transport contracts' fell within the mischief of s. 194C. It was also observed that, however, in a case where the view taken by the authority or the Board is contrary to the plain language of the statute, the circular cannot be used to evade the liability created by the statute. In view of the foregoing, learned Departmental Representative submitted that the judgments relied upon by learned counsel do not relate to the interpretation of the provisions of s. 194C and that they relate to manufacturing of an article or goods and cannot be applied in this case. He also referred to the decision of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) for the proposition that the provisions of s. 194C have to be read as a whole and it cannot be deduced therefrom that the transactions involved in the present case are anything other than carrying out of work. He also emphasised that in case it is held that the transactions involved in the present case fall outside the scope of s. 194C, there would be a chain reaction and nobody will deduct tax at source. He, therefore, prayed that in case the Tribunal accepts the contention of the assessee, it could be spelled out that it is an exception considering the facts and the circumstances of case and it is not being laid as a general proposition.
5.1. With reference to argument of learned counsel for bona fide belief, learned Departmental Representative insisted that it is the legal duty of all the assessees to deduct tax at source under s. 194C and that even the legal opinion on the basis of which the assessee is purported to have formed a bona fide belief has been given by the present advocate. Learned Departmental Representative has also pointed out by letter dt. 8th May, 1998, that the legal opinion in question placed at pp. 57-60 was not before AO or CIT(A) and should be ignored.
He submitted that the plea taken by learned counsel that the computation of interest is not possible under the provisions of s.
201(1A) as dates are not known, is without any force as tax becomes deductible the moment the payments are credited in the books of account of the assessee. He submitted that the dates are ascertainable and that interest has been properly charged. With reference to plea of learned counsel taken with regard to s. 191, learned Departmental Representative submitted that in case of failure by the assessee to deduct tax at source the contractor was bound to pay directly and that no relief is available on that account and that order asking the assessee to pay tax along with interest, ought to be upheld.5.2. Learned counsel, in counter-reply, referred to distinction between 'carrying out of work' and 'making of supply' and submitted that it is a supportive argument for the proposition that the case of the assessee does not fall within s. 194C. He submitted that the goods in this case-I-cards-were manufactured according to specifications laid down by the assessee and that the property passed in the said case to the assessee only on accepting the supply and making payments. He pointed out that marketability of goods was not essential, e.g. in the case of calendar printed for Government Departments, the same were not saleable to the general public. Learned counsel relied on para 7(vi)(b) of Circular No. 681 and submitted that the said provisions have not been struck down by various High Courts and were still valid. He referred to copy of circular placed in the paper-book and submitted that the five cases in which the circular has been struck down are duly noted in the publication (Direct Tax Circulars-Income-tax) brought out by Taxman. He also pointed out that Circular No. 108 dt. 20th March, 1993, has been withdrawn by para 9 of Circular No. 681 (p. 65 of the paper-book).
6. We have carefully considered the submissions made by both the parties and have also perused orders of tax authorities and the material placed in the form of paper-book, to which our attention was invited during the course of hearing. We have also carefully seen the case law relied upon by both the parties. It is observed that the main trust of learned counsel is that the expression 'carrying out any work' as used in s. 194C does not cover the activity of preparation and supply of I-cards by HARTRON to the assessee and that it is a case of supply of goods. Learned counsel relied heavily on Circular No. 681, para 7(vi)(b). As against this learned Departmental Representative has tried to submit that the process of preparing I-cards for each individual and supplying the same to the assessee squarely falls within the expression 'carrying out of work' and that it could not be treated as a case of sale of goods. He has relied on various decisions, mentioned above, whereby Circular No. 681 has been held to be illegal in relation to various payments. We may mention that the expression 'work' has been defined in Expln. III to s. 194C w.e.f. 1st July, 1995, to include Advertising, broadcasting and telecasting including production of programmes for such broadcasting or telecasting, carriage of goods and passengers by any mode of transport other than by railways and catering. Obviously, the purpose of the definition, as inserted by the Finance Act, 1995 w.e.f. 1st July, 1995, is to set aside the effect of various judgments mentioned above. The said definition is, however, inclusive and the ordinary meaning of the expression 'work' has to be seen. It is observed from the Judicial Dictionary by K. J. Aiyer, 8th Edn, that the word 'work' has a very wide meaning and is used in two senses : (1) of bestowing labour; and (2) that upon which labour has been bestowed. It is also mentioned that the word gets its colour and completion from the nature of the work. The word 'supply' has been interpreted at page 920 of the said publication in the context of the definition of 'dealer' in s. 2(c) of the Bihar ST Act and is not relevant. It is also observed from Stroud's Judicial Dictionary, Fourth Edn., p. 3045, that the word 'work' may be used in two senses it may mean either the labour which a man bestows upon a thing, or the thing upon which the labour is bestowed. The definition of 'work' has been discussed in various context but the genesis of the definition lies in the above two senses. Similarly, in the said publication at pp.
2689-90, interpretation of the word 1supply, has been mentioned in various contexts and it has been mentioned in the context of supply of electric energy, with power to a municipal authority to supply electric energy to customers does not authorise it to sell or hire out apparatus for the use of the energy; and that the supply is completed at the customer's terminals; and that the installation of electricity and the provision of fittings is a separate business incidental to the use but not to supply of energy. Strictly speaking, various contexts in which the word 'supply' has been interpreted are not relevant to the case in hand. We may refer to the decision in (1995) 216 ITR 246 (Mad) (supra), wherein Hon'ble High Court noted that the apex Court had laid down in (1993) 201 ITR 435 (SC) that the meaning of the words 'any work' cannot, be curtailed down or cut down so as to confine or restrict it to 'works contracts' and that the same has wide import and covers any work which can be carried out through a contractor under a contract express or implied. It was also observed that the question as to whether professional services are covered by the said provisions was never before the apex Court for consideration and it was purely on surmises and assumptions that the CBDT thought that the Court in that case may be considered to have decided such an issue by implication, It was held that there was no warrant whatsoever for the said assumption and that Circular No. 681 insofar as it purports to issue directions in paras 7-8 explaining the scope of s. 194C was to be quashed as being violative of Art. 14 and 265 of the Constitution of India and opposed to s. 194C insofar as it required deduction at source from payments made by way of professional fees to advocates. It also held that the said, circular was illegal and without jurisdiction in respect of application for deduction of tax under s. 194C in respect of contracts for mere carriage of goods. It is also observed that the aforesaid Circular No. 681 has been struck down by various Courts only with reference to requirements of deduction of tax at source in relation to particular payments and that the remaining part of the circular which requires that the provisions of s. 194C will not cover contracts for sale of goods, has not been the subject-matter of any decision brought to our notice. Thus, we feel that para 7(vi)(b) and (c) are still relevant for properly construing the provisions of s. 194C. It is observed that learned Departmental Representative has relied on various judgments, mentioned above, including (1996) 219 ITR 511 (P&H) (supra), for the proposition that Circular No. 681 has been held to be illegal and is beyond the provisions of s. 194C and that Hon'ble Punjab & Haryana High Court have held that prima facie transport of goods is a task carried out by carriers to earn their livelihood and it is a duty performed by them in pursuance of a contract and that the end product may be the work, but income derived by the contractor for carrying out work is certainly covered by the provisions of s. 194C and the prescribed deduction has to be made therefrom. Circular No. 681 has thus been upheld by Hon'ble High Court to that extent. The proposition thus boils, down to the point that the expression 'carrying out any work' used ins, 194C has to be interpreted with reference to the case in hand having regard to the ratio laid down by apex Court in (1993) 201 ITR 435 (SC) (supra) and the interpretation made by various High Courts in the aforesaid cases as also other part of Circular No. 681 which is still subsisting and lids not been struck down so far. If we consider the genera meaning of the expression 'work', as mentioned in the aforesaid Judicial Dictionaries of K. J. Aiyer and Stroud, and also having regard to the ratio of the above decisions, particularly in (1995) 216 ITR 240 (Mad) (supra), we may have to agree with the contention of learned Departmental Representative that the work of preparation and supply of I-cards by HARTRON is covered within the meaning of s. 194C, as the case of preparation and supply of I-cards is a consolidated case of expenses on labour and raw material which has gone into production of I-cards required to be supplied by HARTRON to the assessee. However, at the same time the contents of para 7(vi)(b) and (c) of Circular No. 681 which are still valid and binding on the Departmental authorities cannot be ignored. It is clearly mentioned in sub-cl. (b) of cl. (vi) of para 7 that where the contractor undertakes to supply any article or thing fabricated according to the specifications given by the Government or any other specified person and the property in such article or thing passed to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and outside the purview of s. 194C of the Act.
We feel that the transaction of preparing I-cards according to the specifications laid down by the assessee can also be said to fall within para 7(vi) of the said circular, issued by CBDT. It is also observed that the assessee had submitted before CIT(A) (pp. 66-70 of the paper-book) that its case squarely falls within the said para 7(iv)(b) and it accordingly did not deduct tax at source. The said pleas of the assessee also find mention in order of CIT(A). Thus, in such a situation, we feel that where two interpretations are possible, such interpretation which favours the assessee has to be adopted having regard to the decision of the apex Court in the case of CIT vs.
Vegetable Products Ltd. (1973) 88 ITR 192 (SC). Further, the assessee acted bona fide in this case on the basis of the said belief and did not deduct tax at source. It is also observed that the tax due on payments in question in both the assessment years has been paid by the contractor and, therefore, we feel that the alternative submission of the assessee that the object of the provisions of s. 194C r/w s. 191 has been met, has to be accepted. Ultimately, no loss of revenue has been caused to the Department as the tax due has been paid by one of the parties. We may also mention that the work of preparation of I-cards was a stupendous work and undertaken for the first time by various Government agencies on the basis of directions issued by the CEC and the Government agencies were obviously not very clear about their liability to deduct tax at source. On the facts and circumstances of the case, we, therefore, feel that the, default, if any, is only of technical nature and that the assessee acted in bona fide belief and considering overall circumstances of the case we feel that no interest is chargeable under s. 201(1A) in this case. While holding so, we have taken into account the submissions made by learned Departmental Representative that this decision of ours should not be taken as laying a general principle/proposition which may set in a chain reaction in similar cases enabling the assessee not to deduct tax at source under s. 194C. We may make it clear that our decision rests on the peculiar facts of the case wherein two Government Departments are involved and that same has been taken in the context of particular transactions and should not be taken as a precedent laying down a general proposition that such items of work are treated as sale of goods. Accordingly orders of CIT(A) are set aside in relation to both the assessment years under consideration.
7. In the result, both the appeals are allowed subject to above observations.