Judgment:
ORDER
Ratanam J.
1. The assessee is a private limited company carrying on the business publishing periodicals called Kumudam and Kalkandu. These periodicals are printed by another private limited company, viz., Kumudam Printers Private Ltd. (hereinafter referred to as 'the printer'). For the purpose of printing the periodicals, on August 1,1972, an agreement was entered into between the assessee and the printer containing certain terms and conditions which we shall notice in some detail later in the course of this judgment. During the assessment years 1974-75 and 1975-76, the assessee paid to the printer substantial amounts by way of charges for composing striking, taking colour form impression, printing cover pages and binding. In the course of the assessment proceedings for the assessment years 1974-75 and 1975-76, the Income - tax Officer noticed that the assessee should have deducted tax under section 194C of the Income-tax Act, 1961 (hereinafter referred to as ' the Act'). According to him the tax deductible by the assessee for the relevant assessment years amounted to Rs. 44,063 and Rs. 42,600, respectively. Since, the assessee had not deducted the tax at source and credited it to the Government's account in terms of the provisions of section 194C of the Act read with rule 30 of the Income-tax Rules, 1962, framed under the the Act, the Income-tax Officer charged interest at the rate of 12 per cent per annum as per the provisions of section 201(1A) of the Act and directed the assessee to pay Rs. 16,919 and Rs. 11,330 respectively, for the two assessment years in question. On appeal, the Appellate Assistant Commissioner, relying upon the instructions stated to have been issued by the Commissioner relying upon the instructions stated to have been issued by the Commissioner of Income-tax based upon the minutes of the 11th meeting of the Regional Direct Taxes Advisory Committee on July 17,1972, found that, under the terms of the agreement, the assessee provided all the materials to the printer who did the job of printing only and the agreement entered into between the assessee and the printer would be in the nature of a service contract, not attracting the printer would be in the nature of a service contract, not attracting the application of section 194C of the Act, in that view, he cancelled the levy of interest under section 201(1A) of the act in respect of both the assessment years. On further appeal by the Revenue before the Tribunal contending that the agreement between the assessee and the printer was in the nature of a works contract or at least labour contract, it was of the opinion that the printer, under the terms of the agreement, rendered only service and the agreement would be one for service only, not attracting section 194C of the Act. In the result, the Tribunal upheld the cancellation of the levy of interest under section 201(1A) of the Act and dismissed the appeals. That is how the following two common questions of law, under section 256(1) of the Act, have been referred to this court, for its opinion :
'1 Whether on the facts and in the circumstances of the case, and having regard to the provisions of section 194C of the Income-tax Act, 1961, the Appellate Tribunal was right in cancelling the interest levied under section 201(1A) of the Income - tax Act, in the assessee's case for non-deduction of tax at source on the amounts paid by the assessee to Kumudam Printers Private Ltd. as the agreement dated August 1, 1972?
2. Whether the Appellate Tribunal's view that the services rendered by Kumudam Printers Private Ltd. to the assessee under the agreement dated August 1,1972, are in the nature of a contract for service and, therefore, the provisions of section 194C would not be applicable is sustainable in law?'
2. Referring to the terms of the agreement between the assessee and the printer which forms part of annexure'A' to the stated case, learned counsel for the Revenue submitted that, on a proper interpretation on construction, the agreement entered into between the assessee and the printer was in the nature of a works contract and that the conclusion of the Tribunal, that it was a contract for service, not falling under section 194C of the Act, as its terms clearly made out that it was only a contract for service and not a contract for carrying out any work, as contemplated under section 194C of the Act.
3. Before proceeding to consider the submissions so made, it would be necessary to refer to sections 194C and 201 of the Act, in so far as they are relevant for these references which run as follows :
' 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,
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.
201. (1) If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :
Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Income-tax Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.
(1A) Without prejudice to the provisions of sub-section (1), if any such person principal officer or company as is referred to in that subsection does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent per amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.'
4. It is in the background of the aforesaid provision in the Act that the terms of the agreement have to be scrutinised in order to ascertain its real nature. Annexure 'A' to the stated case sets out the terms of the agreement entered into between the assessee and the printer in extension, but it would be sufficient to notice a few of the clauses occurring therein and having a bearing on the questions raise. Clause 1 provides that the assessee shall supply articles, stories, editorials, caricatures, cover pages and such other necessary printing materials as may be required and as the exigencies demand. Clause 4 enabled the assessee to give the print order to the printer for the number of copies with supply of the paper required for the purposes early, according to schedule 'A' to the agreement. Clause 7 was to the effect that the printer shall print the magazines in the rotary machine held by it or such other machinery as is suitable for the neat execution of the printing of the magazines, Kumudam and Kalkandu. Under clauses 8 and 9 the assessee was enabled to order the number of pages and the number of copies required and the printing of the magazines by the printer according to the specifications as per the standard size of the magazines. The printer, under clause 10 of the agreement, should deliver the printed magazines well in advance for release and dispatch as per schedule 'B'to the agreement Under clause 11, the printer bound itself to deliver the magazines fit for despatch to several places by the assessee, at the appointed time as per the time schedule. The assessee, under clause 13, agreed to pay the printing charges to the printer at the rates quoted in schedule 'C' clause 15 required the printer to pack the printed copies as per the advice of the assessee and deliver them to the assessee according to the time schedule. Provision was made under clause 16 for increase or decrease in rates for extra colour, depending upon the various colour insertions and the matter contained. Under clause 17, the assessee had agreed to advance to the printer seven lakhs of rupees carrying interest at 11 per cent per annum and the a printer was required to charge for the printing of the magazines once in a month as at the close of the month and render accounts, and the assessee undertook to pay the printing charges, binding charges and such other incidental charges within thirty days of the submission of the bill by the printer. It is unnecessary to make a reference to the other provisions in the agreement From the terms of the agreement, it is clearly seen that the assessee supplies to the printer the articles, stories, editorials, caricatures and material for cover pages to be printed and published, the newsprint and other varieties of paper therefor, the blocks, etc., and the printer, by the use of the rotary machine held by it, prints the magazines as required by the assessee according to its requirements and specfications and the number of copies as per the time schedule for which the assessee pays the printer the printing charges binding charges and other incidental charges within thirty days of the submission of the bill by the printer. Essentially, therefore, under the terms of the agreement, with the help of the materials supplied by the assessee the printer produces the magazines and supplies them to the assessee for the purpose of carrying on the business of the assessee. The intention of the contracting pairs under the agreement is in our view, to get the printing work done by the printer by utilising the materials supplied by the printing of the magazines by the printer with the help of the materials supplied by the assessee and to return the printed magazines duly bound and packed for dispatch by the assessee. In other words, under the terms of the agreement the printer was carrying out the work of printing employing his machines and labour for carrying out that work and that too pursuant to the agreement entered into between the assessee and the printer, on the terms and conditions referred to earlier. We are unable to find in the language of section 194C(1) of the Act anything which would exclude the scope of its applicability to an agreement of this kind. The assessee was responsible or liable, under the terms of the agreement for payment of the amount towards the printing charges to the printer, which is also a resident company, and the purpose of the payment so made by the assessee, was for carrying out the printing work of the assessee with the materials supplied by the assessee and with the machinery and labour provided by the printer for the purpose of printing the magazines. We find from the order of the Tribunal that it had not considered the nature, scope and the result of the operations carried on by the printer under the terms of the agreement, though with the materials supplied by the decision of this court in State of Tamil Nadu v. Anandam Viswanathan [1977] 39 STC 226 since affirmed by the Supreme Court in State of Tamil Nadu v. Anandam Viswanathan, : [1989]1SCR301 to hold that the agreement between the assessee and the printer was in the nature of a contract of service. The word 'service' also means work and by printing the printer had carried out the work within the meaning of section 194C(1) of the Act. We also do not find any support whatever from the circular relied on by the Appellate Assistant Commissioner in the course of his order, for, it had listed out nine items of services with reference to which the provisions of section 194C of the Act are inapplicable and the kind of work done by the printer under the terms of the agreement now under consideration, is not included therein. By the work done by the printer, on the materials furnished by the assessee, that emerges is a magazine and in the light of the terms of the agreement, between the assessee and the printer, the magazine is the result of the performance of work under the contract relating to printing by the printer. We may also observe as pointed out by the Supreme Court in State of Himachal Pradesh v. Associated Hotels of India Ltd. : [1972]2SCR937 that where the principal objective or work undertaken by the payee of the price is not the transfer of a chattel qua chattel the contract is of work and labour and the test is whether in substance, the contract is one of work and labour and test is whether, in substance, the contract is one of work and labour or not. Applying this test propounded by the Supreme Court to is one for work and labour. We therefore, hold that the agreement in the present case is in the nature of a works contract in that the printer carries out the work of printing with the help of the materials furnished by the assessee and returns the magazines to the assessee Though counsel on both sides invited our attention to some decisions arising under the provisions of the General Sales Tax Act, there is no need whatever to make a detailed reference to any of them a s the provisions of section 194C of the Act are totally different from the relevant provisions of the General Sales Tax Act under which the question had arisen whether a transaction of this type would constitute sales or works contract, for purposes of levy of sales tax under those Acts, We therefore, answer the question referred to us in the negative and in four of the Revenue. The Revenue will be entitled to the costs of these references. Counsel; s fee Rs. 500 one set.