High Court Of Madras
CIT vs. Kumudam Publications P. Ltd.
Sections 194C, 194C(1), 201, 201(1A)
Asst. Year 1974-75, 1975-76
Ratnam & Thanikkachalam, JJ.
Tax Cases Nos. 1250 & 1251 of 1979
11th January, 1991
N.V. Balasubramanian, for the Revenue : P.P.S. Janardhana Raja, for the Assessee
RATNAM, J. :
The assessee is a private limited company carrying on the business of publishing periodicals called Kumudam and Kalkandu. These periodicals are printed by another private limited company, viz., Kumudam Printers Pvt. Ltd. (hereinafter referred to as “the printer”). For the purpose of printing the periodicals, on 1st Aug., 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 asst. yrs. 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 asst. yrs. 1974-75 and 1975-76, the ITO noticed that the assessee should have deducted tax under s. 194C of the IT 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 s. 194C of the Act r/w r. 30 of the IT Rules 1962, framed under the Act, the ITO charged interest at the rate of 12% per annum, as per the provisions of s. 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 AAC, relying upon the instructions stated to have been issued by the CIT based upon the minutes of the 11th meeting of the Regional Direct Taxes Advisory Committee on 17th July, 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 application of s. 194C of the Act. In that view, he cancelled the levy of interest under s. 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 a 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 s. 194C of the Act. In the result, the Tribunal upheld the cancellation of the levy of interest under s. 201(1A) of the Act and dismissed the appeals. That is how the following two common questions of law, under s. 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 s. 194C of the IT Act, 1961, the Tribunal was right in cancelling the interest levied under s. 201 (1A) of the IT Act, in the assessee’s case for non- deduction of tax at source on the amounts paid by the assessee to Kumudam Printers Pvt. Ltd. as per the agreement dt. 1st August, 1972?
2. Whether the Tribunal’s view that the services rendered by Kumudam Printers Pvt. Ltd. to the assessee under the agreement dt. 1st Aug., 1972, are in the nature of a contract for service and, therefore, the provisions of s. 194C would not be applicable is sustainable in law?”
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 and 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 s. 194C of the Act, is erroneous. On the other hand, learned counsel for the assessee contended that the agreement fell outside s. 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 s. 194C of the Act.
Before proceeding to consider the submissions so made, it would be necessary to refer to ss. 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 andâ (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 s. 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 s. 221 from such person, principal officer or company unless the ITO 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-s. (1), if any such person, principal officer or company as is referred to in that sub-section 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 annum on the 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 provisions 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 extenso, but it would be sufficient to notice a few of the clauses occurring therein and having a bearing on the questions raised. Clause 1 provides that the assessee shall supply articles, stories, editorials, caricatures, cover pages and such other news for the purpose of printing. Under cls. 2 and 3, the assessee had agreed to supply the blocks necessary for the printing of the magazines Kumudam and Kalkandu and the newsprint, art paper 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 cls. 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 cl. 10 of the agreement, should deliver the printed magazines well in advance for release and despatch as per Schedule B to the agreement. Under cl. 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 cl. 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 cl. 16 for increase or decrease in rates for extra colour, depending upon the various colour insertions and the matter contained. Under cl. 17, the assessee had agreed to advance to the printer seven lakhs of rupees carrying interest at 11% per annum and the 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.
5. 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 specifications 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 parties under the agreement is, in our view, to get the printing work done by the printer by utilising the materials supplied by the assessee and to get ready the magazines duly printed, bound and ready for despatch to the assessee. The bargain between the parties pertains to 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 despatch 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 s. 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 assessee. The Tribunal, in paragraph 9 of its order, merely referred to the decision of this Court in State of Tamil Nadu vs. Anandam Viswanathan (1977) 39 STC266 (Mad) since affirmed by the Supreme Court in State of Tamil Nadu vs. Anandam Viswanathan (1989) 73 STC1 (SC) : AIR 1989 SC 962, 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 s. 194C(1) of the Act. We also do not find any support whatever from the circular relied on by the AAC in the course of his order, for, it had listed out nine items of services with reference to which the provisions of s. 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, what 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 vs. Associated Hotels of India Ltd. (1972) 29 STC474 (SC) 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 or not. Applying this test propounded by the Supreme Court to the terms of the agreement in the present case, it is seen that the contract 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, as the provisions of s. 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 questions referred to us in the negative and in favour of the Revenue. The Revenue will be entitled to the costs of these references. Counsel’s fee Rs. 500 one set.
[Citation : 188 ITR 84]