Dr. B.P Saraf, J.:— This writ petition has been filed by Advertising Agency Association of India, an association of advertising agencies from all over India and its President Diwan Arun Nanda. The petitioners have challenged Circular No. 681 dated 8th March, 1994 of the Central Board of Direct Taxes (“CBDT”) in so far as it purports to make the provisions of section 194-C of the Income Tax Act, 1961 applicable to payments made to advertising agencies for professional services rendered by them.
2. Arguments were advanced before us by learned counsel for the petitioners in regard to the scope and ambit of section 194-C of the Act. It was stated that the said section had all throughout been construed by the Ministry of Finance and by CBDT as not applicable to payments made to advertising agencies for professional services rendered by them. It was long 20 years after the incorporation of section 194-C in the Act that the CBDT has reversed its interpretation purportedly on the basis of the decision of the Supreme Court in Associated Cement Company Ltd. v. C.I.T, (1993) 201 ITR 435.
3. We have considered the submissions of Mr. Bharucha, learned counsel for the petitioners. We had occasion to deal with the scope and ambit of section 194-C of the Act in regard to fees paid to professionals like solicitors, advocates, chartered accountants etc. in Writ Petition No. 1052 of 1994 filed by the Chamber of Income-tax Consultants and others. We have delivered judgment in the above case on 14th July, 1994 (since reported in 1995 (1) Mh. L.J 448). In the above judgment we have set out the provisions of section 194-C of the Act and have dealt at length various circulars issued from time to time both by the Ministry of Finance and by CBDT in regard to the applicability of the provisions of section 194-C. We had also occasion to deal with the said section in another Writ Petition No. 1277 of 1994 filed by the Bombay Goods Transport Association challenging the very same circular of CBDT dated 8th March, 1994 with regard to the applicability of section 194-C to payments made to transport operators for carriage of goods. In the petition filed by the Chamber of Income-tax Consultants and others we have held that section 194-C does not apply to payments by way of professional fees. In the petition filed by the Bombay Goods Transport Association by our judgment dated 28th and 29th July, 1994 we have held that the provisions of section 194-C do not apply to contracts for mere carriage of goods i.e transport contracts. The ratio of the above two decisions squarely applies to the case of payments made to advertising agencies for professional services rendered by them.
4. In this connection it may be expedient to mention that by Circular No. 98 dated 26th September, 1972 issued by the Deputy Secretary to the Government of India in reply to a query whether the requirements of section 194-C would apply to payments made to advertising agents rendering professional services it had been categorically stated that service contracts not involving carrying out of any work are outside the scope of section 194-C. Earlier also by Circular No. 86 dated 29th May, 1972 it was made clear that the provisions of section 194-C are applicable only to works contracts and labour contracts. There is no change in the law since then. Further the above interpretation has been accepted and acted upon both by the revenue and the assessees including the petitioners. It is only recently on 8th March, 1994 that the CBDT by its Circular No. 681 withdrew its earlier circulars on the point purportedly on the basis of the decision of the Supreme Court in Associated Cement Company's case (supra).
5. We have discussed the decision of the Supreme Court in Associated Cement Company's case in our above two judgments. We have there come to a clear conclusion that the Supreme Court in the said judgment has in no way extended or amplified the scope of section 194-C of the Act. It has merely held that the said section is not confined to works contracts but also applies to labour contracts. This is also the interpretation given by CBDT althroughout in the past. The Supreme Court in that case was required to consider the question of applicability of section 194-C to labour contracts because the contention of the assessee there was that the said section was applicable only to works contracts. It was this contention that was repelled by the Supreme Court. In other words as aforesaid the Supreme Court merely affirmed the interpretation put by the CBDT on section 194-C of the Act to include not only works contracts but also labour contracts.
6. Following the ratio of the above two decisions of this court, we hold that the impugned circular of CBDT dated 8th March, 1994 is illegal and without jurisdiction in so far as it requires deduction at source from payments made to advertising agencies for professional services rendered by them.
7. In the result, this writ petition is allowed in the above terms.
8. Under the facts and circumstances of the case we make no order as to costs.
9. Certified copy expedited.
10. Mr. Jetly applies for stay of this order for four weeks. Considering the facts and circumstances of the case the prayer is rejected.
Petition allowed.
section 194-C.