We book rooms and banquet facilities for staff and clients and the hotel bills us monthly. Is that a contract for work on which we have to deduct under section 194C?
No. The Bombay High Court held that the facilities and amenities a hotel makes available to its customers are not "work" within section 194C, and quashed Circular No. 681 of 8 March 1994 to the extent it said that section 194C applied to payments made by customers to the hotel for availing them. The Court read "carrying out any work" as limited to work which, on being carried out, culminates in a product or result — constructing a building or a dam, laying a road or a railway line, erecting or installing plant. Paying a hotel bill is not that.
Decided by the High Court (Bombay High Court — Smt. Ranjana Desai J and J.P. Devadhar J) on 2009-03-06, reported as 2009 SCC OnLine Bom 362; Writ Petition No. 2104 of 1994. It bears on section 194C, section 194-I, section 194J, section 393 (Act of 2025) of the Income Tax Act 1961, in TDS Defaults matters.
Corporate hotel spend is large, regular and invoiced monthly, which is exactly the profile a TDS survey looks for. The deduction is often made on the whole bill out of caution, and the disallowance argument that follows a short deduction is worth more than the tax. This judgment says there was nothing to deduct on in the first place.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The first petitioner ran luxury hotels in several Indian cities. The Central Board of Direct Taxes issued Circular No. 681 dated 8 March 1994, which read section 194C as applying to all types of contracts, including service contracts, and on that footing treated payments made by a customer to a hotel for rooms and for the services that go with them as payments for work on which the customer had to deduct. The circular had already been challenged in other proceedings and cut down in part: this Court had held in Chamber of Income-Tax Consultants v Central Board of Direct Taxes, reported at 209 ITR 660 (Bom), that the circular was illegal to the extent it required deduction from professional fees payable to lawyers and chartered accountants, and other limbs had gone the same way. Parliament then inserted section 194J and Explanation III to section 194C by the Finance Act, 1995 with effect from 1 July 1995, the Explanation listing four categories of work — advertising, broadcasting and telecasting, carriage of goods and passengers, and catering. The petitioners challenged what was left of the circular so far as it reached the hotel's own customers.
The petition was allowed. Circular No. 681 dated 8 March 1994 was quashed to the extent that it holds that section 194C applies to payments by the customers to the petitioner hotel for availing the facilities and amenities made available by the petitioners. The rule was made absolute in those terms, with no order as to costs. The facilities and amenities made available by the hotel to its customers do not constitute "work" within the meaning of section 194C.
The Court construed the words "carrying out any work". Following the Supreme Court's reading of the expression in Birla Cement Works v Central Board of Direct Taxes, 248 ITR 216, it held that the phrase is limited to work which, on being carried out, culminates into a product or result, and that the word "work" means doing something with a view to achieving the task undertaken or carrying out an operation which produces some result. The illustrations it used are the Board's own, from Circular No. 86: on that reading section 194C applies to payments for carrying out work such as constructing buildings or dams, laying roads and airfields or railway lines, or erecting or installing plant and machinery. It tested the Revenue's wider reading by its consequences. If "any work" in section 194C were wide enough to take in every kind of work, then even the hair cutting done by a barber would be work covered by the section. The Court declined to read the section that way. Applied to the case, the question was whether the services the hotel renders to its customers fall within section 194C, and the answer followed from the construction: the facilities and amenities the hotel makes available to its customers do not involve carrying out any work which results in the production of a desired object, and so fall outside the section. The legislative history pointed the same way. Where Parliament wished to bring particular services inside the section it said so, by inserting Explanation III with its four named categories, and by creating section 194J for professional and technical services; hotel services were put in neither.
For all the aforesaid reasons, the petition is allowed by quashing the circular No.681 dated 8/3/1994 to the extent it holds that section 194C of the Income Tax Act applies to payments by the customers to the petitioner No.1 hotel for availing the facilities / amenities made available by the petitioners.
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Handle my notice → Ask a CA on WhatsAppNo. The Bombay High Court held that the facilities and amenities a hotel makes available to its customers are not "work" within section 194C, and quashed Circular No. 681 of 8 March 1994 to the extent it said that section 194C applied to payments made by customers to the hotel for availing them. The Court read "carrying out any work" as limited to work which, on being carried out, culminates in a product or result — constructing a building or a dam, laying a road or a railway line, erecting or installing plant. Paying a hotel bill is not that. This was decided by the High Court (Bombay High Court — Smt. Ranjana Desai J and J.P. Devadhar J) and bears on section 194C, section 194-I, section 194J, section 393 (Act of 2025) of the Income Tax Act 1961. It is reported as 2009 SCC OnLine Bom 362; Writ Petition No. 2104 of 1994. Corporate hotel spend is large, regular and invoiced monthly, which is exactly the profile a TDS survey looks for. The deduction is often made on the whole bill out of caution, and the disallowance argument that follows a short deduction is worth more than the tax. This judgment says there was nothing to deduct on in the first place. If it applies to you, the first step is this: Look at what you are paying for before you reach for a section. A room, a meal, a banquet hall and the service that comes with them are facilities made available, not work carried out for you.
The first petitioner ran luxury hotels in several Indian cities. The Central Board of Direct Taxes issued Circular No. 681 dated 8 March 1994, which read section 194C as applying to all types of contracts, including service contracts, and on that footing treated payments made by a customer to a hotel for rooms and for the services that go with them as payments for work on which the customer had to deduct. The circular had already been challenged in other proceedings and cut down in part: this Court had held in Chamber of Income-Tax Consultants v Central Board of Direct Taxes, reported at 209 ITR 660 (Bom), that the circular was illegal to the extent it required deduction from professional fees payable to lawyers and chartered accountants, and other limbs had gone the same way. Parliament then inserted section 194J and Explanation III to section 194C by the Finance Act, 1995 with effect from 1 July 1995, the Explanation listing four categories of work — advertising, broadcasting and telecasting, carriage of goods and passengers, and catering. The petitioners challenged what was left of the circular so far as it reached the hotel's own customers. The matter was decided on 2009-03-06 by the High Court (Bombay High Court — Smt. Ranjana Desai J and J.P. Devadhar J). On those facts the High Court held as follows. The petition was allowed. Circular No. 681 dated 8 March 1994 was quashed to the extent that it holds that section 194C applies to payments by the customers to the petitioner hotel for availing the facilities and amenities made available by the petitioners. The rule was made absolute in those terms, with no order as to costs. The facilities and amenities made available by the hotel to its customers do not constitute "work" within the meaning of section 194C.
The Court construed the words "carrying out any work". Following the Supreme Court's reading of the expression in Birla Cement Works v Central Board of Direct Taxes, 248 ITR 216, it held that the phrase is limited to work which, on being carried out, culminates into a product or result, and that the word "work" means doing something with a view to achieving the task undertaken or carrying out an operation which produces some result. The illustrations it used are the Board's own, from Circular No. 86: on that reading section 194C applies to payments for carrying out work such as constructing buildings or dams, laying roads and airfields or railway lines, or erecting or installing plant and machinery. It tested the Revenue's wider reading by its consequences. If "any work" in section 194C were wide enough to take in every kind of work, then even the hair cutting done by a barber would be work covered by the section. The Court declined to read the section that way. Applied to the case, the question was whether the services the hotel renders to its customers fall within section 194C, and the answer followed from the construction: the facilities and amenities the hotel makes available to its customers do not involve carrying out any work which results in the production of a desired object, and so fall outside the section. The legislative history pointed the same way. Where Parliament wished to bring particular services inside the section it said so, by inserting Explanation III with its four named categories, and by creating section 194J for professional and technical services; hotel services were put in neither. In the words reproduced by the source cited on this page: "For all the aforesaid reasons, the petition is allowed by quashing the circular No.681 dated 8/3/1994 to the extent it holds that section 194C of the Income Tax Act applies to payments by the customers to the petitioner No.1 hotel for availing the facilities / amenities made available by the petitioners."
It was decided by the High Court on 2009-03-06 and is reported as 2009 SCC OnLine Bom 362; Writ Petition No. 2104 of 1994. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 194C, section 194-I, section 194J, section 393 (Act of 2025), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The petition was allowed. Circular No. 681 dated 8 March 1994 was quashed to the extent that it holds that section 194C applies to payments by the customers to the petitioner hotel for availing the facilities and amenities made available by the petitioners. The rule was made absolute in those terms, with no order as to costs. The facilities and amenities made available by the hotel to its customers do not constitute "work" within the meaning of section 194C. It arises in TDS Defaults matters, on section 194C, section 194-I, section 194J, section 393 (Act of 2025) of the Income Tax Act 1961, and was decided by Bombay High Court — Smt. Ranjana Desai J and J.P. Devadhar J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Keep section 194-I in view separately. Where earmarked rooms are taken for a specified rate and a specified period, that is accommodation taken on a regular basis within Circular No. 715 of 8 August 1995 and the rent provision can apply; a rate contract, with no obligation on the hotel to provide a room, is a different thing. Check the year. This judgment construes section 194C as it stood before the section was substituted with effect from 1 October 2009; for a payment after that date the question is whether the service falls inside the list in the Explanation to the section, and hotel services are not in it. Do not read the case wider than it is. It is about payments by the customer to the hotel. A separate contract the hotel places with a caterer or a decorator can still be a contract for work. If you have already deducted where you did not have to, the payee's credit follows the deduction and the remedy lies in the payee's return, not in a unilateral reversal. For a payment or credit on or after 1 April 2026 the contractor provision is serial number 6(i) of the Table to section 393(1) of the Income-tax Act, 2025.
Still good law. Still relied on, and relied on recently by a High Court outside Bombay. In Commissioner of Income Tax (TDS)-2 v National Highway Authority of India, ITA 1145/2017 with ITA 159/2021, decided 12 November 2024, the Delhi High Court — Yashwant Varma and Ravinder Dudeja JJ — quoted this judgment for the proposition that "carrying out any work" in section 194C is limited to work which on being carried out culminates into a product or result, and that the section applies to payments for work such as constructing buildings or dams, laying roads and airfields or railway lines, or erecting or installing plant and machinery. It cited it as 2009 SCC OnLine Bom 362, which is where the citation printed above comes from. That reproduction is also the independent check on the reasoning set out here. One qualification is important and is easy to miss. This is a High Court decision, binding in Bombay and persuasive elsewhere, and it construes section 194C as that section stood before it was substituted in full by the Finance (No. 2) Act, 2009 with effect from 1 October 2009. The substituted section carries its own definition of "work" in clause (iv) of the Explanation, which names advertising; broadcasting and telecasting including production of programmes; carriage of goods or passengers by any mode other than railways; catering; and manufacturing or supplying a product to the customer's specification out of material bought from that customer or an associate. Hotel services are in none of them, so the answer for a payment after 1 October 2009 is the same, but you reach it through the statute rather than through this judgment. The circular that was quashed is long spent. The 1961 Act was repealed on 1 April 2026 by section 536(1) of the Income-tax Act, 2025 and continued by section 536(2) for proceedings about any tax year beginning before that date. For a payment or credit on or after 1 April 2026 the corresponding provision is serial number 6(i) of the Table to section 393(1) of the 2025 Act. No citator service was consulted. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment was read in its own text on a print of the report, and the operative paragraph quoted above was taken from it. The cross-check is a later judgment of a different High Court quoting this one: Commissioner of Income Tax (TDS)-2 v National Highway Authority of India, Delhi High Court, 12 November 2024, which reproduces the sentences on which the construction turns and gives the citation string used above. A decision that is still being quoted fifteen years later, by a court not bound by it, is the best evidence available that it has not been quietly abandoned. The construction is not this Court's own. It follows the Supreme Court in Birla Cement Works v Central Board of Direct Taxes, 248 ITR 216, and the familiar examples of buildings, dams, roads, railway lines and plant come from Circular No. 86 rather than from the Bench; a reader arguing the point should go to Birla Cement Works first. What the decision is narrow about. It quashes part of a circular, and the part it quashes is the part that reached payments made by a customer to the hotel. It says nothing about the hotel's own contracts with caterers, decorators or transport providers, which remain contracts for work in the ordinary way. It was decided on the section as it stood before the 2009 substitution; the substituted section reaches the same result for hotel services because the Explanation's list does not include them, and that is the reasoning to use for a recent year rather than the judgment on its own. Section 194-I is deliberately kept apart on this page. A hotel bill can attract the rent provision where earmarked rooms are taken for a specified rate and a specified period, and not where the arrangement is a rate contract under which the hotel is not bound to provide a room. That clarification is Circular No. 715 of 8 August 1995, which this judgment itself notes at paragraph 21; the library carries it separately. Nothing in this judgment decides the rent limb, and a reader who takes this case as an answer to the whole hotel question will get it wrong. On the citation. The bench was Ranjana Desai and J.P. Devadhar JJ, sitting at Bombay, and the matter was Writ Petition No. 2104 of 1994, decided 6 March 2009 — fifteen years after the circular it quashed. The petitioners were two, the hotel company and Jaswant Singh Bhatia; the respondents were the Central Board of Direct Taxes and the Union of India. The earlier Bombay decision on the same circular, Chamber of Income-Tax Consultants, is named because this judgment names it and gives its report at 209 ITR 660. The judgment as read does not set out in the Court's own words what Circular No. 681 said about hotels specifically, only that the circular applied the section to contracts generally, including service contracts. The decision does not decide anything about section 194-I, which is a separate question governed by Circular No. 715 of 8 August 1995, and it does not deal with contracts the hotel itself places with its suppliers. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petition was allowed. Circular No. 681 dated 8 March 1994 was quashed to the extent that it holds that section 194C applies to payments by the customers to the petitioner hotel for availing the facilities and amenities made available by the petitioners. The rule was made absolute in those terms, with no order as to costs. The facilities and amenities made available by the hotel to its customers do not constitute "work" within the meaning of section 194C.
TaxSphere, “East India Hotels Ltd v CBDT”, https://taxnotice.vittsphere.com/caselaw/case/east-india-hotels-v-cbdt-hotel-services-are-not-work-under-194c/ (validity last checked 2026-09-23)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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I pay a fabricator to make parts to my drawings and I pay lorry owners to move my goods. Do I deduct under section 194C, at what rate, and at what figure does the obligation start — is it thirty thousand rupees or one lakh?
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I pay rent for a warehouse and I also hire a generator on a monthly charge. Do I deduct under section 194-I, at what rate on each, and from what figure does the obligation start — is it an annual total or a monthly one?
The TDS officer says our consultant doctors are really employees, that their fees are salary, and that we should have deducted under s.192 instead of s.194J. Is he right?
