Whether levy of late filing fees u/s 234E due to late filing of TDS returns is constitutionally valid?

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION NO.771 OF 2014

Mr Rashmikant Kundalia and another

Petitioners

Versus

Union of India and others

Respondents

Mr B.L. Gandhi i/b Mr K.C. Pandey for Petitioners.

Mr Anil Singh, Additional Solicitor General with Mr A.R. Malhotra and

N.A. Kazi for Respondent – UOI.

CORAM : MOHIT S. SHAH, C.J. & B.P. COLABAWALLA, J.

Reserved On: 29th January, 2015.

Pronounced On: 09th February, 2015.

JUDGMENT [ Per B.P. Colabawalla J. ]

1. Rule. Respondents through their respective counsel waive service. By consent of parties, rule made returnable forthwith and heard finally.

2. By this Writ Petition filed under Article 226 of the Constitution of India, the Petitioners have challenged the constitutional validity of section 234E of the Income Tax Act, 1961. Section 234E seeks to levy a fee of Rs.200/- per day (subject to certain other conditions as set out therein) inter alia on a person who deducts Tax at Source (TDS) and then fails to deliver or cause to be delivered the TDS return/statements to the authorities within the prescribed period. Consequently, the Petitioners have also sought a declaration that the notices issued to Petitioner Nos.2 and 3 under section 200A of the Act are null, void and bad-in-law being ultra vires the Constitution of India.

3. It is stated in the Petition that Petitioner No.1 is a practising Chartered Accountant who has received several notices under section 200A of the Act that were served by the Revenue on his various clients. According to the Petitioners, section 234E is ultra vires and violative of Article 14 of the Constitution of India and therefore deserves to be struck down by this Court. Consequently, even the notices issued by the Revenue ought to be set aside.

4. To challenge the constitutional validity of section 234E, the main thrust of the argument of the Petitioners was that what was sought to be levied under the said section was a “fee” which necessarily could be levied only for a service that was rendered, failing which the levy of such a fee was unconstitutional. It was argued that a “fee” is known in the commercial and legal world to be a recompense of some service or some special service performed, and it cannot be collected for any dis-service or default. The learned counsel for the Petitioners submitted that by using the word “fee”, the Legislature has not stated what is the nature of service being provided for filing the return belatedly. The learned counsel submitted that compensation for dis-service was essentially in the nature of a penalty, and since the Legislature had categorically termed the levy under section 234E of the Act as a “fee”, it necessarily could be levied only in the event the Government was providing any service or any special service. In the absence thereof, the said section seeks to collect tax in the guise of a fee, was the submission. This, according to the learned counsel, was impermissible either in common law or under the taxing statute, and encroached on the rights of life and liberty of the citizens. In the instant case, it was submitted that the Petitioners were providing a honorary service to the Union of India by deducting the tax of other assessees and thereafter depositing the same with the Revenue. In such a situation, they could not be made liable for any delay in filing the TDS return/statements, was the submission.

5. Apart from the aforesaid argument, it was further submitted that the provisions of section 234E were extremely onerous inasmuch as the Assessing Officer was not vested with any power to condone the delay in filing the TDS return/statements belatedly and there was also no provision of Appeal against any arbitrary order passed by the Assessing Officer under section 234E of the Act.

6. On the other hand, the learned Additional Solicitor General appearing on behalf of the Respondents, submitted that TDS is one of the modes of collection of taxes. At the time of making / crediting payment to a payee (the deductee), the payer (the deductor) was required to deduct a certain percentage as and by way of TDS and deposit the same with the tax authorities within the prescribed time period. Thereafter, the deductee got credit of the amount so deducted against his tax liability on the basis of the information furnished by the deductor in the TDS return/statements. He submitted that TDS, as the very name implies, aims at collection of revenue at the very source of income. It is essentially a method of collecting tax which combines the concepts of “pay as you earn” and “collect as it is being earned”. Its significance to the Government lies in the fact that it prepones the collection of tax, ensures a regular source of revenue and provides for a greater reach and a wider base for tax. At the same time, to the tax payer, it distributes the incidence of tax and provides for a simple and convenient mode of payment.

7. Keeping this object in mind, the learned Additional Solicitor General submitted that timely submission of TDS statements containing the details of persons on whose behalf tax is deducted, becomes very crucial because unless and until the Revenue receives the details of the tax deducted (through the TDS statements), timely processing of income tax returns of assessees seeking credit of TDS is not possible. In case the Department goes ahead and processes the income tax return of the assessee without giving credit for TDS due to non-filing of TDS return/statements by the deductor, then the grievance of the deductee would be multiplied in as mush as instead of issuing a refund to the assessee (in a given case),infructuous demands would to be raised. Hence non-filing of the TDS return/statements by the deductor in a timely manner has multitude effects eroding the credibility of an efficient tax administration system, was the submission of the learned Additional Solicitor General.

8. The learned Additional Solicitor General further submitted that the title of section 234E per se indicates that the section is regarding collection of a fee. This was not a penal provision but a fee for not furnishing the TDS return/statements within the prescribed time frame as the late submission of TDS statements creates additional work for the Income Tax Department. In many cases, due to late submission of the TDS return/statements, the Department has to revise the assessment order already passed in the case of the deductee for determining his correct tax liability. Moreover, in case of an income tax return having a refund claim, the Department has to pay extra interest due to delay in determining the correct amount of refund for want of information of tax deducted, which in turn results in delay of issue of refund. The fee under section 234E is levied to address this additional work burden forced upon the Department by the deductor by not furnishing the information in time which he is statutorily bound to furnish within the prescribed time. The learned Additional Solicitor General submitted that looking at it from this perspective, it cannot be said that section 234E of the Act is either ultra vires the Constitution or in any way violates Article 14 thereof. He therefore submitted that there is no merit in the Petition and the same ought to be dismissed with costs.

To read the full judgment, please find the attached file :

Attached file :

http://bombayhighcourt.nic.in/generatenewauth.php?auth=cGF0aD0uL2RhdGEvanVkZ2VtZW50cy8yMDE1LyZmbmFtZT1PU1dQMzYxMTQucGRmJnNtZmxhZz1O