By TIOL News Service

MUMBAI, FEB 10, 2015: THE issues before the Bench are - Whether when the assessee files delayed TDS return the fee charged u/s 234E is in relation to extra work forced upon the Revenue - Whether late submission of TDS statements amounts to additional work for the Revenue; Whether such a fee is in the guise of a tax on the deductor; Whether since the provisions of Sec 234E do not empower the AO to condone delays in filing of TDS returns, it is onerous in nature; Whether such a levy violates Article 14 of the constitution and Whether the right of appeal is not a natural right but a creature of the statute. And the verdict favours the Revenue.

Facts of the case

The assessees, through the present writ petition, have challenged the constitutional validity of section 234E. It was also contended by the assessee that the notices issued u/s 200A were null, void and bad-in-law being ultra vires the Constitution of India. It was stated in the Petition that Assessee No.1 is a practising Chartered Accountant who had received several notices u/s 200A that were served by the Revenue on his various clients. According to the assessee, section 234E was ultra vires and violative of Article 14 of the Constitution of India and therefore deserves to be struck down by the High Court. Consequently, even the notices issued by the Revenue ought to be set aside. It had also contended 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 counsel for the Assessees submitted that by using the word "fee", the Legislature has not stated what was the nature of service being provided for filing the return belatedly. The counsel submitted that compensation for dis-service was essentially in the nature of a penalty, and since the Legislature had categorically termed the levy u/s 234E 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 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 Assessees were providing a honorary service to the Union of India by deducting the tax of other assessees and therafter 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. It was further submitted that the provisions of section 234E were extremely onerous inasmuch as the AO 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 AO u/s 234E.

On the other hand, the Additional Solicitor General had 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. It had 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. It was further 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 Additional Solicitor General. It was 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 u/s 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 Additional Solicitor General submitted that looking at it from this perspective, it cannot be said that section 234E 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.

Held that,

++ as per the existing provisions, a person responsible for deduction of tax (the deductor) is required to furnish periodical quarterly statements containing the details of deduction of tax made during the quarter, by the prescribed due date. Undoubtedly, delay in furnishing of TDS return/statements has a cascading effect. Under the Income Tax Act, there is an obligation on the Income Tax Department to process the income tax returns within the specified period from the date of filing. The Department cannot accurately process the return on whose behalf tax has been deducted (the deductee) until information of such deductions is furnished by the deductor within the prescribed time. The timely processing of returns is the bedrock of an efficient tax administration system. If the income tax returns, especially having refund claims, are not processed in a timely manner, then (i) a delay occurs in the granting of credit of TDS to the person on whose behalf tax is deducted (the deductee) and consequently leads to delay in issuing refunds to the deductee, or raising of infructuous demands against the deductee; (ii) the confidence of a general taxpayer on the tax administration is eroded; (iii) the late payment of refund affects the Government financially as the Government has to pay interest for delay in granting the refunds; and (iv) the delay in receipt of refunds results into a cash flow crunch, especially for business entities. We find that the Legislature took note of the fact that a substantial number of deductors were not furnishing their TDS retun/statements within the prescribed time frame which was absolutely essential. This led to an additional work burden upon the Department due to the fault of the deductor by not furnishing the information in time and which he was statutorily bound to furnish. It is in this light, and to compensate for the additional work burden forced upon the Department, that a fee was sought to be levied u/s 234E. Looking at this from this perspective, we are clearly of the view that section 234E is not punitive in nature but a fee which is a fixed charge for the extra service which the Department has to provide due to the late filing of the TDS statements. Due to late submission of TDS statements means the Department is burdened with extra work which is otherwise not required if the TDS statements were furnished within the prescribed time. This fee is for the payment of the additional burden forced upon the Department. A person deducting the tax (the deductor), is allowed to file his TDS statement beyond the prescribed time provided he pays the fee as prescribed u/s 234E. In other words, the late filing of the TDS return/statements is regularised upon payment of the fee as set out in section 234E. This is nothing but a privilege and a special service to the deductor allowing him to file the TDS return/statements beyond the time prescribed by the Act and/or the Rules. We therefore cannot agree with the argument of the Petitioners that the fee that is sought to be collected u/s 234E of the Act is really nothing but a collection in the guise of a tax;

++ in a division bench decision of the Calcutta High Court in the case of Howrah Tax Payers’ Association Vs. The Government of West Bengal and Anr.(2011) 5 CHN 430 : 2010 SCC OnLine Cal 2520, the constitutional validity of imposition of a "late fee" u/s 32(2) of the West Bengal Value Added Tax Act, 2003 came up for consideration. After analysing the provisions of the Bengal Value Added Tax Act, the Calcutta High Court held that in case of levying tax there is no quid pro quo between the Tax payer and the State. But element of quid pro quo is a must in case of imposing Fee. By virtue of impugned amendment, a dealer is entitled to get service indirectly from the authority upon payment of late fee. His irregular filing of return is regularised upon payment of late fee without being suffered from penal consequences which can not be categorised as nothing but special service. Thus, there exist s quid pro quo in imposing late fee. In this context it is pertinent to mention here that though a fee must be co-related to the services rendered, such relationship need not be mathematical one even casual co-relationship in all that is necessary. The view of the Apex Court in (2005) 2 SCC 345 (referred to by the learned Tribunal at page 14 of the impugned judgement) removed all the doubts on this issue;

++ in the case Sona Chandi Oal Committee v. State of Maharashtra (2005) 2 SCC 345, the Apex Court has observed that a three-Judge Bench of this Court in B.S.E. Brokers' Forum v. Securities and Exchange Board of India [(2001) 3 SCC 482] after considering a large number of authorities, has held that much ice has melted in the Himalayas after the rendering of the earlier judgments as there was a sea change in the judicial thinking as to the difference between a tax and a fee since then. Placing reliance on the following judgments of this Court in the last 20 years, namely, Sreenivasa General Traders v.State of A.P. [(1983) 4 SCC 353], City Corpn. of Calicut v. Thachambalath Sadasivan[(1985) 2 SCC 112 : 1985 SCC (Tax) 211] , Sirsilk Ltd. v. Textiles Committee [1989 Supp (1) SCC 168 : 1989 SCC (Tax) 219] , Commr. & Secy. to Govt., Commercial Taxes & Religious Endowments Deptt. v. Sree Murugan Financing Corpn. [(1992) 3 SCC 488] , Secy. to Govt. of Madras v. P.R. Sriramulu [(1996) 1 SCC 345] , Vam Organic Chemicals Ltd. v. State of U.P. [(1997) 2 SCC 715], Research Foundation for Science, Technology & Ecology v. Ministry of Agriculture [(1999) 1 SCC 655] and Secunderabad Hyderabad Hotel Owners' Assn. v. Hyderabad Municipal Corpn.[(1999) 2 SCC 274] it was held that the traditional concept of quid pro quo in a fee has undergone considerable transformation. So far as the regulatory fee is concerned, the service to be rendered is not a condition precedent and the same does not lose the character of a fee provided the fee so charged is not excessive. It was not necessary that service to be rendered by the collecting authority should be confined to the contributories alone. The levy does not cease to be a fee merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have a direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service . Quid pro quo in the strict sense was not always a sine qua non for a fee. All that is necessary is that there should be a reasonable relationship between the levy of fee and the services rendered. It was observed that it was not necessary to establish that those who pay the fee must receive direct or special benefit or advantage of the services rendered for which the fee was being paid. It was held that if one who is liable to pay, receives general benefit from the authority levying the fee, the element of service required for collecting the fee is satisfied;

++ we are therefore clearly of the view that the fee sought to be levied u/s 234E is not in the guise of a tax that is sought to be levied on the deductor. We also do not find the provisions of section 234E as being onerous on the ground that the section does not empower AO to condone the delay in late filing of the TDS return/statements, or that no appeal is provided for from an arbitrary order passed u/s 234E. It must be noted that a right of appeal is not a matter of right but is a creature of the statute, and if the Legislature deems it fit not to provide a remedy of appeal, so be it. Even in such a scenario it is not as if the aggrieved party is left remediless. Such aggrieved person can always approach HC in its extra ordinary equitable jurisdiction under Article 226 / 227 of the Constitution of India, as the case may be. We therefore cannot agree with the argument of the Petitioners that simply because no remedy of appeal is provided for, the provisions of section 234E are onerous. Similarly, on the same parity of reasoning, we find the argument regarding condonation of delay also to be wholly without any merit. It is now well settled that even though this Court exercising jurisdiction under Article 226 of the Constitution of India has the power to declare a statute (or any provision thereof) as unconstitutional, it should exercise great restraint before exercising such a power. Really speaking, there is only one ground for declaring an act of the legislature as invalid, and that is if it clearly violates some provision of the Constitution of India in so evident a manner so as to leave no manner of doubt. Before declaring a statute to be unconstitutional, the Court must be absolutely sure that there can be no manner of doubt that it violates the provisions of the Constitution of India. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. The Court must therefore make every effort to uphold the constitutional validity of a statute, even if it requires giving the statutory provision a strained meaning, or a narrower or wider meaning, than what appears on the face of it. It is only when all efforts to do so fail should the Court declare a statute to be unconstitutional. It is equally well settled that a statute relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, freedom of religion etc. As regards economic and other regulatory legislation it is imperative that the Court exercises judicial restraint and grants greater latitude to the legislature whilst judging the constitutional validity of such a statute. This is for the simple reason that the Court does not consists of economic and administrative experts and has no expertise in these matters. These well settled principles have been very succinctly set out in the judgment of the Supreme Court in the case of Government of Andhra Pradesh and Others versus P. Laxmi Devi (Smt) (2008) 4 SCC 720. Therefore even looking at it from the perspective as set out in the aforesaid judgment, we are of the clear view that Section 234E does not violate any provision of the Constitution and is therefore intra vires, Constitution of India. In view of the aforesaid discussion in this judgment, we find no merit in this Writ and the same is hereby dismissed. Rule is discharged. However, in the facts and circumstances of the case, we leave the parties to bear their own costs.

(See 2015-TIOL-325-HC-MUM-IT)