High Court Of Kerala
Sree Narayana Guru Smaraka Sangam Upper Primary School vs. Union of India
Section 234E
A.M. Shaffique, J.
W.P. (C) No. 30229 Of 2013 And Others
December 14, 2016
JUDGMENT
1. Since common questions arise for consideration in these writ petitions, they are heard and decided together. Petitioners in these cases primarily challenge the constitutional validity of Section 234E of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short), which was inserted by Finance Act, 2012.
2. The short facts arising in W.P.(C) No.31498 of 2013 reads as under:—
Petitioner is a Lower Primary School and they were giving salary payments to the teaching and non-teaching staff of the school after Deducting Tax at Source (TDS) and the amount so collected is credited to the Income Tax Department. The petitioner has also been allotted with a number known as Tax Deduction and Collection Account Number (TAN). In terms of Section 200(3) of the Act, quarterly statement of TDS has to be filed in Form 24Q in respect of the salary for the corresponding quarter ending June/ September/ December/ March of every year. Petitioner submits that in respect of the quarter ending September 2012 and December 2012, TDS was collected and remitted in time. However, the statement in Form 24Q in respect of the 2nd and 3rd quarter was not filed in time. The due date for filing statement for the 2nd quarter was 15th October and the 3rd quarter was 15th January. The statement is to be filed online through the National Securities Depository Ltd. (NSDL). Even if the statements are made ready for uploading, it can be done only at the TIN Facilitation Centres (TFC) set up by NSDL and cannot be done by an individual or entity. The fee for e-filing of the statement and fee for other services rendered are paid by the deductors. Petitioner submits that on account of various factors beyond the control of the deductor, there was delay in uploading the details of statement within the stipulated time.
3. By Finance Act, 2012, Section 234E has been introduced to the Act with effect from 01.07.2012 by which a fine is being imposed for failure to deliver or caused to be delivered a statement within the time prescribed in Section 200(3). The fine is Rs. 200/- each for each days delay and the fee has to be paid before filing such statement. The Income Tax department has given to the petitioner a computer generated intimation under Section 200A of the Act demanding late fee under Section 234E for the 2nd and 3rd quarters amounting to Rs. 15,000/- and Rs. 12,400/-respectively for the delay in filing TDS statement. Exts.P1 and P2 are the said intimations.
4. It is contended that prior to insertion of Section 234E of the Act, the authority had the power to impose penalty of Rs. 100/-for each days delay in filing the TDS statement, in terms of Section 272A(2)(k) of the Act. However, the statute made it clear that before imposing of such penalty, the assessee should be given an opportunity of being heard. According to the petitioner, in terms of Section 273B, if the assessee is able to prove that there is reasonable and sufficient cause for the default, penalty shall not be imposed. However, by incorporating Section 234E, late fee has become mandatory and unless the late fee is paid along with the TDS statement, the deductor will not be in a position for filing TDS statement. Petitioner submits that at times there will be genuine difficulty in uploading the TDS statement within the time and therefore imposing fee for delayed filing without being heard clearly amounts to arbitrariness. Petitioner also contends that the levy of fee under Section 234E does not stand the test of Quid Pro Quo, it is discriminatory, unreasonable and therefore violative of Articles 14 & 19 (1)(g) of the Constitution of India. It is submitted that in so far as the fee under Section 234E is concerned, no services are rendered or no benefit or privilege is conferred to the assessee. It is further submitted that when TDS is deducted, normally it is remitted promptly to the Income Tax department. Even if there is delay in depositing the amount, interest is charged as provided under Section 201(1A) of the Act. Penalty proceedings are also prescribed under Section 221 of the Act for committing default in remitting the TDS or if there is delay in remitting without good and sufficient reasons. Therefore, when substantial provisions have already been incorporated to ensure payment of TDS in time, investing powers on the income tax authorities to levy fee for the delay in filing the statement without an opportunity to be heard is illegal.
5. Other writ petitions also concern challenge to the aforesaid provisions and therefore I am not repeating on the facts of each case.
6. Heard the learned counsel for the petitioners and the learned standing counsel on behalf of the respondents.
7. Before proceedings further, it would be useful to quote Section 234E, which reads as under:—
“(1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.
(2) The amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible, as the case may be.
(3 The amount of fee referred to in sub section (1) shall be paid before delivering or causing to be delivered a statement in accordance with sub section (3) of section 200 or the proviso to sub section (3) of section 206C.
(4) The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.”
A bare reading of the aforesaid provision would show that the concern of the petitioners is with reference to the fee being levied for failure to deliver or cause to be delivered statement within the time prescribed under Section 200(3). Section 200 imposes a duty on any person deducting tax to pay the said amount to the credit of the Central Government within a prescribed time along with the statement in terms of Section 200(3). Section 200 reads as under:—
“200. (1) Any person deducting any sum in accordance with the fore-going provisions of this Chapter shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.
(2) Any person being an employer, referred to in sub-section (1A) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs.
(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.”
8. Learned counsel for the petitioner placed reliance upon the Memorandum Explaining the Amendment moved in the Finance Bill, 2012. In regard to the fee and penalty for delay in furnishing TDS / TCS statement and penalty for incorrect information etc., it is indicated that “as per the existing provision of the Income Tax Act, a deductor is required to furnish a periodical TDS statement (quarterly) containing the details of deduction of tax made during the quarter by the prescribed due date. A substantial number of the deductors are not furnishing their TDS statement within the prescribed due date. Delay in furnishing the TDS statement results in delay in granting of credit of TDS to the deductee and consequently results into delay in issue of refunds to the deductee tax payers or raising of infructuous demand against the deductee tax payers.” Further it is indicated that under the existing provisions of Section 272A of the Act, only a penalty is levied for the delay in furnishing TDS statement. However, no penalty is specified for furnishing incorrect information in the statement. Therefore, it is observed that the provision under Section 272A is not proved to be effective in reducing or eliminating defaults relating to late furnishing of TDS statement and it is in order to provide effective deterrence against delay in furnishing of TDS statement, the proposal has been made. The submission of the learned counsel for the petitioner is that when the intention of the legislature is to ensure that the TDS statements are filed in time and is not delayed, levy of such a fee and that too at Rs. 200/- per day without even considering the reasons for the delay is unfair, unreasonable and arbitrary. In order to levy fee, the department should take some steps by which they incur an expenditure and without any such expenditure, no such fee can be levied especially when a penalty procedure has been contemplated under the statute.
9. Learned counsel placed reliance on the judgment of the Apex Court in Dewan Chand Builders & Contractors v. Union of India [2012] 1 SCC 101. That was a case in which the Apex court was considering the question whether the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Central Rules, 1998, the Building and Other Construction Workers Welfare Cess Act, 1996 and the Rules framed thereunder are constitutionally valid and within the competence of Parliament as the levy under the enactments is a fee referable to Schedule 7 List I Entry 97 of the Constitution of India. It was contended that the imposition of levy under the Cess Act is a compulsory and involuntary extraction made for a public purpose without reference to any special benefit for the payer of the cess. The Apex Court considered whether the cess levied under the Scheme of the Cess Act is fee or a tax. Reliance was placed upon an earlier judgment in Commissioner of Hindu Religions Endowments v. Lakshmihdra Thirtha Swamiar of Shirur Mutt. AIR 1954 SC 282 and observed that the characteristics of a fee is distinct from tax. Further reference is made to the Constitution Bench judgment in Hingir Rampur Coal Co. Ltd. v. State of Orissa AIR 1961 SC 459 wherein it was held that tax and fee are compulsory extractions of money by public authorities but tax is imposed for public purpose and it need not be supported by any consideration of service rendered in return whereas a fee is levied for essential services rendered and as such there is an element of Quid Pro Quo between the person who pays the fee and the public authority which imposes it. The constitution bench also held at paras 9 and 13 as under:—
“9. The first question which falls for consideration is whether the levy imposed by the impugned Act amounts to a fee relatable to Entry 23 read with Entry 66 in List II. Before we deal with this question it is necessary to consider the difference between the concept of tax and that of a fee. The neat and terse definition of tax which has been given by Latham, C. J., in Matthews v. Chicory Marketing Board [1938] 60 CLR 263 at p. 276, is often as a classic on this subject. “A tax”, said Latham, C. J., “is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered”. In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied. There is, however, an element of compulsion in the imposition of both tax and fee. When the Legislature decides to render a specific service to any area or to any class of persons, it is not open to the said area or to the said class of persons to plead that they do not want the service and therefore they should be exempted from the payment of the cess. Though there is an element of quid pro quo between the tax-payer and the public authority there is no option to the tax-payer in the matter of receiving the service determined by public authority. In regard to fees there is, and must always be, co-relation between the fee collected and the service intended to be rendered. Cases may arise where under the guise of levying a fee Legislature may attempt to impose a tax; and in the case of such a colourable exercise of legislative power courts would have to scrutinizes the schemes of the levy very carefully and determine whether in fact there is a co-relation between the service and the levy, or whether the levy is either not co-related with service or is levied to such an excessive extent as to be a pretense of a fee and not a fee in reality. In other words, whether or not a particular cess levied by a statute amounts to a fee or tax would always be a question of fact to be determined in the circumstances of each case. The distinction between a tax and a fee is, however, important, and it is recognised by the Constitution. Several Entries in the Three Lists empower the appropriate Legislatures to levy taxes; but apart from the power to levy taxes thus conferred each List specifically refers to the power to levy fees in respect of any of the matters covered in the said List excluding of course the fees taken in any Court.”
“13. In Attorney-General for British Columbia v. Esquimalt and Nanaimo Ry. Co. 1950 AC 87 the Privy Council had to deal with the validity of forest protection impost levied by the relevant section of the Forest Act R.S.B.C., 1936. The lands in question were statutorily exempted from taxation, and it was urged against the validity of the impost that the levy of the said impost was not a service charge but a tax; and since it contravened the exemption from taxation granted to the land it was invalid. This plea was upheld by the Privy Council. The Privy Council did consider two circumstances which were relevant; the first that the levy was on a defined class of interested individuals, and the second that the fund raised did not fall into the general mass of the proceeds of taxation but was applicable for a special and limited purpose. It was conceded that these considerations were relevant but the Privy Council thought that the weight to be attached to them should not be exaggerated. In appreciating the weight of the said relevant circumstances the Privy Council was impressed by the fact that the lands in question formed an important part of the national wealth of the Province and their proper administration, including in particular protection against fire, is a matter of high public concern as well as one of particular interest to individuals. In other words, the effect of the impugned provision was that the expenses of what was the public service of the greatest importance for the Province as a whole had been divided between the general body of tax-payers and those individuals who had a special interest in having their property protected. It would thus appear that this decision proceeded on the basis that what was claimed to be a special service to the lands in question was in reality an item in public service itself, and so the element of quid pro quo was absent. It is true that when the Legislature levies a fee for rendering specific services to a specified area or to a specified class of persons or trade or business, in the last analysis such services may indirectly form part of services to the public in general. If the special service rendered is distinctly and primarily meant for the benefit of a specified class or area the fact that in benefitting the specified class or area the State as a whole may ultimately and indirectly be benefited would not detract from the character of the levy as a fee. Where, however, the specific service is indistinguishable from public service, and in essence is directly a part of it, different considerations may arise. In such a case it is necessary to enquire what is the primary object of the levy and the essential purpose which it is intended to achieve. Its primary object and the essential purpose must be distinguished from its ultimate or incidental results or consequences. That is the true test in determining the character of the levy.”
10. In another Constitution Bench judgment in State of West Bengal v. Keshoram Industries Ltd. [2004] 1 SCC 201, the Apex Court considered the constitutional validity of levy of cess on coal bearing lands and tea plantation lands for removal of brick. It was held that the term cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing. It also means an assessment or levy. It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the service rendered by the fee collected should remain confined to the person from whom the fee has been collected. Viability of indirect benefit and general nexus between the person bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged. It was therefore held that the true test to determine characteristics of levy delineating tax from fee is the primary object of the levy and the essential purpose intended to achieve. In Dewan Chand Builders (supra) it was held that what is collected as a cess is a fee and not tax. However, the said fund is set apart and appropriated specifically for the performance of specified purpose. It is not merged in the public revenue for the benefit of general public and as such the nexus between the cess and the purpose of which it is levied gets established satisfying the element of Quid Pro Quo in the Scheme. Further, the Apex court held at para 33 as under:—
“33. A Constitution Bench of this Court in Kewal Krishan Puri v. State of Punjab, while dealing with provisions of the Punjab Agricultural Produce Markets Act, 1961, held that the element of quid pro quo must exist between the payer of the fee and the special services rendered. Taking note of the well-recognized distinct connotations between “tax” and “fee”, the Bench observed that a “fee” is a charge for special service rendered to individuals by the governmental agency and therefore, for levy of fee an element of quid pro quo for the services rendered was necessary; service rendered does not mean any personal or domestic service and it meant service in relation to the transaction, property or the institution in respect of which the fee is paid. A significant principle deduced in the said judgment was that the element of quid pro quo may not be possible, or even necessary, to be established with arithmetical exactitude but even broadly and reasonably it must be established, with some amount of certainty, reasonableness or preponderance of probability that quite a substantial portion of the amount of fee realised is spent for the special benefit of its payers. Each case has to be judged from a reasonable and practical point of view for finding an element of quid pro quo.”
11. Another judgment relied upon is Elias & Co. v. Sales Tax Officer [2004] 1 KLT 245 (Ker.). In that case, the Division Bench of this Court held that Section 14(5) of the Kerala General Sales Tax Act 1963 compelling payment of registration fee every year at the time of renewal is a fee charged without any quid pro quo and therefore invalid. Reference is made to paras 7, 9, 11 & 13 which read as under:—
‘”7. We have seen that for enacting Ss.14(1) and 14(5) the State Government has got legislative competence. Under S.14(1) registration fee is prescribed and under S.14(5) apart from the initial registration, registration has to be renewed every year and every time same fee equal to the initial registration fee has to be paid. According to the State, amount collected as registration fee is in the nature of fees and not tax. The major contention of attack is that for charging fees there should be quid pro quo and in the absence of any quid pro quo the fees cannot be charged. It is further contended that the charges are exorbitant and it is being raised unreasonably from time to time without any rational basis in an arbitrary manner. Thirdly it is contended that requirement of paying same registration fee as in the case of initial registration, at the time of renewal is arbitrary. Neither in the Central Sales Tax Act nor in the Sales Tax Act prevailing in neighbouring States, there is no requirement of paying registration fee at the time of renewal of registration every year and, therefore, there is no basis for charging registration fee at the time of renewal, especially when registration is automatic.”
“9. Now we will consider the nature of the services said to have rendered by the State for levying registration fees. It is contended that check posts are established to assist the assessees. Establishment of check posts is for checking whether tax is evaded. It is part of the sales tax collection machinery. It cannot be stated that by establishing check post service is done to the assessees. It is further submitted that declaration forms and various other forms, records etc. are supplied by the Department. The declaration forms etc. are supplied on payment of a price. The assessees are doing a service to the Department by collecting tax from the customers and merely because return forms are given to submit return, it cannot be stated that a service is rendered as quid pro quo for paying registration fee. Thirdly, it is submitted that administrative expenses are incurred and it is on the increase every year. Sales Tax Act itself is enacted for charging tax on sales and purchases of goods. For establishing machineries for collection of sales tax, administrative expenses are incurred. Incurring of administrative expenses, paying salary to the Sales Tax Officials, maintaining of vehicles of the Department, establishing various offices etc. cannot be stated to be a service done to the assessees in return of charging registration fees. It was again contended that there are large number of exempted assessees and that some turnovers like second sale etc. are exempted to the assessees. By verifying the claims for exemption the Department is giving service to the assessees. When exemptions are claimed, checking by the Department whether assessees are entitled to exemption as claimed by them or whether the alleged exempted turnover is liable for assessment etc. are part of revenue collection process or assessment process. Assessment is part of tax collection. Therefore, verification of claims for exemption to find out whether due tax is evaded etc. cannot be stated to be a service done to the assessees as quid pro quo for the registration fees collected. Along with the registration fees, depending upon the turnover assessee has to pay security. That also vary with the increase in turnover. Increased security is demanded depending upon the returned turnover of previous year. In view of S.14(2A) and Rules and orders framed thereunder, the security can be demanded depending upon the turnover at any time, but for levying registration fees no separate services are rendered. It is true that as held by the Supreme Court in Sreenivasa General Trades v. State of Andhra Pradesh (AIR 1988 SC 1246) the traditional view that there must be actual quid pro quo for a person from whom fee is collected has undergone a sea of change in the subsequent decisions and exact arithmetical co-relation is not necessary and court need not look as a cost accountant, whether fees levied and the cost of services rendered are equal. It is also held that it is not necessary that a particular person paying the fees alone is benefited. In The City Corporation of Calicut v. Thachambalath Sadasivan & Ors. AIR 1985 SC 756 it was held that it is not necessary to establish that those who pay the fees must receive the benefit directly. It is enough if one who is liable to pay fees receives general benefit from the authority levying the fees as the element of service. In that case when fee was charged for use of land or premises for soaking of coconut husks, it was found that the Corporation by rendering scavenging services, carrying on operations for cleanliness of the city and making habitation tolerable, despite pollutions created by soaking coconut husk. Persons paying the fees also getting general services among other users of the premises. In Kishan Lal Lakshmi Chand v. State of Haryana JT 1993 (4) SC 426 the Apex Court held as follows:”
“… The broad co-relationship between the imposition of fee and the nature of the service rendered to the entire textiles industry satisfied the test of quid pro quo, though no specific service was rendered to the payer of the fee “
But in all other cases sited before us including Kewal Krishan Puri v. State of Punjab (1980) 1 SCC 416 etc. it was only held that eventhough an arithmetical co-relationship is not necessary, by and large, there should be quid pro quo.”
“11. We have already seen that actually no services are rendered by the Government in return for charging registration fees. The services said to have been rendered as quid pro quo for the fees levied are only incurring of expenses for assessment and collection of sales tax and purchase tax which is part of assessment expenses. No separate benefit is conferred on the assessees which has a direct and reasonable co-relation to the fee. In paragraph 5 of the counter affidavit filed by the State in O.P. No.11071 of 1993 it is stated that in 1987 Government introduced turnover tax. But it was objected to by the public. Therefore, turnover tax was withdrawn except for petroleum products and foreign liquor. In order to make good the revenue loss, registration fee was enhanced. These averments will show that the fees were imposed not for rendering services or conferring privileges to the assessees. We cannot equate registration fee to the licence fee charged by local authorities or fee charged by Marketing/Trading Authorities etc. as by collection of the above fee some services are rendered which have atleast a nexus to the collection of fee. Hence we find that there is no nexus between the registration fee charged and services rendered.”
“13. Renewal of registration is automatic and the same registration number will continue. Registration can be cancelled by following the procedure prescribed under the Act and Rules either on that year itself or in any subsequent years. S.14(5) requires for yearwise registration. But fixation of same fee for renewal of registration as of initial fee is clearly illegal and arbitrary as we have already seen that there is no quid pro quo. Absolutely no services are rendered either for assessee or public for charging renewal fees as renewal is automatic unless it is cancelled after following the procedure prescribed. Under the Central Act and Rules apart from the initial registration fee of Rs.25/- no renewal fee is charged. It is also submitted by the petitioners that in the neighbouring States also no exorbitant fees are charged as fee for renewal of registration. Therefore, S.14(5) of the KGST Act in so far as it requires registered assessees to pay renewal fee payable from year to year at the same rate of initial registration fee payable under sub-s.(1) is clearly unreasonable. Such fees charged without any quid pro quo and nothing in return is clearly unconstitutional. There is nothing wrong in the provisions incorporated for renewing licence as yearwise registration can be given. State also will be free to charge nominal fees for covering up expenses, if any, incurred for renewal of registration.”‘
12. It is further submitted that as per the Explanatory Notes to the Finance Act, 2015 issued by the Government of India, Ministry of Finance, Department of Revenue (Central Board of Direct Taxes) issued on 27.11.2015, an attempt had been made to rationalise the provisions relating to TDS and Tax Collection at Source. Paras 47.1, 47.2 and 47.3 are relevant, which reads as under:—
“47.1 Under Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rate if the payment exceeds the specified threshold. The person deducting tax (the deductor) is required to file a quarterly Tax Deduction at Source (TDS) statement containing the details of deduction of tax made during the quarter by the prescribed due date. Similarly, under chapter XVII-BB of the Income-tax Act, a person is required to collect tax on certain specified receipts at the specified rates. The person collecting tax (‘the Collector’) is also required to file a quarterly Tax Collection at Source (TCS) statement containing the details of collection of tax made during the quarter by the prescribed due date.
47.2 In order to provide effective deterrence against delay in furnishing of TDS/TCS statement, the Finance Act, 2012 inserted section 234E in the Income-tax Act to provide for levy of fee for late furnishing of TDS/TCS statement. The levy of fee under section 234E of the Income-tax Act has proved to be an effective tool in improving the compliance in respect of timely submission of TDS/TCS statement by the deductor or collector.
47.3 Finance (No.2) Act, 2009 inserted section 200A in the Income-tax Act which provides for processing of TDS statements for determining the amount payable or refundable to the deductor. However, as section 243E was inserted after the insertion of section 200A in the Income-tax Act, the existing provisions of section 200A of the Income-tax Act did not provide for determination of fee payable under section 234E of the Income-tax Act at the time of processing of TDS statements. Therefore, the provisions of section 200A of the Income-tax Act has been amended so as to enable computation of fee payable under section 234E of the Income-tax Act at the time of processing of TDS statement under section 200A of the Income-tax Act.”
The amended Section 200A reads as under:—
“200A. Processing of statements of tax deducted at source.- (1) Where a statement of tax deduction at source or a correction statement has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200, such statement shall be processed in the following manner, namely:—
(a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely:-
(i) any arithmetical error in the statement; or
(ii) an incorrect claim, apparent from any information in the statement;
(b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;
(c) the fee, if any, shall be computed in accordance with the provisions of section 234E;
(d) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of amount computed under clause (b) and clause (c) against any amount paid under section 200 or section 201 or section 234E, and any amount paid otherwise by way of tax or interest or fee;
(e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d); and
(f) the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor:
Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.
Explanation. — For the purposes of this sub-section,”an incorrect claim apparent from any information in the statement” shall mean a claim, on the basis of an entry, in the statement—
(i) of an item, which is inconsistent with another entry of the same or some other item in such statement;
(ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act.
(2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said sub-section.”
13. On the other hand learned standing counsel appearing on behalf of the Central Government submitted that in so far as there is no ambiquity in the provisions of the statute, there is no reason why this Court interfere in the matter. There is no dispute regarding the legislative competence of the Central Government in enacting the law. He also placed reliance on a few judgments to emphasise the principles of statutory interpretation. Following are the judgments:—
(i) Sree Balanji Nagar Residential Association v. State of Tamil Nadu [2015] 3 SCC 353.
(ii) Raymond Ltd. v. State of Chhattisgarh [2007] 3 SCC 79.
(iii) Raghunath Rai Bareja v. Punjab National Bank [2007] 2 SCC 230.
(iv) Visitor v. K.S. Misra [2007] 8 SCC 593.
(v) Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC).
14. Reference is also made to the judgment in Government of Andhra Pradesh v. (Smt.) P. Laxmi Devi [2008] 4 SCC 720 wherein the Apex Court had occassion to consider the scope of judicial review against the statute, wherein the apex court held at paras 46, 51 and 68 as under:—
‘”46. In our opinion, there is one and only one ground for declaring an Act of the legislature (or a provision in the Act) to be invalid, and that is if it clearly violates some provision of the Constitution in so evident a manner as to leave no manner of doubt. This violation can, of course, be in different ways e.g. if a State Legislature makes a law which only Parliament can make under List I to the Seventh Schedule, in which case it will violate Article 246(1) of the Constitution, or the law violates some specific provision of the Constitution (other than the directive principles). But before declaring the statute to be unconstitutional, the court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope vide Rt. Rev. Msgr. Mark Netto v. State of Kerala SCC para 6 : AIR para 6. Also, it is none of the concern of the court whether the legislation in its opinion is wise or unwise.”
“51. In our opinion the legislature must be given freedom to do experimentations in exercising its powers, provided of course it does not clearly and flagrantly violate its constitutional limits.”
“68. The court must, therefore, make every effort to uphold the constitutional validity of a statute, even if that requires giving the statutory provision a strained meaning, or 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.”‘
15. Reliance is also placed to the judgment of Rajasthan High Court in Dundlod Shikshan Sansthan v. Union of India [2015] 235 Taxman 446/63 taxmann.com 243 wherein the Jaipur Bench of the High Court had occasion to consider the constitutional validity of Section 243E of the Act. It has held at paras 4 to 8 are under:—
“4. On the question of filing of appeal, for which there was no provision prior to the amendment made by the Finance Act, 2015 with effect from 1-6-2015, by which a provision of appeal has been inserted under section 246A against the order under sub-section (1) of Section 200A or sub section (1) of Section 206CB, it was held by the Bombay High Court, in the facts of the case prior to the amendment, that simply because there was no remedy of filing appeal, the provisions of Section 234E cannot be said to be onerous. Now, since an appeal has been provided, this argument is no longer available for challenging the vires of Section 234E of the Income Tax Act.
5. Learned counsel for the petitioners submits that the reasons given by the Central Government as well as the Income Tax Department for insertion of Section 200A do not justify the levy of fee, inasmuch as, there is no provision for condonation of delay. There may be variety of circumstances in which the delay may be occasioned for no fault of assessee. He submits that there is hardly any time left in the fourth quarter in filing the TDS deducted by the assessee by challan and in filing of the return by 15th of next month. The fee thus assumes the character of penalty. He also submits that prior to the amendment by the Finance Act, 2015 by which sub-section (c) was added to Section 200A(1), there was no provision for computation of the fee for late filing of the TDS returns under section 200A and thus, in the absence of any machinery provisions, the levy of fee under section 200, which imposes a duty on the person deducting tax, was not justified.
6. We have considered the arguments and do not find any good ground to take a view different from the one taken by the Bombay High Court in Rashmikant Kundalia v. Union of India (supra). The unamended Section 200 referred to the levy on the late filing of returns as penalty. It was thereafter termed as fee, which is a compensatory in nature. In Jindal Stainless Ltd. v. State of Haryana ((2006) 152 Taxman 561 (SC)), the Constitution Bench of the Supreme Court in paragraph 36 held as follows:-
36. In the generic sense, tax, toll, subsidies etc. are manifestations of the exercise of the taxing power. The primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such a law is to impede the activity, then the law is a restriction under Article 301. However, if the law enacted is to enforce discipline or conduct under which the trade has to perform or if the payment is for regulation of conditions or incidents of trade or manufacture then the levy is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of Articles 301, 302 and 304…
7. The constitutional validity of the statutory provision is not amenable to challenged on the ground that the performance insisted upon by the statutory provision is too onerous or that the statute does not leave sufficient time or does not allow reasonable cause to be considered for violation of the provision. In G.P. Singh’s Principles of Statutory Interpretation, 9th Edn., 2004, p. 497, referring to a large number of judgments of the Federal Court and the Supreme Court, it was observed that for upholding the constitutionality of a statute, the Court can construe or interpret its general words narrowly or widely. The Court must make every effort to uphold the constitutional validity of a statute, even if that requires giving the statutory provision a strained meaning, or 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.
8. In the present case, the fee was levied under section 200 for late filing of the returns, prior to the amendments made by the Finance Act, 2015 with effect from 1.6.2015 in Sections 200A, 246A and 272A providing for computation and appeal. We do not find that even prior to these amendments the imposition of fee was illegal. We do not in exercise of the power under Article 226 of the Constitution of India find any valid reasons or justification to interfere with the compensatory fees imposed for late filing of the TDS returns on flat rates. The absence of any provision for condonation of delay and the appeal prior to amendments also did not make the imposition of late fees by Section 234E to be ultra vires.”
16. Standing counsel for the revenue while supporting the statutory prescription placed reliance upon the following judgments:
(i) Lakshminirman Bangalore (P.) Ltd. v. Dy. CIT [2015] 234 Taxman 275/60 taxmann.com 144 (Kar.).
In this case, challenge was made to Section 234E of the Act. Karnataka High Court held that there is no constitutional invalidity to Section 234E. Paras 21 and 22 are relevant which reads as under:—
“21. A person responsible for deduction of tax namely deductor is required to furnish periodical statements containing the details of deduction of tax within the prescribed due date. Any delay in furnishing TDS statements would result in perennial problems being faced by the department while processing the return of income filed by the assessees. When a return of income is filed by an assessee a statutory obligation is cast on the department to process the said return of income within the specified period from the date of filing. If for want of details such return of income not being processed or assessment order not being framed or would be stalled or in other words the return of income filed by an assessee on whose behalf the tax has already been deducted by the deductor is not furnished within the prescribed time by such deductor, it would consequently have cascading effect namely, it would stall the processing of the return of income filed by the deductee. In a given case, there might be instances of where the assessee would be entitled to refund and on account of delay occurring due to non delivery of T DS statements by the deductors, it would result in delay in extending the credit of TDS to the person on whose behalf tax is deducted and consequently it would result in delayed issuance of refunds to the deductee or raising of consequential demands against the deductee which otherwise would not have been raised. In this lengthy and unwarranted process it may erode the confidence reposed by the tax payer on the department. Last but not the least, it would result in financial burden to the Government namely on account of late payment of refund interest is to be paid on such refunds and it would also result in cash flow crunch, especially for business entities.
22. It also requires to be noticed that Division Bench of High Court of Judicature at Mumbai in the case of Rashmikanth Kundalia and another v. Union of India and Others in W.P.No.771/2014 disposed of on 06.02.2015 (supra) had an occasion to examine the constitutional validity of Section 234E and while upholding its validity and arriving at a conclusion that it is intra vires of the Constitution has opined as under:
“18. We are therefore clearly of the view that the fee sought to be levied under Section 234E of the Income Tax Act, 1961 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 the Assessing Officer to condone the delay in late filing of the TDS return/statements, or that no appeal is provided for from an arbitrary order passed under Section 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 this Court in its extraordinary 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.
This Court is in complete agreement with the view expressed by Mumbai High Court and as such contention of the petitioners cannot be accepted for this reason also.”
17. The Bombay High Court judgment relied upon by the Karnataka High Court is Rashmikant Kundalia v. Union of India [2015] 373 ITR 268/229 Taxman 596/54 taxmann.com 200 (Bom.). The Division Bench of the Bombay High Court had occasion to consider a similar issue. Relevant paras are as under:
‘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 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.
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.
12. On a perusal of sub-section (1) of section 234E, it is clear that a fee is sought to be levied inter alia on a person who fails to deliver or cause to be delivered the TDS return/statements within the prescribed time in sub-section (3) of section 200. The fee prescribed is Rs.200/- for every day during which the failure continues. Sub-section (2) further stipulates that the amount of fee referred to in sub section (1) shall not exceed the amount of tax deductible or collectible as the case may be.
13. It is not in dispute 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.
14. We find that the Legislature took note of the fact that a substantial number of deductors were not furnishing their TDS return/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 under section 234E of the Act. Looking at this from this perspective, we are clearly of the view that section 234E of the Act 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.
15. As stated earlier, 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 under section 234E of the Act. 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 under section 234E of the Act is really nothing but a collection in the guise of a tax.”‘
18. Reference is also made to the judgment of the Apex Court in Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205 and CIT v. Naresh Kumar [2014] 362 ITR 256/221 Taxman 59/[2013] 39 taxmann.com 182 (Delhi) to emphasise the manner in which a taxing statute has to be interpreted.
19. In the light of the aforesaid principles of law, it has to be considered whether the statute suffers from any vires as contended by the petitioner.
20. Already the issue has been considered by three High Courts and the judgments have already been relied upon by the counsel appearing for the respondents. The question is whether a different view is possible to be taken from the view which has already been upheld by the two High Courts.
21. The main argument of the petitioner is that being a fee, there is no quid pro quo for the levy. Counter affidavit is filed by the 3rd respondent in W.P.(C) No.10894 of 2014 which was adopted in the other cases. Paras 3 to 5 are relevant, which read as under:—
“3. In many cases, due to late submission of TDS returns/statements, the Department has to revise the assessment order already passed in the case of deductees for determining their correct tax liability. Moreover, in the 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.
4. The legislature took note of the fact that a substantial number of deductors were not furnishing their TDS returns/statements within the prescribed time, which has a cascading effect and creates additional work for the Income tax Department. The fee under Sec.234E is levied to address this additional work burden forced upon the Department by the deductor by not furnishing the information in time.
5. The contention of the petitioner that the levy of fee u/s 234E is not legal and valid in the absence of any quid pro quo, is not sustainable. It is settled position of law that quid pro quo, in the strict sense, was not always a sine qua non for a fee and all that is necessary is that there should be a reasonable relationship between the levy of fee and services rendered.”
22. There cannot be any dispute regarding the legal proposition evolved in the matter as held by the Apex Court in Dewan Chand Builders (supra) and the Constitution Bench judgment relied upon in this case. The proposition is rather clear that in order to levy a fee, there has to be an element quid pro quo. What exactly is the quid pro quo for levying a fee arises for consideration. In the Explanatory Note and in the counter affidavit filed, the Central Government had taken a view that delay in filing statement of TDS is causing substantial inconvenience to deductees as the department is not in a position to finalise the tax returns in time and to refund the amount payable to such deductees. On a perusal of the judgment of the Bombay High Court, which is relied upon by the other High Courts, it could be seen that a similar question was considered by the Bombay High Court and it was held that by the late filing of TDS return/ statements is regularised upon payment of the fee as set out in section 234E is nothing but a privilege and a special service to the deductor allowing him to file the TDS return/ statement beyond the time prescribed by the Act or the Rules. Hence, it was held that there is an element of quid pro quo for collecting the fee.
23. The main contention of the petitioner is based on the memorandum explaining amendment moved in the Finance Bill, 2012, wherein it is indicated that the provision had been incorporated as a deterrence to the deductors who delays in furnishing TDS statement in time. While considering the validity of a statute, I do not think that the exact words of the Explanatory Note can have any relevance. It has to be verified whether the fee that is being charged is in the form of a penalty so that an opportunity should be given to the deductor to explain the reasons for delay before imposing such fee/penalty.
24. As already held by the Bombay High Court in Rashmikant Kundalia (supra), “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 Bombay High Court has thereafter elaborated the consequences of delay in filing the statement. It is on account of the additional work burden which has fallen upon the department due to the fault of the deductor that a fee has been levied. I do not think that a different view can be taken in the matter.
25. It is also held that the provision is not onerous even in the absence of a right of appeal as it is always open for the aggrieved person to approach the High Court under Article 226 of the Constitution of India.
26. Section 200A was amended by the Finance Act, 2015 incorporating clause (c) and an order passed under Section 200A is made appealable under Section 246A. This benefit of appeal is available only after the commencement of Finance Act, 2015. In the judgment of the Rajasthan High Court, reference is also made to the amendment to Section 200A that there was no provision for appeal earlier against collection of fee under Section 234E. But as per the amendment made to the Finance Act, 2015, with effect from 01.06.2015, a provision for appeal has been inserted under Section 246A against an order under sub-section (1) of Section 200A. Since the appellate remedy has already been provided, the petitioner cannot contend that the impugned provision of the Act is unreasonable and arbitrary.
In the light of the aforesaid discussion, I do not think that the petitioners have succeeded in challenging the vires of Section 234E. Writ petitions are therefore dismissed reserving the right of the petitioners to take appropriate action in accordance with law.
[Citation : 392 ITR 457]
