Fees levied under section 234E is constitutional – Rajasthan HC

Brief of the case:

In this case the constitutional validity of section 234E of the Act was challenged. Hon’ble HC has followed the decision of Hon’ble Bombay HC in the matter of  Rashmikant Kundalia and ors. V/s Union of India & ors. (2015) 229 Taxman 596 (Bom) where the Hon’ble court has upheld the validity of Section 234E of the Income Tax Act, 1961, on the ground that the levy of fee of Rs.200/- per day on the late filing of the TDS returns, which is a duty cast on the person deducting TDS under section 200 of the Income Tax Act, is a compensatory fee, which is not in the nature of penalty. After relying the said decision the court has held section 234E constitutionally valid.

Facts of the case:

• Appellant/Assessee was found defaulted in filing of TDS return in time and hence the AO held that assessee is liable to pay fees u/s 234E for delay in filing TDS return. AO raised a demand accordingly.
• 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.
• Aggrieved from the demand raised assessee preferred the present writ petition.

Contention of the revenue/respondents:

The Hon’ble Bombay HC in the case of Rashmikant Kundalia and ors. V/s Union of India & ors. (Supra) has held the impugned section as constitutional Valid.

Contention of the assessee/appellant:

• 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.
• 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.

Held by the Court:

• There is no good ground to take a view different from the one taken by the Bombay High Court in Rashmikant Kundalia and ors. Vs. UOI (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.
• 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.
• 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.
• 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.