FACTS OF THE CASE
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.
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.
CONTENTION OF THE ASSESSEE
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.
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.
CONTENTION OF THE REVENUE
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.
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.
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.
HELD BY HIGH COURT
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.
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.
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 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.
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 unde 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.
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 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.
Therefore even looking at it from the perspective as set out in the aforesaid judgment, we are of the clear view that Section 234E of the Income Tax Act, 1961 does not violate any provision of the Constitution and is therefore intra vires, Constitution of India.