Are TDS Provisions Ultra-Vires the Constitution?

1. TDS Provisions are DISCRIMINATORY on the following grounds:

(a) For Tax collecting, Government has 2 (Two) Agencies, viz. Government appointed Assessment Officers (AO)and / or TDS Officers(TDSO) – both hereinafter referred to as AO – and the Private Citizens i.e. (Persons who are liable to deduct and / or collect Tax at the source while making or crediting certain payments of the expenses specified in the Tax Laws – hereinafter referred to as the TDS Assessees)TDS Assessees are treated as the Assessees under the I. Tax Act (Act). Both help the Government to assess & collect tax from the Assessee. The only differences are: –

(i) AOs are paid remuneration / salary and other perquisites. TDS Assessees are not paid anything i.e. they work Gratuitously & Free of Cost.

(ii) Though AOs are highly qualified (as most of them are IAS / IRS) are provided intensive training on various provisions of the Act. On the other hand, TDS Assessees are mostly unqualified, sometimes illiterates and are not provided any training.

(iii) If AOs commit any error / lapse / mistake in collecting tax by way of under assessment or allowing disallowable expenses or not taxing taxable income, they are not liable to pay any interest / penalty / prosecution. But TDS Assessees are not only made liable to payinterestand penalty but also they are subject to disallowances for the payments made without / under-deducting Tax and prosecution.

(iv) AOs are empowered to rectify / revise their blunders / errors / faults / inaccuracies / lapses / miscalculations / mistakes / slips committed by them, whereas TDS Assessees do not have any such powers.

(v) AOs have power to recover the under-assessed / escaped / tax dues through rectification / revision but TDS Assessees do not have such authority.

All these indicate / show that there is huge / substantial / unfair / unjust discrimination between 2 agencies, directly infringing / violating the provisions of Article 14 – Right to Equality – a Fundamental Right guaranteed to every citizens of India under the Constitution of India.

2. Article 23 of the Constitution of India prohibits any kind of Bonded / Forced Labour on the Citizens of India. Non-payment of any compensation to TDS Assessees for performing the Sovereign Function of the Central / State Governments is nothing but a Bonded / Forced Labour. One can compare this situation with the practice of Human Slavery prevailing in the world few centuries ago. Under this system, human beings were caught / bought with a view to sell them. The buyer of slave was entitled to extract / exploit and take as much work as his owner desires for any number of hours and that also without any compensation. The slaves were only provided one / two times meals as per pure discretion of their owners. In case of TDS Assessees, though they are not paid any remuneration, they are made subject to all kinds of tortures by causing / creating the FEAR;compelling to pay Interest and Penalty; and subjecting them to PROSECUTION. We humbly submit that under the Draconian Provisions of the Act, the position / status of TDS Assessees is worse than the slaves.

3. What is stated above is also TRUE and is EQUALLY Applicable to other taxes like, Custom / Excise / Octrai Duty and / or Profession / Service / Value Added Tax / GST.

4. AOs are actually Tax Terrorist. They let loose the Terror on Innocent TDS Assessees while doing assessment and / or conducting surveys. Instead of guiding TDS Assessees, AOs behave like the Ancient Age Slave Lords by treating the TDS Assessees as their slaves and harass them like Sadists on one or the other Technical Lapses just to extort money from them. What TDS Assessees expect is the Fair & Just Treatment from the Tax Department but instead they get Injustice inasmuch as they are treated as Third Rate citizens as if they are untouchables.

5. The income tax law and procedures about collection and deduction of tax at source as embodied in 39 sections, 28 rules and 41 forms are highly complex and complicated. The compliance with all these provisions essentially requiredevoting of substantial time and incurring of huge administrative expenses on the part of the TDS Assessees.TDS Assessees mainly have to incur lots of expenses in administering the compliance with the provisions of the Act like salaries paid to staff engaged in TDS Compliance; rent paid for the space occupied by the said staff, professional fees paid to Chartered Accountants / Tax Consultants / Counsels for seeking their advice and getting assistance to file regular TDS Returns, Electricity, Conveyance, Telephone Charges, etc. They have to ascertain the correct TDS Rate, applicability of different provisions under multifarious TDS Sections / Rules of the Act, Deduct / Collect Tax at Source before the taxable payment is made or before it is credited, pay TDS recovered from Tax Deductees to the credit of the account of the Central / State Government, Issue TDS Certificates to the Tax Deductees, File TDS Returns, Attend to TDS Officers for Assessment, etc. For all this, TDS Assessees have to employ qualified staff, professional experts, visit Tax Offices. Thus, TDS Assessees have to bear / incur / suffer lots of expenses varying from 10% to 20% of the Tax collected by them. The question is why TDS Assessees should bear these expenses just to perform the Sovereign Function of collecting Taxes for and on behalf of the Government/s. This amounts to UNAUTHORIZED / UNCONSTITUTIONAL / UNFAIR / UNJUST Indirect Levy imposed under various Tax Statutes by the Government. Government is the Direct Beneficiary of this Bonded / Forced Labour extracted / exploited from the Citizens of India without any Constitutional Authority.

6. Just because the Government is not willing & ready to perform its Sovereign Function of collecting the taxes due from the actual Tax Payers, it has adopted / chosen / preferred the Unfair / Unjust / Unconstitutional Methods of collecting taxes through the Bonded / forced Labour.

7. This Method of collecting taxes by way of TDS from the persons who have not earned the Income causes more HARDSHIP on the innocent & gullible citizens of India inasmuch as it is easy for the Government with its vast financial & physical resources coupled with legal force to directly collect the taxes from the persons who are actually earning the income and thus liable to pay tax to the government.

8. Perhaps the only objective of the Government to collect the taxes by way TDS is to ensure that no one escapes from the payment of tax. However, this objective can be easily achieved at much cheaper cost through collection of details by way of Annual Information Report to be filed with the Tax Returns. AIR may include the details of the persons who have received payment of taxable income beyond a certain threshold during the year from the Assessees.

9. TDS Assessees expect JUSTICE from this Honourable Court by directing the Central / State Governments to make its own arrangement to perform its Sovereign Function of collecting taxes through their own Tax Department directly from the Assesseeswho are liable to pay taxes rather than through Bonded / Forced Labour.

10. The Petitioner fails to understand why TDS Assessees should be compelled / forced to perform the Sovereign Function of collecting taxes for and on behalf of the Government GRATUTIOUSLY & FREE of COST.

11. When the Government has not only its own Independent & Separate Tax Department but also has TDS Cell with independent charge, why the gullible / ignorant / illiterate / innocent citizens should be expected to bear the ONEROUS OBLIGATION of collecting the taxes for and on behalf of the Government and that is also without adequate / proper qualification, experience and training and without any reasonable compensation not only for the services rendered by them but also for the expenses they have to incur for performing the duties of the Government.

12. Why the gullible / ignorant / illiterate / innocent citizens should undertake the performance of the ONEROUS OBLIGATION of SOVEREIGN FUNCTION of the Government just because of Government’s INABILITY and / or UNWILLINGNESS to detect, find out and search for the New Assessees and / or Tax Defaulters, especially it is administratively very convenient for the Government to learn about the Tax Defaulters through the Provision of Compulsory filing of Annual Information Return calling for the information about the Name & Address of Tax Payers, Nature of Payments made to them, their Permanent Account Numbers, the Amount, if paidbeyond the prescribed threshold limit.

13. TDS Assessees will have to face more hardships, if the TDS Regime is allowed to be continued because the large majority of TDS Assessees are not only ignorant but also illiterate. Even the so called tax experts sometimes misguide them through their dubious and aggressive tax planning methods.

14. Alternative to the TDS System, the Government can easily achieve its objective of collecting taxes regularly and in time by providing for the Payment of Advance Tax monthly instead of quarterly and making liable all the eligible Assessees earning taxable income beyond exempt limit.

15. Moreover, there are innumerable number of Assessees (on whose income Tax is deducted / collected at source)who are small and not earning taxable limit prefer to forgo their claim of Refund of Taxes deducted / collected at source simply because it is economically costly to claim the refund of excess tax paid by them under TDS Regime and / or to avoid the harassment at the hands Tax Staff by making them to visit Tax Office quite frequently with some ulterior motive.

16. The relationship between AOs&TDS Assessees is that of Principal and Agent. Under the common law, it is the Principal who is liable to bear the consequences / outcome of any error / lapse / mistake on the part of the Agent. For instance, the AOs being the employees of the Government are also the Agents of the Government and as such it is the Government who bears / suffers the loss if the AOs commit any error / lapse / mistake in assessing the incomewhich may be under-assessed due to certain income escaping from the assessment or allowance of inadmissible expenses or allowing the expenses beyond the prescribed limit or not taxing some income which is taxable or exempting some income not eligible for exemption and so on. So under this situation, when TDS are also Collecting Agent, (though TDS Assessees are performing the same functions as those of AOs), working for and on behalf of the Government, how they can be made liable to pay interest, penalty and made them subject to prosecution attracting imprisonment.

17. Even when the Tax Payer from whose income tax is required to be deducted / collected at source has paid his entire tax dues / liability by way of TDS, Adv. I. Tax, Self-Assessment Tax or on Regular Assessment why the TDS Assessees are made subject to pay interest and penalty and also be subject to the prosecution for the error / lapse / mistake committed by TDS Assessees innocently and / or accidentally.

18. One may possibly argue that all over the world, TDS Provisions do exist on the Tax Statutes of all the countries / governments / nations who levies tax on their citizens / residents and as such what the Central / State Governments in India did wrong for making the similar provisions in her Tax Statutes. Fortunately, the Constitution of India not only Grants but also Guarantees the Fundamental Rights of Equality under Article 14 and of Right against Exploitation under Article 23 to its Citizens which prohibits the State any kind / type of Discrimination and any sort of “Forced Labour”.

The text of Article 14 &23 reads as under: –

Right to Equality

14. The State shall not deny to any person equalitybefore the law or the equal protection of the laws within the territory of India.

Right against Exploitation

23.

(1) Traffic in human beings and beggar and other similar forms of forced labour are prohibited and any contravention of this provision shall be an offence punishable in accordance with law.

(2) Nothing in this article shall prevent the State from imposing compulsory service for public purposes, and in imposing such service the State shall not make any discrimination on grounds only of religion, race, caste or class or any of them.

From the plain reading of the above Articles, it is abundantly clear that the neither the Central nor the State Government/s can deny to any person equality before the law or the equal protection of the laws (in case of TDS Provision, the Government not only DENIES EQUALITY before the Laws but also EQUAL PROTECTION of the LAWS to its Citizens by compelling them to collect the Taxes without any compensation and with the tyrannical force of legal penalty & prosecution when compared to AOs)and / or impose “Compulsory Service” (in case of TDS Provision, the Government do IMPOSE the Compulsory Service on TDS Assessees) unless it is for “Public Purposes”. The Collection of Tax cannot fall under the definition of “Public Purpose” within the meaning of Article 23 (2). In any case, “Free Services” with heavy, onerous and expensive duties and responsibilities cannot be forced / imposed / levied upon the people. The Supreme Court of India had occasion to consider the true meaning of and effect of Article 23 in a judgment in Peoples Union for Democratic Rights vs. Union of India(1982) 3 Supreme Court Cases 235.The observation made by the supreme Court in Para 14 on page 258 is most relevant and which reads as under::

“What Article 23 prohibits is “Forced Labour” that is labour or service which a person is forced to provide and “Force”which would make such labour or service “Forced Labour” may arise in several ways. It may be Physical Force which may compel a person to provide labour or service to another or it may be a force exerted through a Legal Provision such as a Provision for Imprisonment or fine in case the employee fails to provide labour or service.”

So as compared to other Governments in the Rest of the World, the Indian Constitution is Unique inasmuch as it directs the State under Article 14 not to DENY to any person equality before the law or the equal protection of the laws within the territory of India. It also prohibits the Government under Article 23 to extract any kind / sort / type of Forced Labour.

(Republished with Amendments)