2015 (2) TMI 412 - HC - Income Tax

Constitutional validity of section 234E challenged - Fee for default in furnishing TDS return/statements - as per assesse 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 - Held that - 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. 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. 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. Thus Section 234E of the Income Tax Act, 1961 does not violate any provision of the Constitution and is therefore intra vires, Constitution of India. - Decided against assessee.

Issues Involved:
1. Constitutional validity of Section 234E of the Income Tax Act, 1961.
2. Nature of the levy under Section 234E - whether it is a fee or a penalty.
3. Whether the provisions of Section 234E are ultra vires Article 14 of the Constitution of India.
4. The absence of a provision for condonation of delay and appeal under Section 234E.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 234E:
The Petitioners challenged the constitutional validity of Section 234E, arguing it was ultra vires and violative of Article 14 of the Constitution of India. They contended that the levy under Section 234E was termed as a "fee" but lacked the requisite element of service, making it unconstitutional. The Court, however, upheld the constitutional validity of Section 234E, emphasizing that the fee was for the additional administrative burden caused by the late filing of TDS statements, not a penalty. The Court referenced established principles that economic regulations should be viewed with greater latitude and judicial restraint, confirming that Section 234E does not violate any constitutional provisions and is intra vires.

2. Nature of the Levy - Fee or Penalty:
The Petitioners argued that the levy under Section 234E was essentially a penalty disguised as a fee, as it did not correspond to any service rendered. The Court rejected this argument, clarifying that the fee was a fixed charge for the extra administrative work the Income Tax Department had to undertake due to the late submission of TDS statements. This additional work included revising assessment orders and paying extra interest on delayed refunds. The Court concluded that the levy was a fee for the privilege of late filing, not a penalty, and thus did not constitute a tax in disguise.

3. Ultra Vires Article 14:
The Petitioners claimed that Section 234E violated Article 14 of the Constitution, which guarantees equality before the law. The Court dismissed this claim, stating that the fee was a reasonable charge for the additional administrative burden caused by the late filing of TDS statements. The Court emphasized that the fee was not punitive but compensatory, addressing the extra work forced upon the Department. The Court also noted that the legislative intent was to ensure timely submission of TDS statements, crucial for the efficient processing of income tax returns and maintaining the credibility of the tax administration system.

4. Absence of Provision for Condonation of Delay and Appeal:
The Petitioners argued that Section 234E was onerous as it did not allow for the condonation of delay or provide an appeal mechanism against arbitrary orders. The Court held that the right to appeal is statutory, and the absence of an appeal provision does not render the section unconstitutional. The Court also pointed out that aggrieved parties could seek redress under Article 226 of the Constitution. The Court found no merit in the argument that the lack of condonation provisions made Section 234E unreasonable, reinforcing that the fee was for the additional administrative burden and not punitive.

Conclusion:
The Court concluded that Section 234E of the Income Tax Act, 1961, is constitutionally valid and does not violate Article 14. The fee levied under this section is compensatory, addressing the additional administrative burden caused by the late filing of TDS statements, and not a penalty. The absence of provisions for condonation of delay and appeal does not make the section onerous or unconstitutional. The Writ Petition was dismissed, and the rule was discharged, with parties bearing their own costs.

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