2017 (1) TMI 1105 - HC - Income Tax

Constitutional validity of Section 234E - late filing of the TDS returns - Period from 2012 to 2015 and post 2015 - The main argument of the petitioner is that being a fee, there is no quid pro quo for the levy - Held that - 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, we 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. As already held in Rashmikant Kundalia (2015 (2) TMI 412 - BOMBAY HIGH COURT ), 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. We do not think that a different view can be taken in the matter. 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. 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 in M/s.Dundlod Shikshan Sansthan & another v. Union of India and others (2015 (9) TMI 807 - 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, we 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.

Issues Involved:
1. Constitutional validity of Section 234E of the Income Tax Act, 1961.
2. Imposition of a fee for late filing of TDS statements.
3. Quid Pro Quo in the context of the fee levied under Section 234E.
4. Availability of an appeal mechanism for the fee imposed under Section 234E.

Detailed Analysis:

1. Constitutional Validity of Section 234E:
Summary:
The petitioners challenged the constitutional validity of Section 234E, arguing that it imposes a mandatory fee for the late filing of TDS statements without providing an opportunity to be heard, which they claimed is arbitrary and violates Articles 14 and 19(1)(g) of the Constitution of India.

Analysis:
The court noted that the primary concern of the petitioners was the mandatory fee imposed by Section 234E for late filing of TDS statements. The court referred to the legislative intent behind the insertion of Section 234E, which was to ensure timely submission of TDS statements to avoid delays in processing income tax returns and issuing refunds. The court observed that the fee under Section 234E is compensatory rather than punitive, aimed at addressing the additional workload on the Income Tax Department due to late submissions. The court upheld the constitutional validity of Section 234E, stating that it does not violate Articles 14 and 19(1)(g) of the Constitution.

2. Imposition of a Fee for Late Filing of TDS Statements:
Summary:
The petitioners argued that the fee imposed under Section 234E is essentially a penalty and should not be levied without providing an opportunity to be heard.

Analysis:
The court distinguished between a fee and a penalty, noting that a fee is compensatory in nature, while a penalty is punitive. The court referred to the explanatory notes to the Finance Act, 2012, which highlighted the need for an effective deterrent against delays in furnishing TDS statements. The court held that the fee under Section 234E is not a penalty but a compensatory charge for the additional work burden on the Income Tax Department due to late submissions. The court emphasized that the fee is levied to ensure timely compliance and is not arbitrary or unreasonable.

3. Quid Pro Quo in the Context of the Fee Levied under Section 234E:
Summary:
The petitioners contended that the fee under Section 234E lacks the element of quid pro quo, as no specific service is rendered to the assessee in return for the fee.

Analysis:
The court referred to various judgments, including the Supreme Court's decision in Dewan Chand Builders and Contractors v. Union of India and Others, which clarified the distinction between a tax and a fee. The court noted that while a fee generally requires an element of quid pro quo, it is not necessary for the benefit to be direct or specific to the payer. The court observed that the timely filing of TDS statements benefits the overall tax administration system, including timely processing of returns and issuance of refunds. The court concluded that there is a reasonable relationship between the fee levied and the service rendered, satisfying the element of quid pro quo.

4. Availability of an Appeal Mechanism for the Fee Imposed under Section 234E:
Summary:
The petitioners argued that the absence of an appeal mechanism for challenging the fee imposed under Section 234E makes the provision unreasonable and arbitrary.

Analysis:
The court noted that the Finance Act, 2015, amended Section 200A to include the computation of the fee under Section 234E and made orders under Section 200A appealable under Section 246A. The court acknowledged that the amendment provided an appellate remedy for orders passed under Section 200A, addressing the petitioners' concern about the lack of an appeal mechanism. The court held that the availability of an appellate remedy further supports the reasonableness and constitutionality of the fee imposed under Section 234E.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of Section 234E of the Income Tax Act, 1961. The court concluded that the fee imposed under Section 234E is compensatory, not punitive, and satisfies the element of quid pro quo. The court also noted that the availability of an appellate remedy under Section 246A addresses the petitioners' concerns about the lack of an appeal mechanism.

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