2019 (1) TMI 604 - HC - Income Tax

Constitutional validity of Section 234E - imposing a fee for delayed filing of statement of tax deducted at source (TDS returns) - whether levy under Section 234E of the Act is incorrectly and illegally described as fee since it is levied mandatorily and automatically, without actually being in the nature of fee as understood in law? - Held that - Fee imposed under Section 234E is levied towards regularisation of the delay in filing of a TDS return or statement, since the Income Tax Department has to expend extra effort and resources for processing delayed TDS returns or statements ; and possibly also incurs the additional burden of interest to be paid to the assessee on whose account tax deduction has been made. Describing the levy under Section 234E as a fee does not invalidate the imposition made. We may also point-out the overarching principle that the manner of description of a levy, in this case, calling the levy made under Section 234E of the Act a fee , cannot be the sole basis of judging the true nature or validity of the levy. Section 234E affords a person deducting tax at source the evident benefit of relaxation of timelines for furnishing a statement of the tax so deducted. The fee imposed under Section 234E of the Act is for all intents and purposes a late fee payable for accepting the TDS statement/return at a belated point in time. As a sequitur to the foregoing discussion, we hold that the provisions of Section 234E of the Act imposing a fee for delayed filing of statement of tax deducted at source are not ultravires the provisions of the Constitution. - Petition dismissed.

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 'penalty'.
3. Relationship between the levy and the services rendered by the government.
4. Whether the levy under Section 234E is confiscatory, oppressive, and violative of Articles 14, 19(1)(g), and 20 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 234E of the Income Tax Act, 1961:
The petitioner challenged the constitutional validity of Section 234E, arguing that the levy described as a 'fee' is actually a penalty, which is confiscatory, oppressive, and violative of Articles 14, 19(1)(g), and 20 of the Constitution of India. The petitioner contended that the fee imposed under Section 234E is unreasonable, excessive, arbitrary, and acts as a tool for harassment of bona fide taxpayers.

2. Nature of the Levy under Section 234E - Whether it is a 'Fee' or 'Penalty':
The petitioner argued that the levy described as a 'fee' under Section 234E is, in essence, a penalty, as it is imposed mandatorily and automatically without discretion and without being proportionate to the gravity of the omission. The petitioner cited various judgments, including Dewan Chand Builders vs. Union of India and Ors., to argue that a fee must have a co-relation with the service provided by the government, which is not the case under Section 234E.

3. Relationship Between the Levy and the Services Rendered by the Government:
The court examined the distinction between 'tax' and 'fee' as elucidated in various Supreme Court judgments, including The Commissioner, Hindu Religious Endowments, Madras vs. Lakshmindra Thirtha Swamiar of Sri Shirur Mutt and Sreenivasa General Traders vs. State of Andhra Pradesh & Ors. The court held that the fee under Section 234E is imposed for the benefit or accommodation afforded by the government to a person who has deducted tax but failed to furnish the tax deducted statement within the stipulated time. The fee regularizes the late filing of TDS returns, which is a service or facility provided by the government.

4. Whether the Levy under Section 234E is Confiscatory, Oppressive, and Violative of Articles 14, 19(1)(g), and 20 of the Constitution of India:
The court referred to judgments from the High Courts of Bombay, Rajasthan, Karnataka, and Kerala, which upheld the constitutional validity of Section 234E. The court noted that the fee under Section 234E is not confiscatory or oppressive, as it provides a benefit to the payer by regularizing the delayed filing of TDS returns. The court also referred to Section 271H of the Act, which waives the imposition of penalty for delayed filing if the tax deducted is paid along with the fee and interest before the expiry of one year from the prescribed time.

Conclusion:
The court concluded that the fee imposed under Section 234E is for regularizing the delay in filing TDS returns and is not a penalty. The description of the levy as a 'fee' does not invalidate its imposition. The court held that Section 234E is not ultra vires the Constitution and dismissed the petition with no order as to costs.

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