Bombay HC-Section 234e Income Tax Constitutionally Valid

In a recent judgment, the Bombay High Court has upheld the constitutional validity of section 234E of the Income Tax Act, 1961. It is notable that earlier in April, 2014 while entertaining the same writ petition, the Bombay High Court had granted an interim stay.

Section 234E titled as “Fee for default in furnishing statements” inserted w.e.f. 01-07-2012 provides for a lete
fee of Rs. 200/- per day for delay in furnishing quarterly TDS returns.

However, the constitutional validity of the same has also been challenged in various High Courts (Madhya Pradesh, Odisha, Kerala) in which interim stays has been granted.

Should this judgment be viewed as the fate of all the similar writs pending in various High Courts or there could be a contrary judgment? remained the hot discussion of day.

Detail of the Case:Writ Petition No.771 of 2014 Mr Rashmikant Kundalia and another ... Petitioners   v/s  Union of India and others ... RespondentsCoram:Mohit S. Shah, C.J.& B.P. Colabawalla, j.Judgment Reserved on : 29th January, 2015Judgment Pronounced on : 09th February, 2015

Case Law References Made:Howrah Tax Payers’ Association Vs. The Govt of West Bengal and Anr. Calcutta High Court (2011) 5 CHN 430 : 2010 SCC OnLine Cal 2520Sona Chandi Oal Committee v. State of Maharashtra 3 (2005) SCC 345 Government of Andhra Pradesh and Others versus P. Laxmi Devi (Smt) (2008) 4 SCC 720

Facts of the Case:The petition was filed by Mr Rashmikant Kundalia (Petitioner), a practicing chartered accountant whose clients had received notices under section 200A of the Income Tax Act. The Petitioner, challenged section 234E as ultra vires and violative of Article 14 of the Constitution of India. The prime argument was a “fee” could be levied only when a service was rendered and in the absence thereof, the said section seeks to collect tax in the guise of tax. Also it was argued that the section 234E was extremely onerous on the ground that the Assessing Officer has no power to condone or there are no provisions for appeal against the order. The revenue contended that the delay in filing TDS return causes lot of troubles to the Income Tax Department and hampers the timely processing of income tax returns of assessees seeking credit of TDS and 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. Thus 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.

Important Excerpts from the Judgment:"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."

“……..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.”

“………..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”

“……. 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.”

“ ……..The Court must therefore make every effort to uphold the constitutional validity of a statute, even if it requires giving the statutory provision a strained meaning, or a narrower or wider meaning, than what appears on the face of it. It is only when all efforts to do so fail should the Court declare a statute to be unconstitutional”

“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.”