2015 (11) TMI 22 - HC - Income Tax

Court upholds constitutionality of Income Tax Act provision

Dr. Amrit Lal Mangal And Others Versus The Union of India And Others

The court upheld the constitutionality of Section 234E of the Income Tax Act, 1961, ruling it as intra vires. It dismissed the petition challenging the ... Levy of late filing fee u/s 234E without issuing SCN - delay in submitted TDS returns - Constitutional validity challenged - prayer has been made for quashing the assessment orders passed under Section 200A read with Section 234E of the Act - Held that:- With reference to the judgments relied upon by learned counsel for the petitioners, suffice it to notice that the principles of law enunciated therein are well recognized but in view of pronouncements of Bombay High Court in Rashmikant Kundalia's case (2015 (2) TMI 412 - BOMBAY HIGH COURT ) and Karnataka High Court in Lakshminirman Bangalore Pvt. Ltd's case (2015 (8) TMI 379 - KARNATAKA HIGH COURT), with which we express our concurrence where Section 234E of the Act has been held to be intra vires, no benefit can be derived by the petitioners from such enunciations. Further, all the pronouncments relied upon by the petitioners are prior to incorporation of Section 234E of the Act by the Finance Act, 2012 with effect from 1.7.2012. In view of the above, we find that the provisions of Section 234E of the Act are neither ultra vires nor unconstitutional and, thus, finding no merit in the instant writ petition, the same is hereby dismissed. - Decided against assessee. Issues Involved:1. Vires of Section 234E of the Income Tax Act, 1961.2. Levy of late filing fee under Section 234E without issuing show cause notice.3. Principles of natural justice and lack of opportunity for hearing.4. Comparison of fee with tax and legislative competence.Issue-wise Detailed Analysis:1. Vires of Section 234E of the Income Tax Act, 1961:The petitioners challenged the constitutionality of Section 234E, arguing it was ultra vires. The court referred to the legislative intent behind Section 234E, which was to ensure timely filing of TDS statements to avoid delays in crediting TDS to deductees and issuing refunds. The court observed that the provision was introduced to address the inefficacy of the previous penalty system and to impose a fee for the additional work burden on the Income Tax Department due to late filings. The court upheld the constitutionality of Section 234E, concurring with the Bombay and Karnataka High Courts, which had previously ruled the provision as intra vires.2. Levy of Late Filing Fee under Section 234E without Issuing Show Cause Notice:The petitioners contended that the fee was levied without issuing a show cause notice or providing an opportunity for a hearing, violating principles of natural justice. The court noted that Section 234E imposes a fee for defaults in furnishing TDS statements, and the fee is automatically calculated based on the delay. The court held that the provision did not require a show cause notice or hearing as the fee was a fixed charge for non-compliance, not a discretionary penalty.3. Principles of Natural Justice and Lack of Opportunity for Hearing:The petitioners argued that the absence of a hearing opportunity before levying the fee violated natural justice principles. The court rejected this argument, stating that the fee under Section 234E is a statutory obligation arising from the delay in filing TDS statements. The court emphasized that the provision's purpose was administrative efficiency and timely tax processing, which justified the automatic levy of the fee without a prior hearing.4. Comparison of Fee with Tax and Legislative Competence:The petitioners claimed that the fee under Section 234E was akin to a tax and could only be levied for rendering services. The court clarified that the fee was not a tax but a charge for the additional administrative burden caused by late filings. The court highlighted that the fee was intended to cover the extra work and potential interest loss due to delayed TDS information. The court also affirmed that the legislature had the competence to enact such a provision, aligning with Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by the authority of law.Conclusion:The court dismissed the writ petition, holding that Section 234E of the Income Tax Act, 1961, is constitutionally valid and intra vires. The court found no merit in the petitioners' arguments, emphasizing the administrative necessity and legislative competence behind the provision. The judgments of the Bombay and Karnataka High Courts, which upheld the vires of Section 234E, were concurred with, reinforcing the provision's validity.