TaxTMI 
TaxTMI 
2015 (8) TMI 379
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.... R., Chythanya K.K., S.R.Shivaprakash, Chaitanya V. Mudrabettu, Aravind V. Chavan, T.Suryanarayana, Smt.Lakshmy Iyengar, Ashok A. Kulkarni, Balram R. Rao, Smt.Vani H., Shankar A., learned advocates appearing for petitioners and Sri.K.V.Aravind, learned Senior standing counsel along with Sri.Jeevan J. Neeralagi appearing for respondents. 3. The learned advocates appearing for the petitioners have contended as under: (a) Levy or impost is regarded as a written or consideration for services rendered and in the instant case the Government is not providing any service to the deductors and as such levy of fee under Section 234E of the Act is invalid. (b) The imposition of a 'fee' on tax deductors without any corresponding service being rendered to them is wholly unjustified and leads to arbitrary and high pitched demands being raised under the Act, more so without an opportunity of hearing being extended to the deductors. (c) For levy of 'fee' services should be rendered by the State and it is quidpro- quo. In the absence of any services being rendered by the State to demand 'fee' or levy of such fee would be without authority of law. There being no rational o....
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....s under the garb of a 'fee'. (k) When various causes for delay in filing of the statements of taxes deducted at source would be there, if same is not taken into account, it would lead to unreasonable and unwarranted hardship to the deductors and therefore imposition of fee without affording an opportunity of hearing to explain the cause for such delay has to be struck down as being opposed to principles of natural justice. (l) The Department itself is not clear as to whether it is a 'fee' or a 'penalty' or what service is being rendered and if so, to whom. But on the other hand, the objects or reasons for introducing the impugned Section 234E would indicate it is qualitatively imposition of penalty. (m) When there is a civil obligation and consequences which flow from non compliance entails such person of being extended an opportunity to explain. In the absence of such in built provision being available the provision would be against principles of natural justice. (n) On the principles of proportionality the impugned provision has to be struck down since fee is not levied on quantum of income but on the number of days delay. (o) The scheme of Section 234E appea....
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.... of money involved and it is based on the number of days delay in filing the TDS statements. They would elaborate their submissions by contending that tax deduction at source (TDS) is one of the modes of collection of taxes which after deduction by the deductor, same is required to be credited to the account of the Central Government within a prescribed period and thereby the deductee gets the credit of the amount so deducted against his tax liability and same can be taken note off by the jurisdictional assessing Officer of deductee only on the information that would be furnished by the deductor to the Department. It is contended that the significance of TDS lies in the fact that it prepones the collection of tax to ensure regular source of revenue and wider base for tax. 5. It is contended that under the Act there is an obligation on the Department to process the income tax returns filed by the assessee within specified period and such processing can be done only when the information relating to the details of tax deducted is furnished in the statement filed by the deductor within the prescribed time. Such timely process is the bedrock of efficient tax administration system and i....
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.... case laws relied upon by the learned advocates appearing for the parties, this Court is of the considered view that only issue which requires to be examined is: "Whether Section 234E of the Income Tax Act, 1961 inserted by Finance Act, 2012 is to be struck down or its validity is to be upheld? PREFACE: 9. The Courts normally lean against a construction which reduces the statute to a futility. The maxim "ut res magis valeat quam pereat" - a liberal construction should be put upon written instruments, so as to uphold them, if possible, and carry into effect the intention. It is on application of this principle that Courts while pronouncing upon the constitutionality of a statute start with a presumption in favour of constitutionality and prefer a construction which keeps the statute within the competence of the legislature. Lord Denning stated the principle in FAWCETT PROPERTIES VS BUCKINGHAM COUNTY COUNCIL reported in (1960) 3 All England Report 503 to the following effect: "But when a statute has some meaning even though it is obscure or several meanings, even though it is little to choose between them, the Courts have to say what meaning the statute is to bear, rather than re....
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....hether by way of relaxation of any of the provisions of Sections [115P, 115S, 115WD, 115WE,115WF, 115WG, 115WH, 115WJ, 115WK,] [139,] 143, 144, 147, 148, 154, 155 [158BFA], [sub-section (1A) of Section 201, Sections 210, 211, 234A, 234B, 234C], 271 and 273 or otherwise), general or special orders in respect of any class of incomes [or fringe benefits] or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information; Duty of person deducting tax.- 200. (1) Any person deducting any sum in accordance with [the foregoing provisions of this Chapter] shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. (2) Any person being an employer, referred to in sub-section (1A) of Section 192 shall pay....
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.... statement within the time prescribed in sub-section (3) of Section 200 or the proviso to subsection (3) of Section 206C ; or (b)furnishes incorrect information in the statement which is required to be delivered or cause to be delivered under sub-section (3) of Section 200 or the proviso to sub-section (3) of Section 206C. (2) The penalty referred to in subsection (1) shall be a sum which shall not be less than ten thousand rupees but which may extend to one lakh rupees. (3) Notwithstanding anything contained in the foregoing provisions of this Section, no penalty shall be levied for the failure referred to in clause (a) of sub-section (1), if the person proves that after paying tax deducted or collected along with the fee and interest, if any, to the credit of the Central Government, he had delivered or cause to be delivered the statement referred to in sub-section (3) of Section 200 or the proviso to sub-section (3) of Section 206C before the expiry of a period of one year from the time prescribed for delivering or causing to be delivered such statement. (4) The provisions of this section shall apply to a statement referred to in subsection (3) of Section 200 or the proviso t....
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.... (ii) Form No. 26Q in respect of all other deductees. 2) Statements referred to in sub-rule (1) for the quarter of the financial year ending with the date specified in column (2) of the Table below shall be furnished by- (i) the due date specified in the corresponding entry in column (3) of the said Table, if the deductor is an office of Government; and (ii) the due date specified in the corresponding entry in column (4) of the said Table, if the deductor is a person other than the person referred to in clause (i) 3) (i) The statements referred to in subrule (1) may be furnished in any of the following manners, namely:- (a) furnishing the statement in paper form; (b) furnishing the statement electronically under digital signature in accordance with the procedures, formats and standards specified under sub-rule (5); (c) furnishing the statement electronically along with the verification of the statement in Form 27A or verified through an electronic process in accordance with the procedures, formats and standards specified under sub-rule (5). (ii) Where,- (a) the deductor is an office of the Government; or (b) the deductor is the principal officer of a company; or (c) the....
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....relation to furnishing and verification of the statements or claim for refund in Form 26B in the manner so specified.] (6) Where a statement of tax deducted at source is to be furnished for tax deducted before the 1st day of April, 2010, the provisions of this rule and rule 37A shall apply as they stood immediately before their substitution or omission by the Income-tax (Sixth Amendment) Rules, 2010]. ANALYSIS OF STATUTORY PROVISIONS: 12. Section 4 of the Act is the charging Section. The scheme of Section 200 of the Act would indicate that the duty is cast on the person deducting the tax to pay within the prescribed time the sum so deducted to the credit of the Central Government. When the tax has been deducted at source, it does not lie at the risk of the revenue and unless the tax so deducted is deposited or paid, the person who has deducted, continues to be responsible. Sub-section (3) of Section 200 would indicate that a person deducting any sum is required to deliver to the prescribed authority such statement in the form verified by setting forth the particulars within the time prescribed. Rule 31A of the Rules prescribe the various Forms under which quarterly statements ar....
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....uired in the respective section. If the statement is not furnished within the time prescribed, deductor is liable to pay, by way of fee, a sum of Rs. 200/- for every day during which the failure continues and such fee would not exceed the tax deductible or collectable as per Section 234E of the Act. DISCUSSION AND CONCLUSION: 13. The main thrust of the arguments addressed by the learned advocates appearing on behalf of the petitioners as noticed hereinabove is that the levy of fee under Section 234E for default in furnishing the statements is in the guise of penalty and there is no nexus to the services rendered by the department. In order to examine as to whether the fee charged under Section 234E is in fact fee or penalty or compensatory tax, it could be seen from Section 199 of the Act that any deduction made in accordance with Section 200 to Section 206 would be treated as a payment of tax on behalf of the person from whose income the deduction was made. An assessee while computing his income for being assessed under self assessment as provided under Section 140A will construe the deductions made on his behalf as a component in his return of income for claiming deduction in t....
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....9;ble Apex Court in the case of THE COMMISSIONER, HINDU RELIGIOUS ENDOWMENTS, MADRAS V. SRI LAKSHMINDRA THIRTHA SWAMIAR OF SRI SHIRUR MUTT, reported in AIR 1954 SC 282 has succinctly laid down the law on this issue having explained the distinction of these levies. It has been held that a tax is a compulsory extraction of money by public authority for public purposes enforceable by law and is not payment for services rendered. A fee is generally defined to be a charge for a special service rendered to individuals by some Governmental agencies. The said Judgment came to be followed by the Hon'ble Apex Court in KRISHI UPAJ MANDI SAMITI &OTHERS VS. ORIENT PAPER & INDUSTRIES LTD., reported in (1995) 1 SCC 655 and held that the power of any legislature to levy a fee is conditioned by the fact that it must be by and large quid pro quo for the services rendered. However, co-relationship between the levy and services rendered is one of general character and not of mathematical exactitude. It came to be held by the Hon'ble Apex Court, all that is necessary is that there should be relationship between levy of the fees and services rendered. After analyzing the various Judgments on thi....
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....sts at all, is an incidental result of State action. A fee is a sort of return or consideration for services rendered and hence it is primarily necessary that the levy of fee should on the face of the legislative provision be correlated to the expenses incurred by Government in rendering the services. As indicated in Article 110(2) of the Constitution ordinarily there are two classes of cases where Government imposes fees upon persons. The first is of grant of permission or privilege and the second for services rendered. In the first class of cases, the cost incurred by the Government for granting of permission or privilege may be very small and the amount of imposition levied is based not necessarily upon the costs incurred by the Government but upon the benefit that the individual receives. In such cases, the tax element is predominant. If the money paid by privilege holders goes entirely for the expenses of matters of general public utility, the fee cannot but be regarded as a tax. In the other class of cases, the Government does some positive work for the benefit of persons and the money is taken as the return for the work done or services rendered. (6)There is really no gener....
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....ry tax. It is enough if there is a broad, reasonable and general corelationship between the levy and the resultant benefit to the class of people on which the fee is levied though no single payer of the fee receives direct or personal benefit from those services. It is immaterial that the general public may also be benefited from some of the services if the primary service intended is for the payers of the fees. (8) Absence of uniformity is not a criterion on which alone it can be said that the levy is of the nature of a tax. The legislature has power to enact appropriate retrospective legislation declaring levies as fees by denuding them of the characteristics of tax. (9)It is not necessary that the amount of fees collected by the Government should be kept separately. In view of the provisions of Article 266, all amounts received by the Governments have to be credited to the Consolidated Funds and to the public accounts of the respective Governments." 15. As to whether the 'fee' are the amounts paid for a privilege and or not an obligation, but the payment is voluntarily came to be examined by the Hon'ble Apex Court in SOUTHERN PHARMACEUTICALS & CHEMICALS, TRICHUR &....
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....has held to the following effect: "9. What do we learn from these precedents? We learn that there is no generic difference between a tax and a fee, though broadly a tax is a compulsory exaction as part of a common burden, without promise of any special advantages to classes of taxpayers whereas a fee is a payment for services rendered, benefit provided or privilege conferred'. Compulsion is not the hall-mark of the distinction between a tax and a fee. That the money collected does not go into a separate fund but goes into the consolidated fund does not also necessarily make a levy a tax. Though a fee must have relation to the services rendered, or the advantages conferred, such relation need not be direct, a mere causal relation may be enough. Further, neither the incidence of the fee nor the service rendered need be uniform. That others besides those paying the fees are also benefited does not detract from the character of the fee. In fact the special benefit or advantage to the payers of the fees may even be secondary as compared with the primary motive of regulation in the public interest. Nor is the Court to assume the role of a cost accountant. It is neither necessary nor....
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...., Hindu Religious & Charitable Endowments Department; Southern Pharmaceuticals & Chemicals, Trichur & Ors. etc. v. State of Kerala & Ors. etc., and Municipal Corporation of Delhi & Ors., v. Mohd. Yasin, 32. There is no generic difference between a tax and a fee. Both are compulsory exactions of money by public authorities. Compulsion lies in the fact that payment is enforceable by law against a person inspite of his unwillingness or want of consent. A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realized that merely because the collections for the services rendered or grant of a privilege or licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive. Presumably, the attention of the Court in the Shirur Mutt case was not drawn to Art. 266 of the Constitution. The Constitution nowhere con....
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....ry exactions of money by public authorities. Compulsion lies in the fact that payment is enforceable by law against a person in spite of his unwillingness or want of consent. A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realized that merely because the collections for the services rendered or grant of a privilege of licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive. It is also increasingly realized that the element of quid pro quo in the strict sense is not a sine quo non for a fee." 9.1. It is necessary to mention here that the observation made in para 47 of the judgment in the Shirur Mutt case that: (SCR p. 1043) "(i)f the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of ....
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.... filing. If for want of details such return of income not being processed or assessment order not being framed or would be stalled or in other words the return of income filed by an assessee on whose behalf the tax has already been deducted by the deductor is not furnished within the prescribed time by such deductor, it would consequently have cascading effect namely, it would stall the processing of the return of income filed by the deductee. In a given case, there might be instances of where the assessee would be entitled to refund and on account of delay occurring due to non delivery of TDS statements by the deductors, it would result in delay in extending the credit of TDS to the person on whose behalf tax is deducted and consequently it would result in delayed issuance of refunds to the deductee or raising of consequential demands against the deductee which otherwise would not have been raised. In this lengthy and unwarranted process it may erode the confidence reposed by the tax payer on the department. Last but not the least, it would result in financial burden to the Government namely on account of late payment of refund interest is to be paid on such refunds and it would a....
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....e preferred. Every effort would be made by the Courts to uphold the constitutional validity of the statute even if it requires giving a constrained construction or narrowing down its scope. The Courts would not sit in arm chair of the legislature to examine as to whether the impugned legislation in its opinion is wise or unwise. Further the statutes relating to economic activities of the State would be viewed with greater latitude than other laws, inasmuch as the Courts do not possess the economic expertise or has administrative expertise and as such judicial restraint is exhibited particularly when economic legislation is under challenge. These facets have been extensively dealt with by the Hon'ble Supreme Court in the case of GOVERNMENT OF ANDHRA PRADESH AND OTHERS VS P.LAXMI DEVI SMT. reported in (2008) 4 SCC 720 and held as under: "46. In our opinion, there is one and only one ground for declaring an Act of the legislature (or a provision in the Act) to be invalid, and that is if it clearly violates some provision of the Constitution in so evident a manner as to leave no manner of doubt. This violation can, of course, be in different ways, e.g. if a State legislature makes....