TaxTMI 
TaxTMI 
2017 (1) TMI 1105
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd non-teaching staff of the school after Deducting Tax at Source (TDS) and the amount so collected is credited to the Income Tax Department. The petitioner has also been allotted with a number known as Tax Deduction and Collection Account Number (TAN). In terms of Section 200(3) of the Act, quarterly statement of TDS has to be filed in Form 24Q in respect of the salary for the corresponding quarter ending June/ September/ December/ March of every year. Petitioner submits that in respect of the quarter ending September 2012 and December 2012, TDS was collected and remitted in time. However, the statement in Form 24Q in respect of the 2nd and 3rd quarter was not filed in time. The due date for filing statement for the 2nd quarter was 15th October and the 3rd quarter was 15th January. The statement is to be filed online through the National Securities Depository Ltd. (NSDL). Even if the statements are made ready for uploading, it can be done only at the TIN Facilitation Centres (TFC) set up by NSDL and cannot be done by an individual or entity. The fee for e-filing of the statement and fee for other services rendered are paid by the deductors. Petitioner submits that on account of va....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 221 of the Act for committing default in remitting the TDS or if there is delay in remitting without good and sufficient reasons. Therefore, when substantial provisions have already been incorporated to ensure payment of TDS in time, investing powers on the income tax authorities to levy fee for the delay in filing the statement without an opportunity to be heard is illegal. 5. Other writ petitions also concern challenge to the aforesaid provisions and therefore I am not repeating on the facts of each case. 6. Heard the learned counsel for the petitioners and the learned standing counsel on behalf of the respondents. 7. Before proceedings further, it would be useful to quote Section 234E, which reads as under:- "(1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub section (3) of section 200 or the proviso to sub- section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues. (2) The amount of fee referred to in sub section (1) shall not exceed the amount of tax de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r incorrect information etc., it is indicated that "as per the existing provision of the Income Tax Act, a deductor is required to furnish a periodical TDS statement (quarterly) containing the details of deduction of tax made during the quarter by the prescribed due date. A substantial number of the deductors are not furnishing their TDS statement within the prescribed due date. Delay in furnishing the TDS statement results in delay in granting of credit of TDS to the deductee and consequently results into delay in issue of refunds to the deductee tax payers or raising of infructuous demand against the deductee tax payers." Further it is indicated that under the existing provisions of Section 272A of the Act, only a penalty is levied for the delay in furnishing TDS statement. However, no penalty is specified for furnishing incorrect information in the statement. Therefore, it is observed that the provision under Section 272A is not proved to be effective in reducing or eliminating defaults relating to late furnishing of TDS statement and it is in order to provide effective deterrence against delay in furnishing of TDS statement, the proposal has been made. The submission of the lea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... falls for consideration is whether the levy imposed by the impugned Act amounts to a fee relatable to Entry 23 read with Entry 66 in List II. Before we deal with this question it is necessary to consider the difference between the concept of tax and that of a fee. The neat and terse definition of tax which has been given by Latham, C. J., in Matthews v. Chicory Marketing Board, (1938) 60 CLR 263 at p. 276, is often as a classic on this subject. "A tax", said Latham, C. J., "is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered". In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific service....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court." "13. In Attorney-General for British Columbia v. Esquimalt and Nanaimo Ry. Co., 1950 AC 87 the Privy Council had to deal with the validity of forest protection impost levied by the relevant section of the Forest Act R.S.B.C. 1936. The lands in question were statutorily exempted from taxation, and it was urged against the validity of the impost that the levy of the said impost was not a service charge but a tax; and since it contravened the exemption from taxation granted to the land it was invalid. This plea was upheld by the Privy Council. The Privy Council did consider two circumstances which were relevant; the first that the levy was on a defined class of interested individuals, and the second that the fund raised did not fall into the general mass of the proceeds of taxation but was applicable for a special and limited purpose. It was conceded that these considerations were relevant but the Privy Council thought that the weight to be attached to them should not be exaggerated. In appreciating the weight of the said relevant circumstances the Privy Council was impressed by the fact that the lands in question formed an important part of the national wealth of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onfined to the person from whom the fee has been collected. Viability of indirect benefit and general nexus between the person bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged. It was therefore held that the true test to determine characteristics of levy delineating tax from fee is the primary object of the levy and the essential purpose intended to achieve. In Dewan Chand Builders (supra) it was held that what is collected as a cess is a fee and not tax. However, the said fund is set apart and appropriated specifically for the performance of specified purpose. It is not merged in the public revenue for the benefit of general public and as such the nexus between the cess and the purpose of which it is levied gets established satisfying the element of Quid Pro Quo in the Scheme. Further, the Apex court held at para 33 as under:- "33. A Constitution Bench of this Court in Kewal Krishan Puri v. State of Punjab, while dealing with provisions of the Punjab Agricultural Produce Markets Act, 1961, held that the element of quid pro quo must exist between the payer of the fee and the special ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t prevailing in neighbouring States, there is no requirement of paying registration fee at the time of renewal of registration every year and, therefore, there is no basis for charging registration fee at the time of renewal, especially when registration is automatic." "9. Now we will consider the nature of the services said to have rendered by the State for levying registration fees. It is contended that check posts are established to assist the assessees. Establishment of check posts is for checking whether tax is evaded. It is part of the sales tax collection machinery. It cannot be stated that by establishing check post service is done to the assessees. It is further submitted that declaration forms and various other forms, records etc. are supplied by the Department. The declaration forms etc. are supplied on payment of a price. The assessees are doing a service to the Department by collecting tax from the customers and merely because return forms are given to submit return, it cannot be stated that a service is rendered as quid pro quo for paying registration fee. Thirdly, it is submitted that administrative expenses are incurred and it is on the increase every year.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m the authority levying the fees as the element of service. In that case when fee was charged for use of land or premises for soaking of coconut husks, it was found that the Corporation by rendering scavenging services, carrying on operations for cleanliness of the city and making habitation tolerable, despite pollutions created by soaking coconut husk. Persons paying the fees also getting general services among other users of the premises. In M/s. Kishan Lal Lakshmi Chand & Ors. v. State of Haryana & Ors. (JT 1993 (4) SC 426) the Apex Court held as follows:" "... The broad co-relationship between the imposition of fee and the nature of the service rendered to the entire textiles industry satisfied the test of quid pro quo, though no specific service was rendered to the payer of the fee......" But in all other cases sited before us including Kewal Krishan Puri v. State of Punjab ((1980) 1 SCC 416) etc. it was only held that eventhough an arithmetical co-relationship is not necessary, by and large, there should be quid pro quo." "11. We have already seen that actually no services are rendered by the Government in return for charging registration fees. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cence as yearwise registration can be given. State also will be free to charge nominal fees for covering up expenses, if any, incurred for renewal of registration." 12. It is further submitted that as per the Explanatory Notes to the Finance Act, 2015 issued by the Government of India, Ministry of Finance, Department of Revenue (Central Board of Direct Taxes) issued on 27.11.2015, an attempt had been made to rationalise the provisions relating to TDS and Tax Collection at Source. Paras 47.1, 47.2 and 47.3 are relevant, which reads as under:- "47.1 Under Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rate if the payment exceeds the specified threshold. The person deducting tax (the deductor) is required to file a quarterly Tax Deduction at Source (TDS) statement containing the details of deduction of tax made during the quarter by the prescribed due date. Similarly, under chapter XVII-BB of the Income-tax Act, a person is required to collect tax on certain specified receipts at the specified rates. The person collecting tax ('the Collector') is also required to file a quarterly Tax Collectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt paid otherwise by way of tax or interest or fee; (e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d); and (f) the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor: Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed. Explanation.--For the purposes of this sub-section, "an incorrect claim apparent from any information in the statement" shall mean a claim, on the basis of an entry, in the statement-- (i) of an item, which is inconsistent with another entry of the same or some other item in such statement; (ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act. (2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ined construction or narrowing down its scope vide Rt. Rev. Msgr. Mark Netto v. State of Kerala SCC para 6 : AIR para 6. Also, it is none of the concern of the court whether the legislation in its opinion is wise or unwise." "51. In our opinion the legislature must be given freedom to do experimentations in exercising its powers, provided of course it does not clearly and flagrantly violate its constitutional limits." "68. The court must, therefore, make every effort to uphold the constitutional validity of a statute, even if that requires giving the statutory provision a strained meaning, or 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." 15. Reliance is also placed to the judgment of Rajasthan High Court in M/s.Dundlod Shikshan Sansthan & another v. Union of India and others (Writ Petition No.8672/2014 ) wherein the Jaipur Bench of the High Court had occasion to consider the constitutional validity of Section 243E of the Act. It has held at paras 4 to 8 are under:- "4. On the question of filing of appeal, for which there was no provis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such a law is to impede the activity, then the law is a restriction under Article 301. However, if the law enacted is to enforce discipline or conduct under which the trade has to perform or if the payment is for regulation of conditions or incidents of trade or manufacture then the levy is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of Articles 301, 302 and 304... 7. The constitutional validity of the statutory provision is not amenable to challenged on the ground that the performance insisted upon by the statutory provision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s cast on the department to process the said return of income within the specified period from the date of 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 T DS 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 G....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was sought to be levied under the said section was a "fee" which necessarily could be levied only for a service that was rendered, failing which the levy of such a fee was unconstitutional. It was argued that a "fee" is known in the commercial and legal world to be a recompense of some service or some special service performed, and it cannot be collected for any dis-service or default. The learned counsel for the Petitioners submitted that by using the word "fee", the Legislature has not stated what is the nature of service being provided for filing the return belatedly. The learned counsel submitted that compensation for dis-service was essentially in the nature of a penalty, and since the Legislature had categorically termed the levy under section 234E of the Act as a "fee", it necessarily could be levied only in the event the Government was providing any service or any special service. In the absence thereof, the said section seeks to collect tax in the guise of a fee, was the submission. This, according to the learned counsel, was impermissible either in common law or under the taxing statute, and encroached on the rights of life and liberty of the citizens. In the instant cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terly statements containing the details of deduction of tax made during the quarter, by the prescribed due date. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been considered by three High Courts and the judgments have already been relied upon by the counsel appearing for the respondents. The question is whether a different view is possible to be taken from the view which has already been upheld by the two High Courts. 21. The main argument of the petitioner is that being a fee, there is no quid pro quo for the levy. Counter affidavit is filed by the 3rd respondent in W.P.(C) No.10894 of 2014 which was adopted in the other cases. Paras 3 to 5 are relevant, which read as under:- "3. In many cases, due to late submission of TDS returns/statements, the Department has to revise the assessment order already passed in the case of deductees for determining their correct tax liability. Moreover, in the case of an income tax return having a refund claim, the Department has to pay extra interest due to delay in determining the correct amount of refund for want of information of tax deducted, which in turn results in delay of issue of refund. 4. The legislature took note of the fact that a substantial number of deductors were not furnishing their TDS returns/statements within the prescribed time, which has a cascading effect a....