THE issue before the Bench is - Whether any delay in furnishing TDS statements would consequently have cascading effect and would stall the processing of the return of income filed by the deductee. YES is the answer.
Facts of the case
The assessees under the present petition had challenged the constitutional validity of Section 234E contending it to be ultra vires of Constitution of India and seeking declaration that under the newly inserted Section 234E, fee could be levied only after affording the assessee a reasonable opportunity of hearing and for consequential relief of quashing the intimations whereunder fee had been levied u/s 234E for late filing of TDS statements.
Having heard the parties, the High Court held that,
++ 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. A statute is designed to be workable, and the interpretation thereof by the Courts should be to secure that object, unless crucial omission or clear direction makes that end unattainable. Therefore, the Courts would reject that construction which will defeat the plain intention of the legislature even though there may be some inexactitude in the language and if the choice is between two interpretations the Courts would accept the bolder construction, based on the view that the Parliament would legislate only for the purpose of bringing about an effective result rather than accepting the narrower view fail to achieve the manifest purpose of legislation or in other words a construction which would reduce the legislation to futility would normally would not be eschewed. Thus, the purposive interpretation will have to be taken note of while examining the legislative competence of a statute or a provision in a statute when the same is under challenge. Keeping the above principles in mind, the challenge to the vires of Section 234E in these petitions is required to be examined;
++ the scheme of Section 200 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. Section 200(3) 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 prescribe the various Forms under which quarterly statements are required to be delivered or cause to be delivered by the deductor in accordance with Section 200(3) to the Director General of Income Tax or the person authorised by him. Section 200A inserted by Finance Act 2/2009 w.e.f A.Y 2011-12 is an enabling provision necessitated by the centralized electronic processing system consequent on mandatory e-filing of return. Section 201 spells out the consequences which would follow the assessee, who fails to deduct tax and deposit the same within the time permissible under the statute. Section 202 makes it clear that the power to recover tax by deduction of tax at source under the foregoing provisions of Chapter XVII is in addition to and without prejudice to any other mode of recovery provided in the Act. Section 203 makes it obligatory on the person deducting tax to issue a certificate to the person from whom the tax has been deducted. Section 203A provides that it is obligatory on the part of a person who is liable for tax deduction at source to get this number within the prescribed time and it is also obligatory for such person to quote this number in all challans for payment of any sum under Section 200, all certificates under Section 203 and in all returns filed under Sections 206, 206A and 206B, besides any other documents which may be included for this purpose. Section 203AA provides that prescribed Income Tax Authority or the person authorised by such authority should prepare and deliver a statement containing the details of tax deducted or paid and such other prescribed particulars on or after 1st Apr, 2008 to every person from whose income, tax has been deducted or in respect of whose income, tax has been paid. 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;
++ the main thrust of the arguments addressed by the advocates appearing on behalf of the assessees is that the levy of fee u/s 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 u/s 234E is in fact fee or penalty or compensatory tax, it could be seen from Section 199 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 u/s 140A will construe the deductions made on his behalf as a component in his return for claiming deduction in the payment of tax. A bare perusal of Section 244A would indicate that where refund of any amount becomes due to the assessee under the Act, such assessee would be entitled to receive in addition to the amount of refund of tax, simple interest at the rate of one-half percent for every month or part of a month comprised in the period from the 1st day of April of the A.Y to the date on which refund is granted as indicated in sub-section(1)(a) of the Act. A bare perusal of Section 271H which came to be inserted by Finance Act, 2012 w.e.f 01.07.2012 would indicate it provides for levy of penalty for failure to furnish statements of tax deducted at source u/s 200(3) or under proviso to Section 206C or for furnishing incorrect information. Section 273B indicates that no penalty shall be imposable on the person or the assessee for any failure referred to in the said provision if he proves that there was reasonable cause for such failure. Section 273B has also been amended by adding Section 271H and as already noticed u/s 271H(2)(k) penalty can be imposed for failure to furnish statement within prescribed time. However, by incorporating Section 271H in Section 273B, it would indicate that penalty need not be imposed u/s 271H if reasonable cause is shown. The contention of the assessee is that there is no similar provision in the impugned provision namely Section 234E and as such it takes away the valuable right of the assessee. The said contention does not hold water inasmuch as Section 119(2)(a) enables the Board to issue general or special orders in respect of any class of incomes or class of cases from time to time, which includes sub-section(1A) of Section 201 and as such no hardship would be caused to the assessees. As such contention raised in this regard cannot be accepted;
++ now turning the attention of this court to the issue regarding the construction of the levy of fee contemplated under the impugned provision namely as to whether it is in disguise a 'tax' or a 'fee simplicitor' or it is 'compensatory tax', it requires to be noticed that tax is a compulsory extraction of money by the Government and fee is an amount received towards expenditure for rendering the service. The Apex Court in the case of THE COMMISSIONER, HINDU RELIGIOUS ENDOWMENTS, MADRAS V. SRI LAKSHMINDRA THIRTHA SWAMIAR OF SRI SHIRUR MUTT, 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 Apex Court in KRISHI UPAJ MANDI SAMITI &OTHERS VS. ORIENT PAPER & INDUSTRIES LTD., 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 Apex Court, all that is necessary is that there should be relationship between levy of the fees and services rendered. The Apex Court in JINDAL STAINLESS STEEL AND ANR VS STATE OF HARYANA AND OTHERS while laying down the parameters of the judicially evolved concept of 'compensatory tax' vis-a-vis Article 301 has explained the difference between a tax, a fee and a compensatory tax;
++ there cannot be any dispute to the fact that assessee is required to file e-returns to Central Processing Centre for processing of statements of tax deducted at source vide Section 200A, which provision is in para materia with Section 143(1). While processing the return u/s 143(1)(a) no personal hearing is provided to an assessee and as such the same is also not provided u/s 200A. Thus, the doctrine of principles of natural justice is given a go by under impugned provision or its violation thereof would not be a ground available to the assessees to challenge the impugned provision on this ground. Hence, contention raised in this regard is without merit and stands rejected. A person responsible for deduction of tax namely deductor is required to furnish periodical statements containing the details of deduction of tax within the prescribed due date. Any delay in furnishing TDS statements 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. It also requires to be noticed that Division Bench of High Court of Judicature at Mumbai in the case of RASHMIKANTH KUNDALIA AND ANOTHER VS UNION OF INDIA AND OTHERS had an occasion to examine the constitutional validity of Section 234E and while upholding its validity and arriving at a conclusion that it is intra vires of the Constitution has opined that:
["....We are therefore clearly of the view that the fee sought to be levied u/s 234E is not in the guise of a tax that is sought to be levied on the deductor. We also do not find the provisions of Section 234E as being onerous on the ground that the Section does not empower the AO to condone the delay in late filing of the TDS return/statements, or that no appeal is provided for from an arbitrary order passed under Section 234E. 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, as the case may be. We therefore cannot agree with the argument of the assessees that simply because no remedy of appeal is provided for, the provisions of Section 234E are onerous...."]
++ this Court is in complete agreement with the view expressed by Mumbai High Court and as such contention of the assessees cannot be accepted for this reason also. This Court in exercise power vested under Article 226 of the Constitution can declare a statute or a provision in the statute as unconstitutional and there cannot be any dispute with regard to this proposition. However, such power would be exercised where it is clear that impugned Act or provision is beyond its legislative competence or violates the provisions of the Constitution of India. Where two views are possible, one making the statute constitutional and the other making it unconstitutional the former would prevail or would be 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. Thus, viewed from any angle it cannot be held that Section 234E of the I-T Act suffers from any vices for being declared to be ultra vires of the Constitution.