ORDER
Anup Jairam Bhambhani, J. - The petitioner is an Advocate practising in Delhi. By way of the present petition filed under Article 226 of the Constitution of India, the petitioner impugns the constitutional validity of Section 234E of the Income Tax Act, 1961 (the 'Act') and also seeks quashing of the fee imposed upon the petitioner as an assessee by the tax department and upheld by the Commissioner of Income Tax (Appeals).
2. Section 234E of the Act reads as under:—
3. Section 234E of the Act imposes a per diem 'fee' upon a person for failure to deliver to the prescribed Income Tax Authority or to a person authorized by such authority, a statement relating to deduction of tax at source, after paying the tax so deducted to the credit of the Central Government, within the time prescribed under Section 200(3) or under the proviso to Section 206C(3) of the Act.
4. The petitioner's main contention is that the levy under Section 234E of the Act is incorrectly and illegally described as 'fee' since it is levied mandatorily and automatically, without actually being in the nature of fee as understood in law. It is also the petitioner's case that the fee imposed under Section 234E of the Act is confiscatory, oppressive and violative of Articles 14, 19(1)(g) and 20 of the Constitution of India, inasmuch as the said provision encumbers small business owners or small business employees with crippling amounts of 'fee' which is unreasonable, excessive and arbitrary, apart from being a tool for harassment of bona fide tax payers.
5. The petitioner says that a fee is collected towards providing a service, for which there must be a co-relation between the imposition of an amount and the provision of a benefit. According to the petitioner, the amount imposed under Section 234E of the Act is in the nature of 'penalty' ; and, in law, penalty cannot be imposed in a mandatory and automatic manner, without exercise of discretion and without being in proportion to the gravity of the omission being penalised. The petitioner also contends that penalty cannot be imposed for commission of a mere procedural and unintended lapse, which does not cause any loss nor imposes any financial burden upon the State exchequer, without considering the bona fides of person upon whom the penalty is levied.
6. The petitioner also delineates in the petition certain factual aspects to detail his grievance, which however, are not essential for deciding the main challenge. Shorn of needless factual detail, in essence and substance, the petitioner's case is that imposition of a 'fee' of Rs.200/- for every day of failure or delay in filing a statement relating to tax deducted at source by a deductor, is constitutionally untenable, since for imposing a fee it is necessary that the Government renders a service quid pro quo, which is not the case under Section 234E of the Act. Failing that, the petitioner argues, the sum imposed is not a fee but penalty for failure to submit a statement within the statutory period, which penalty cannot be imposed mandatorily or automatically without addressing issues of diligence, default and bona fides on the deductor's part. It is further the petitioner's contention that the sum imposed under Section 234E is also not a 'tax', since it does not partake of the character of a general financial imposition on all subjects.
7. The petitioner points-out that, for instance, under Section 221 of the Act penalty for default in payment of tax is imposed only after giving the assessee a reasonable opportunity of being heard; and if the assessee proves to the satisfaction of the Assessing Officer that the default was for good and for sufficient reason, no penalty is imposed.
8. In support of his contention, the petitioner cites the judgment rendered by the Supreme Court in Dewan Chand Builders v. Union of India [2012] 1 SCC 101, in which, relying upon its earlier judgment in State of West Bengal v. Kesoram Industries Ltd. [2004] 10 SCC 201 the Supreme Court has explained the distinction between the terms 'tax' and 'fee' in the following words :
"29. …146. ... The terms cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing. However, it also means an assessment or levy. Depending on the context and purpose of levy, cess may not be a tax; it may be a fee or fee as well (sic). It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the services rendered by the fee collected should remain confined to the person from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons 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".
(Kesoram Industries case, para 146, page 332 in SCC report)
9. The petitioner further draws attention to the principle laid down by a Constitution Bench of the Supreme Court in Kewal Krishan Puri v. State of Punjab [1980] 1 SCC 416, as also cited in Dewan Chand Builders and Contractors (supra), to say that in the said case the Supreme Court has held that the element of quid pro quo must exist between the payer of the fee and the special services rendered ; and that in the present case, since no such service is made available by the government to the person making deduction of tax at source, the levy is not fee properly so-called.
10. In relying upon the aforesaid decisions however, the petitioner omits to notice that the Supreme Court has observed in Kewal Krishan Puri's case that though an element of quid pro quo for service rendered was necessary for an imposition to be a 'fee', it may not be possible or even necessary that such element of quid pro quo be established with arithmetic exactitude; and what is required is that, broadly and reasonably, it be established that substantial portion of the amount of 'fee' realised is spent for the special benefit of its payers, with each case to be judged from a reasonable and practical point of view to find the element of quid pro quo.
11. We get our first authoritative insight into the nuanced distinction between 'tax' and 'fee' from the following words of a Constitution Bench of the Supreme Court in Commissioner, Hindu Religious Endowments v. LakshmindraThirthaSwamiar of Sri Shirur Mutt AIR 1954 SC 282 :
'48. If, as we hold, a fee is regarded as a sort of return or consideration for services rendered, it is absolutely necessary that the levy of fees should, on the face of the legislative provision, be co-related to the expenses incurred by the Government in rendering the services. As indicated in article 110 of the Constitution, ordinarily there are two classes of cases where Government imposes 'fees' upon persons. In the first class of cases, the Government simply grants a permission or privilege to a person to do something, which otherwise that person would not be competent to do and extracts fees either heavy or moderate from that person in return for the privilege that is conferred.
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"49. 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. If 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 the general public, it could be counted as fees and not a tax. There is really no generic difference between the tax and fees and as said by Seligman, the taxing power of a State may manifest itself in three different forms known respectively as special assessments, fees and taxes."'
(paras 48, 49 of the report, Emphasis Supplied)
12. While some subsequent judgements of the Supreme Court have pointed-out that certain observations contained in the Lakshmindra Thirtha Swamiar of Shirur Mutt case (supra) may not be very accurate inter alia that the indicia of fee indicated in the Lakshmindra Thirtha Swamiar of Shirur Mutt case (supra) were too technical and rigid and not in tune with the requirement of prevailing social conditions, what was held in the Lakshmindra Thirtha Swamiar of Shirur Mutt case (supra) in relation to the essential difference between tax and fee in theory still remains good law for a student of law. (State of HP v. Shivalik Agro Poly Products [2004] 8 SCC 556 (para 15).
13. A three-judge bench of the Supreme Court in Sreenivasa General Traders v. State of Andhra Pradesh [1983] 4 SCC 353, has held that in subsequent decisions there has been a sea change in the traditional view that an actual quid pro quo must exist for a 'fee' in the following words:
'31. The traditional view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decisions. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit or privilege although the special advantage is secondary to the primary motive of regulation in public interest if the element of revenue for general purpose of the State predominates, the levy becomes a tax. In regard to fees there is, and must always be, correlation between the fee collected and the service intended to be rendered. In determining whether a levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specified area of class; it may be of no consequence that the State may ultimately and indirectly be benefitted by it. The power of any legislature to levy a fee is conditioned by the fact that it must be "by and large" a quid pro quo for the services rendered. However, co-relationship between the levy and the services rendered (sic or) expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be a "reasonable relationship" between the levy of the fee and the services rendered'.
(Emphasis Supplied)
14. In referring to principles laid down by the Supreme Court, the petitioner places an incorrect connotation on what amounts to a 'service' as a quid pro quo for the payment of a fee. Whether a certain benefit or accommodation afforded by the Government against payment of a fee amounts to a 'service' would depend on the fact situation in which such levy is made. Under Section 234E a fee is imposed for delay in furnishing a TDS return in lieu of the benefit or accommodation afforded by the Government to a person who has deducted tax on account of another person but has failed to furnish the tax deducted statement within the time stipulated in the law. The benefit and facility of accepting such tax deducted statement at a belated stage is contingent upon the payer remitting a per diem amount so as to avail the facility of the Government accepting his TDS statement beyond the stipulated period. This, in our opinion, amounts to a benefit, service or facility afforded by the Government to the payer.
15. Our view in this matter is fortified by what a coordinate bench of the Bombay High Court has held in the case of Rashmikant Kundalia v. Union of India [2015] 54 taxmann.com 200/229 Taxman 596/373 ITR 268 where the Court holds that under the Act, there is an obligation on the part of the Income Tax Act to process Income Tax Returns within a specified period from the date of filing, which the Department cannot do until information of the tax deducted at source is furnished by the deductor within the prescribed time. Delay in processing of Income Tax Returns leads to cascading delay in claiming of tax refund, wherever due; and also places a liability on the Government to pay interest for delayed refunds, where due; and a possible cash flow crunch for business entities. Accordingly the Bombay High Court has opined that upon payment of the fee prescribed under Section 234E of the Act, the late filing of a TDS return/statement is regularised, which is but a privilege and a special service to the person who deducts tax but files the TDS return/statement beyond the time prescribed by the Act.
16. In its decision in the case of Howrah Tax Payers' Association v. Government of West Bengal [2010] SCC OnLine Cal 2520 a Division Bench of the Calcutta High Court has also taken a concurrent view in addressing the constitutional validity of Section 32 (2) of the West Bengal Value Added Tax Act, 2003 which imposes a 'late fee' for filing of returns. The Division Bench of the Calcutta High Court holds:
"8. ... The impugned amendment has introduced "late fee" in place of "penalty" which is entirely optional to such a dealer who has failed to furnish return within prescribed period. The dealer is under no compulsion or obligation to furnish return upon payment of 'late fee'. A dealer is still free to choose not to file return after the prescribed period upon payment of 'late fee' and to suffer penal consequences either under section 45(2) or under section 46(1) or under section 46(2) of the Act."
"9. There cannot be any room of doubt that the amended sub-section (2) of section 32 of the Act affords a benefit rather special beneficial right to the dealer to submit return upon payment of 'late fee' even after the prescribed period as rightly commanded (sic, contended) by Mr. Basu and found by the learned Tribunal. A dealer may avoid penal consequences by way of regularising the delay in filing return upon payment of late fee. 'Late Fee' herein can well be distinguished from Tax. The essential characteristic of Tax is compulsion to pay while "fee" is generally defined be a charge for service, tangible or intangible, rendered to individuals by the State or Governmental agency. So far as "fee" is concerned one is absolutely free to get service upon payment of fee. In this impost element of compulsion or legal obligation is absent. Payment of 'late fee' as introduced by the Act I of 2008 cannot be a characterized as Tax as choice is left with the dealer concerned to be attractable by the levy. Needless to mention a fee is payment levied by the state in respect of services performed by it for the benefit of the individuals."
(Emphasis Supplied)
17. The Calcutta High Court has therefore viewed the matter from the additional perspective of whether or not there was compulsion upon the payer in relation to the levy imposed, holding that the essential characteristic of 'tax' is compulsion to pay, whereas in the case of 'fee' the element of compulsion or legal obligation is absent. The Calcutta High Court has further held that the irregular filing of a return is regularised upon payment of a late fee, thereby also obviating penal consequences, which is the special service availed by the payer as a quid pro quo for the payment of late fee.
18. For completeness we may also notice that the constitutional vires of Section 234E of the Act has been upheld by the High Courts of Rajasthan, Karnataka and Kerala.
19. A Division Bench of the Rajasthan High Court has upheld the constitutional validity of Section 234E of the Act in Dunlod Shikshan Sansthan v. Union of India [2015] 63 taxmann.com 243/235 Taxman 446 (Raj) where the Rajasthan High Court has followed the view of the Bombay High Court in Rashmikant Kundalia (supra) and has opined that other things apart, after the amendment brought about by the Finance Act, 2015 with effect from 01.06.2015, the provision of an appeal has also been inserted under Section 246A of the Act against an order under Section 200A (1) or Section 206 CB (1) and, therefore, the argument that Section 234E is onerous also no longer survives.
20. Similarly, a single Judge of the Karnataka High Court in Lakshminirman Bangalore Pvt. Ltd. v. Dy. CIT [2015] 60 taxmann.com 144/234 Taxman 275 also repelled a challenge to the vires of Section 234E of the Act interalia citing the verdict of the Supreme Court in Krishi Upaj Mandi Samiti v. Orient Paper & Industries Ltd. [1995] 1 SCC 655 where, on the issue of the relationship between the levy of fee and services rendered, the Supreme Court has held:
"21. … (6) There is really no generic difference between tax and fee and the taxing power of the State may manifest itself in three different forms, viz., special assessments, fees and taxes. Whether a cess is tax or fee, would depend upon the facts of each case. If in the guise of fee, the legislature imposes a tax it is for the Court on a scrutiny of the scheme of the levy, to determine its real character. In determining whether the levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specific area or classes. It is of no consequence that the State may ultimately and indirectly be benefited by it. The amount of the levy must depend upon the extent of the services sought to be rendered and if they are proportionate, it would be unreasonable to say that since the impost is high it must be a tax. Nor can the method prescribed by the legislature for recovering the levy by itself alter its character. The method is a matter of convenience and though relevant, has to be tested in the light of other relevant circumstances".
21. On this matter, the view of the Kerala High Court is also the same, in that a single Judge of the Kerala High Court in the case of Sree Narayana Guru Smaraka Sangam Upper Primary School v. Union of India [2017] 77 taxmann.com 244/245 Taxman 312 has dismissed a petition challenging the vires of Section 234E of the Act. The Kerala High Court has inter alia proceeded on the rationale that the Income Tax Department has to render extra service due to late filing of a TDS return/statement, in lieu of which the fee under Section 234E is imposed.
22. As evident from the above discussion, the issue raised by the petitioner is long-settled by a consistent line of judicial precedent from several High Courts as well as from the Supreme Court.
23. In fact in its decision rendered in Sona Chandi Oal Committee v. State of Maharashtra [2005] 2 SCC 345, the Supreme Court has held that it is not even necessary to establish that those who pay the fee must receive a direct or special benefit or advantage of services rendered for which the fee is paid; nor does the levy cease to be a fee merely because there is an element of compulsion or excessiveness in it in the following words:
" 22. A three Judge Bench of this Court in BSE Brokers' Forum v. Securities and Exchange Board of India after considering a large number of authorities, has held that much ice has melted in the Himalays after the rendering of the earlier judgments as there was a sea change in the judicial thinking as to the difference between a tax and a fee since then. Placing reliance on the following judgments of this Court in the last 20 years, namely, Sreenivasa General Trades v. State of A.P.,City Corpn. of Calicut v. Thachambalath Sadasivan, Sirsilk Ltd. v. Textiles Committee, Commr. & Secy. to Govt., Commercial Taxes & Religious Endowments Deptt. v. Sree Murugan Financing Corpn., Secy. to Govt. of Madras v. P.R. Sriramulu,Vam Organic Chemicals Ltd. v. State of U.P.,Research Foundation for Science, Technology & Ecology v. Ministry of Agriculture and Secunderabad Hyderabad Hotels Owners' Assn. v. Hyderabad Municipal Corpn. it was held that the traditional concept of quid pro quo in a fee has undergone considerable transformation. So far as the regulatory fee is concerned, the service to be rendered is not a condition precedent and the same does not lose the character of a fee provided the fee so charged is not excessive. It was not necessary that service to be rendered by the collecting authority should be confined to the contributories alone. The levy does not cease to be a fee 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 a direct relation to the actual service rendered by the authority to each individual who obtains the benefit or the service. Quid pro quo in the strict sense was not always a sine qua non for a fee. All that is necessary is that there should be a reasonable relationship between the levy of fee and the services rendered. It was observed that it was not necessary to establish that those who pay the fee must receive direct or special benefit or advantage of the services rendered for which the fee was being paid. It was held that if one who is liable to pay, receives general benefit from the authority levying the fee, the element of service required for collecting the fee is satisfied".
(Emphasis supplied)
24. Aside from the above, it is a well-known principle of interpretation that the Court must lean towards constitutionality of a statutory provision; and if two interpretations are possible, one for and one against constitutionality of a legal provision, Courts invariably choose the one upholding the constitutionality (cf. Govt. of Andhra Pradesh v. P. Laksmi Devi [2008] 4 SCC 720.
25. Accordingly, there is unanimity in the view taken on the matter of constitutionality of Section 234E of the Act across several jurisdictions.
26. While addressing the operation and effect of Section 234E of the Act, it is also necessary to refer to the provisions of Section 271H of the Act which, as extracted below waives the imposition of penalty for delayed filing of TDS return/statement, if a person proves that he has paid the tax deducted and has filed the TDS statement alongwith the fee and interest, before expiry of a period of one year from the time prescribed. Section 271H reads as under:
"Section 271H: Penalty for failure to furnish statements, etc.
27. Upon a conspectus of the above, it is clear that the fee imposed under Section 234E is levied towards regularisation of the delay in filing of a TDS return or statement, since the Income Tax Department has to expend extra effort and resources for processing delayed TDS returns or statements ; and possibly also incurs the additional burden of interest to be paid to the assessee on whose account tax deduction has been made.
28. We further hold that describing the levy under Section 234E as a 'fee' does not invalidate the imposition made. We may also point-out the overarching principle that the manner of description of a levy, in this case, calling the levy made under Section 234E of the Act a 'fee', cannot be the sole basis of judging the true nature or validity of the levy. Section 234E affords a person deducting tax at source the evident benefit of relaxation of timelines for furnishing a statement of the tax so deducted. The fee imposed under Section 234E of the Act is for all intents and purposes a 'late fee' payable for accepting the TDS statement/return at a belated point in time.
29. As a sequisite to the foregoing discussion, we hold that the provisions of Section 234E of the Act imposing a fee for delayed filing of statement of tax deducted at source are not ultravires the provisions of the Constitution.
30. The petition is accordingly dismissed. There shall be no order as to costs.
sunil
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