The Bombay High Court has upheld the constitutional validity of Section 234E of the Income-tax which was introduced by the Finance Act, 2012. The said section provides for levy of a fee of INR 200 for every day of default in delivering the Tax Deduction at Source (TDS) statement by a Tax payer

The Challenge 

The challenge to the levy of the fees under Section 234E was on the following basis:

(i) No service rendered by Government for the ‘Fee’ which is levied

It was argued before the Court that no corresponding service to the Taxpayer was rendered, to warrant the collection of the Fees. It was further contended that if the fee is for the ‘dis-service’ or default by the Taxpayer for non furnishing of the TDS statement on time, then the same would be in the nature of penalty and not a fee. Since Section 234E provides for levy of “fee”,   it could be levied only if the Government was providing a service. A tax cannot be levied on the guise of a fee, which is impermissible either in Common Law or under the Taxing statute, and encroached on the rights of life and liberty of common citizens.

It is the Taxpayer was rendering honorary service to the Government by collecting TDS he cannot be made liable for any delay in filing the TDS statement, the petitioner contended.

(ii) The provision was onerous as there was no mechanism to condone delay or appeal against the levy.

The Verdict

The Government Counsel defended the levy of the fee on the ground that delays in furnishing of the TDS statements results in additional work for the Government to update the assessment records of the Taxpayers with the latest data. The Court agreed with this view and also held that there was a valid ‘quid pro quo’ for levy of the Fees inasmuch as the Taxpayer’s delay in furnishing the TDS statement was condoned through the levy. The Court went on to add that the service in relation to a Fee need not be directly identifiable to the payer of the fees.

The absence of an appellate mechanism was also not found to be sufficient reason to strike down the relevant Section, as the Court held that a right of appeal is not a matter of right.

Referring to the various rulings of the Apex Court, the Court held that the judiciary would be slow to strike down economic laws on the grounds of constitutional validity and greater degree of laxity was warranted in favor of the legislature, while deciding on a challenge to the constitutional validity of economic laws, since such laws are based on expert and specialized inputs, which the Courts lack in such fields.

Our Comments

The Court has proceeded on the basis that there was a statutory obligation on the Taxpayer in terms of section 200(3) for timely filing of TDS statements and the levy of Fees under Section 234E was valid since by such a levy, the Taxpayer’s delay/default in compliance with the statutory requirement under section 200(3) stood condoned – and this constituted a valid ‘quid pro quo’ for the levy.

The constitutional validity of requiring the Taxpayer to file the periodic statement under section 200(3) was not under challenge and consequently, the petitioner’s plea that it was rendering a Honorary service to the Government was also not considered in detail by the Bombay High Court.