Advocate Narayan Jain has argued that the newly inserted section 234F, which levies a fee for late filing of return, is harsh, oppressive, unreasonable and arbitrary. He has pointed out that so-called “fee” is really a “penalty” in disguise and that it results in a violation of the principles of natural justice. He has given convincing reasons in support of his contention
1. INTRODUCTION :
Section 234F, inserted through the Finance Act, 2017 with effect from assessment year 2018-19 is being debated and has been recently challenged in Madras High the constitutionality of Section 234F of the Income Tax Act, 1961, which prescribes a fee for delay in filing IT Returns. Let us analyse various dimensions and see whether imposition of Late Fee under section 234F is justified or not.
2. SECTION 234F :
The text is reproduced hereunder :
"234F.Fees for default in furnishing return of income.—(1) Without prejudice to the provisions of this Act, where a person required to furnish a return of income under section 139, fails to do so within the time prescribed in sub-section (1) of said section, he shall pay, by way of fee, a sum of,—
five thousand rupees, if the return is furnished on or before the 31st day of December of the assessment year;
ten thousand rupees in any other case:
Providedthat if the total income of the person does not exceed five lakh rupees, the fee payable under this section shall not exceed one thousand rupees.
(2) The provisions of this section shall apply in respect of return of income required to be furnished for the assessment year commencing on or after the 1st day of April, 2018.".
3. LATE FEE IMPOSABLE UNDER SECTION 234F AT A GLANCE
As per this provision, Income tax assessees failing to file their Income Tax Returns within the prescribed time would have to pay afeefor default. The amount of the late fee to be paid is as follows,
1. Upto Rs 1,000 for a person whose total income does not exceed between Rs 5 lakh
2. Rs 5,000 for persons with an annual income higher than Rs 5 lakh if the ITR is filed before December 31 of the assessment year
3. Rs. 10, 000 in any other case
However where a person is not required to furnish a return of income under section 139, Late Fee shall not be chargeable.
4. SIXTH PROVISO TO SECTION 139(1) : In this context it may be relevant to refer to the 6th proviso to section 139(1) which provides as under :
“Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of section 10A or section 10B or section 10BA or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.”
That means the above proviso requires persons to furnish the Return of Income if Gross Total Income of an Individual exceeds Exemption Limit. If the Gross Total Income is below exemption limit, one is not required to furnish the Income Tax Return in case of Individuals and Hindu Undivided Family. The general impression that one is required to file his Income Tax Return if the income is taxable, is a misnomer.
5. PENALTY UNDER SEC. 271F FOR LATE FILING OF RETURN PRIOR TO INSERTION OF SECTION 234F :
Prior to the insertion of Section 234F, the erstwhile Section 271F came into play on default in filing of IT Returns in certain cases. Section 271F (effect from the 1st day of June, 2002), reads as under :
"271F.Penalty for failure to furnish return of income.—If a person who is required to furnish a return of his income, as required under sub-section (1) of section 139 or by the provisos to that sub-section, fails to furnish such return before the end of the relevant assessment year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of five thousand rupees.”
As per Section 271F, if there is a default in filing IT Returns, the Assessing Officer was conferred the discretion to impose a penalty of Rs. 5000 on the assessee. Importantly, before such a penalty is imposed, the Assessing Officer was required to give the assessee an opportunity to being heard.
6. PENALTY UNDER SEC. 271F NOT IMPOSABLE IF ASSESSEE PROVES THAT THERE WAS REASONABLE CAUSE FOR THE SAID FAILURE :
Section 273B provides that notwithstanding anything contained in the different provisions for imposing penalty inclusing section, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.
Section 271F was deleted after Section 234F came into force w.e.f. asst. year 2018-19. Section 234F, in turn, has now been challenged asharsh, oppressive, unreasonable and arbitraryand on the various other grounds, discussed hereinafter.
7. PENALTY DISGUISED AS “FEE” UNDER SEC. 234F
It may be noticed that Section 234F uses the word “Fee” in prescribing what is effectively a penalty. Whereas “Fees” connote that there is an element ofquid pro quo, with a person paying for the provision of a service, Section 234F does not entail the provision of any such reciprocal arrangement. Levy of Late Fee under sectionsection 234F is a fee sans any service rendered, it is illogical, irrational and liable to be held unconstitutional.In the absence of any work or service given by the Department to the taxpayer, No fees ought to be collected from the taxpayer.
8. VIOLATION OF PRINCIPLES OF NATURAL JUSTICE
The imposition of thepenaltyin the guise of Late Fee via Section 234F is being carried out without giving the income tax assessee an opportunity of being heard, thereby violating the principle ofaudi alteram partem.
There is an imposition of penalty for the failure to furnish tax returns within prescribed due date without even giving an opportunity to the defaulting assessee to explain his case and therefore levy of such Late Fee is irrational on the fact of it and palpably arbitrary and in flagrant violation of principles of natural justice.
Adding to the problem, the late fee is deducted automatically from taxes paid while filing the Return.The provision is such that it does not dwell into the reasons for delay but also deducts the fee automatically before affording any opportunity in any manner to the assessee to furnish his explanation. Hence, Section 234F entails aclear violation of the principles of natural justice.
9. SECTION 234F IS ATTRACTED EVEN IF TAX LIABILITIES ARE FULLY DISCHARGED BY WAY OF ADVANCE TAX, TDS OR SELF ASSESSMENT TAX :
It is pertinent to note thatSection 234F of the Income Tax Act, 1961 is attracted even if the taxpayer has discharged his entire tax liability to the Government by way of Advance Tax, TDS, Self Assessment etc. Therefore, an assessee is punished by virtue of Section 234F even if he has fulfilled his tax responsibilities. In view of the same, Section 234F is illogical, unjustified and harsh.
10. NO INTELLIGENT OR RATIONAL CLASSIFICATION OF TAXPAYERS UNDER SECTION 234F
Section 234F only makes a single differentiation when it comes to determining the amount of late fee to be paid i.e. those earning less than Rs. 5 lakh and those whose income exceeds Rs 5 lakh. Such classification violates the right to equality under Article 14 of the Constitution thus, aperson earning Rs.5.01 lakhs is treated on the same pedestal with a person earning in several Crores. While that being so, the provisions of section 234F infringes the cornerstone of equality enshrined under article 14 of the Indian Constitution which postulates not only that equals should be treated equally.
11. NO EXEMPTION FOR SENIOR CITIZENS OR DIFFERENTLY ABLED PERSONS ETC.
The provision of levy of Late Fee under section 234F is clearly unmindful of the difficulties faced by senior citizens and the differently-abled persons. Further, it does not provide any leeway for the delay in filing IT Returns duetogenuinely acceptable reasonssuch as sickness, chronic ailments, maternity, wedding, accident, examination, foreign travel, death in the family etc.
12. DIFFICLTY IN CASE OF E-FILING OF RETURNS
The taxpayer is likely to be inconvenienced due to the fact that most of the IT Returns can only be e-filed. In this context, Section 234F has not provided for any exceptions like on what has to be done in case of technical delays in transactions are attributed to the Government due to non-functioning of Income Tax Return filing Website and the delay cannot be attributable to the assessee. It has been seen in practical life that there is an inordinate delay in downloading and filing the ITRs in the e-portal of the Income Tax Department. Section 234F is however silent on this issue.
13. SECTION 139(4) ALREADY PROVIDES FOR FILING BELATED RETURN UNDER SECTION 139(4) :
Section 139(4) of the Income Tax Act already provides for filing a Belated return under sec 139(4). Such Return can be filed before the end of relevant assessment year or before the completion of assessment, whichever is earlier.
14. SECTION 234A ALREADY PROVIDES FOR INTEREST :
Those filing IT RETURN Late are already required to pay interest under sec. 234A, if sufficient TDS or Advance Tax has not been paid. That means a deterrent already exists.
15. PENALTY PROVISIONS UNDER SECTION 271F WERE MORE LOGICAL:
The penalty provision under sec 271F were more justified as the penalty could be initiated only if a Return was filed beyond 31st March that is last day of assessment year and it provided for opportunity of hearing to the assessee. Section 273B provides that penalty u/s 271F and various other sections need not be imposed if the assesse proves that there was reasonable cause for the failure.
16. CONCLUSION: The Government will do well if the Late Fee under section 234F is immediately withdrawn and instead Penalty under section 271F is reintroduced. It will be appropriate if an amendment is urgently placed in Parliament, which is in session. This way litigation will also be stopped as well as agony of taxpayers will no longer remain. At the same time CBDT should consider the problems being faced by taxpayers and extend the date of filing Return under section 139(1) from 31st July to 31st August. 2018 for assessment year 2018-19.
The author is a Master of Law, practicing Advocate and author of the famous book “How to Handle Income Tax Problems” and “Income Tax Pleading & Practice’.
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