Rashmikant Kundalia vs. UOI (Bombay High Court)

DATE: February 6, 2015 (Date of pronouncement)
DATE: February 9, 2015 (Date of publication)
AY: -
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S. 234E: The late filing of TDS returns by the deductor causes inconvenience to everyone and s. 234E levies a fee to regularize the said late filing. The fee is not in the guise of a tax nor is it onerous. The levy is constitutionally valid

S. 234E of the Income-tax Act, 1961 inserted by the Finance Act, 2012 provides for levy of a fee of Rs. 200/- for each day’s delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). A Writ Petition to challenge the validity of s. 234E has been filed in the Bombay High Court. The Petition claims that assessees who are deducting tax at source are discharging an administrative function of the department and that they are a “honorary agent” of the department. It is stated that this obligation is onerous in nature and that there are already numerous penalties prescribed for a default. It is stated that the fee now levied by s. 234E is “exponentially harsh and burdensome” and also “deceitful, atrocious and obnoxious“. It is also claimed that Parliament does not have the jurisdiction or competence to impose such a levy on tax-payers. HELD by the High Court dismissing the Petition:

(i) On a perusal of sub-section (1) of section 234E, it is clear that a fee is sought to be levied inter alia on a person who fails to deliver or cause to be delivered the TDS return/statements within the prescribed time in sub-section (3) of section 200. The fee prescribed is Rs.200/- for every day during which the failure continues. Sub-section (2) further stipulates that the amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible as the case may be;

(ii) It is not in dispute that as per the existing provisions, a person responsible for deduction of tax (the deductor) is required to furnish periodical quarterly 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 refunds; and (iv) the delay in receipt of refunds results into a cash flow crunch, especially for business entities;

(iii) The Legislature took note of the fact that a substantial number of deductors were not furnishing their TDS retun/statements within the prescribed time frame which was absolutely essential. This led to an additional work burden upon the Department due to the fault of the deductor by not furnishing the information in time and which he was statutorily bound to furnish. It is in this light, and to compensate for the additional work burden forced upon the Department, that a fee was sought to be levied under section 234E of the Act. Looking at this from this perspective, we are clearly of the view that section 234E of the Act is not punitive in nature but a fee which is a fixed charge for the extra service which the Department has to provide due to the late filing of the TDS statements;

(iv) As stated earlier, the late submission of TDS statements means the Department is burdened with extra work which is otherwise not required if the TDS statements were furnished within the prescribed time. This fee is for the payment of the additional burden forced upon the Department. A person deducting the tax (the deductor), is allowed to file his TDS statement beyond the prescribed time provided he pays the fee as prescribed under section 234E of the Act. In other words, the late filing of the TDS return/statements is regularised upon payment of the fee as set out in section 234E. This is nothing but a privilege and a special service to the deductor allowing him to file the TDS return/statements beyond the time prescribed by the Act and/or the Rules. We therefore cannot agree with the argument of the Petitioners that the fee that is sought to be collected under section 234E of the Act is really nothing but a collection in the guise of a tax;

(v) We are therefore clearly of the view that the fee sought to be levied under section 234E of the Income Tax Act, 1961 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 Assessing Officer 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 Petitioners that simply because no remedy of appeal is provided for, the provisions of section 234E are onerous. Similarly, on the same parity of reasoning, we find the argument regarding condonation of delay also to be wholly without any merit.

10 comments on “Rashmikant Kundalia vs. UOI (Bombay High Court)
  1. Fee concept for additional load on department is correct by the hon court.

    there are unnecessary jitters on the part of ministry of finance that loads more unnecessary work on department of revenue, after all you have to trust assessees . they are not enemies like criminals under law of crimes.

    without mutual respect between people and government, conflicts increase between the government and tax payers and conflict of principles of laws and natural justice lead to multiplication of laws that it is an useless idea of governance to go on multiplifying statutes.

    it is high time there is a very urgent need to reduce unnecessary expenses of tax payers moneys that is also governance of government responsibility in any welfare state, and the there is equally urgent need to reduce litigation costs on exchequer’s revenue after all revenues of government mostly based on taxes that revenue should not be wasted in non productive expenses called litigation costs both on government as on taxpayers that are also the basic principle of public administration governance principle as conserving the scarce funds of both the government as also that of people. so there is a very urgent need not to waste scarce resources is the doctrine of economics in administration.

    when conservation of scarce resources take place there is a very healthy governance takes place that is called a great welfare state.

    governance need be based on administrative justice . where there is sensible justice in any welfare state that state only prospers economically.

    Vitality of government is least government control, that means it is possible by making a system of a tables of delayed payment charges that would reduce reduction in litigation as governments need funds for their welfare activities too, after all welfare activities just benefit the people that is called two way traffic like on roads, after all you cannot make every where one way traffic, is it not!

  2. K R Singh Adv. says:

    The Fee u/s 234E is compensatory for extra burden work of IT Dept as per view of the Bombay High Court. The processing of IT Return starts after filing of the return i.e. after filing the IT return in assessment year commencing from coming year. Why the late fees for late delivery of TDS Return during the Financial Year? And that ₹ 200/day during the year is not a good law. This issue has not been discussed in the judgment. It should be reviewed and accordingly section 234E requires modification to charge late fees from first day of the next year in regards to TDS return of previous year.



  4. Chandrakant Natwarlal Shah , C A says:

    The Deductor of the TDS(i.e.collector of tax )is working honorary, without any remuneration , to assist the Government in collection of the tax , which is primarily the duty of the Government. This onerous duty is burdened with many other compliances, for which the deductor in many cases has to employ additional persons, which involves additional cost to the Assessee-deductor. The Government does not consider this aspect ,which get free service at the cost of the assessee. And for little delay the Government-Income tax Department feels burdened?It appears that the case is not properly argued from the side of the assessee . Does government considers the burden on the assessees in other taxation matters like Refunds ? For years together , certain refunds are not granted and the assessees have to suffer the financial loss. Would government prescribed payment of late fees to the assessees for per day payment of late fees to the assessees so that the assessees are not burdened and the bureaucracy is charged for the such charges from their salaries or pension /provident fund so that they work efficiently in the interest of the assessees.Let Government first learn to serve efficietly, before asking for error free compliance from the Assessees

  5. Atul T Suraiya says:

    Let the software and portal of Traces provide an error free and PERFECT system for the tax deductors, and thereafter expect 100% compliance from the assesses at large.

  6. whcih section and what is circular no who is certified that no late file of tds return penalty of u/s 234E

  7. if information technology fails how one can blame the tax payer, better reverse back regular hard copy system of filing like ,

    again i do not agree if govt dept has a lot of work that does not mean tax payer has to bear the brunt, and it is vitally against the article 14 -natural justice,after all art 265 of the understood in the context of fundamental rights only..tax law is no proper rule of law, after all every statue is full of flaws, that is what not intelligently made but made belligerent basis, law makers are really do not right law making, see every constitutional amendment is full of flaws only judicial process only by judicial review could be rectified.

    for example 77th constitutional amendment is made inserting (cl.4A) to Art.16, in 2000 allowing carry over of vacancies in case of SCs/STs, any number of years, might have been passed by 418 lok sabha members that situation would certainly affect foreign investments under globalisation if you force private sector when PSUs are divested in favor of foreign investment, no investor accepts your great indian policies ,if you force, naturally no foreign investor would put his moneys t support inefficiency or ineffectiveness, for this too is a kind of corruption as doctrine of economics of services talks about scarcity of resources…if government is interested under social justice would agree to lose the resources, in fact that govt revenue is tax payers moneys, could you waste tax payers hard earned moneys to support the politics of public policies, let politicians pay from their own pockets they are not entitled to siphon of public exchequer funds, that way judicial process need to work, justice does not mean restraint on public policies if it were to be same principle on tax payers funds too.sir.

  8. HARSHAD DOSHI says:

    It is argued before the High court that additional work involved to department hence additional fees should be charged is justified.
    The similar provision for non receipt of refund from the department should be incorporated and accordingly the additional fees should be given to assessee apart from interest on delayed refund as assesse has to bear additional fees from tax consultant. .

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