No service rendered but fees is charged vide new s. 234E and this may be in addition to penalty u/s 271H of Income-tax Act,1961 - both effective from 01.07.2012.

[CA DEV KUMAR KOTHARI]

Fees:

Fees is a charge for service rendered. Even in case of statutory fees, some service is directly or indirectly rendered or service may be rendered individually or collectively to public and there may not be direct co-relation or measurement of service and fees, but some element of service is essential. Such fees may be called by any name like cess , duty or even tax. Some fees may be called ‘tax’ like tax on property levied by municipalities is in nature of fees because some services are rendered by the municipalities.

No service but fees is levied:

We find that vide section 234E of the Income-tax Act, 1961 a levy called ‘fee’ is levied if the ‘tax deductor’ or ‘tax collector’ file prescribed statements beyond the prescribed time.

In this case, there is no service rendered by the central government, yet a fees is levied.

Relevant provisions:

The section 234E and related provisions under which statements are required to be submitted are reproduced below with highlights added:

G.—Levy of fee in certain cases

Fee for default in furnishing statements.

     ¹[234E.(1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.

      (2) 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.

      (3) The amount of fee referred to in sub-section (1) shall be paid before delivering or causing to be delivered a statement in accordance with sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C.

      (4) The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.]

We find that this provision is  Inserted vide Finance Act, 2012, w.e.f. 01-07-2012

Relevant provision about duty to furnish statements:

Duty of person deducting tax.

200.

⁴[(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time, ⁵[prepare such statements for such period as may be prescribed] and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.] 

 ¹[BB.—Collection at source

Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.

206C.

(3) Any person collecting any amount under sub-section (1) [or sub-section (1C) [or sub-section (1D)]] shall pay within ³⁷[the prescribed time] the amount so collected to the credit of the Central Government or as the Board directs :

       [Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, [prepare such statements for such period as may be prescribed] and deliver or cause to be delivered to the prescribed income-tax authority, or the person authorised by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.]

Relevant Rules:

One also need to have a look on relevant Rules for the prescribed statement and time limits for filing of them. For sake of brevity those Rules and Forms are not referred to and readers may refer to the applicable rules and forms in relation to type of assessee and TDS/ TCS.

Fees may not in lieu of penalty u/s 271H:

On reading of the above provisions, as the first impression, we may consider that the so called fees has been levied by the government, in lieu of penalty, if prescribed statements (say TDS or TCS return for brevity) are filed late. However, such fees may not always be in lieu of penalty. A penalty may also be levied, in addition to such fees. We also find that the provision of fees has been inserted w.e.f. 01.07.2012 and from the same effective date a provision for penalty has also been inserted vide S. 271H .

At the same time we find another provision levying penalty u/s 271H inserted w.e.f.the same date that is 01.07.2012. The said new section reads as follows:

¹[Penalty for failure to furnish statements, etc.

     271H. (1) Without prejudice to the provisions of the Act, a person shall be liable to pay penalty, if, he—

           (a)  fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C; or

           (b)  furnishes incorrect information in the statement which is required to be delivered or cause to be delivered under sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C.

      (2) The penalty referred to in sub-section (1) shall be a sum which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

      (3) Notwithstanding anything contained in the foregoing provisions of this section, no penalty shall be levied for the failure referred to in clause (a) of sub-section (1), if the person proves that after paying tax deducted or collected along with the fee and interest, if any, to the credit of the Central Government, he had delivered or cause to be delivered the statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C before the expiry of a period of one year from the time prescribed for delivering or causing to be delivered such statement.

      (4) The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.] 

Penalty:

The penalty can be levied for late filing of returns of TDS/ TCS and also for incorrect information furnished in such return. Penalty of late filing may not be levied, in case the person deducting and / or collecting tax pays tax, interest and fees and comply with requirement of filing of statement to satisfy requirement of sub-section (3).Otherwise fees and penalty both may be levied.

When on payment of fees, penalty is not leviable on compliance of all other requirements, then the fees so paid can be considered in lieu of penalty. However, when conditions are not complied with, person responsible to deduct or collect tax shall also be liable to penalty and fees both in addition to interest for late payment of tax deducted or collected.

The levy of mandatory fees is not justified:

We find that the fees levied u/s 234E is mandatory. There is no service rendered by the payee of such fees (The Central Government of India). The fees is for each day of delay in submission of each of applicable return, though maximum limit equal to the amount of TDS or TCS is provided. Therefore, in case there is no TDS or TCS, and one choose to file a nil return ( for continuity of record) fees shall not be payable.

Such mandatory fees in addition to tax and interest for delay is not justified. The levy of fees also deny principal of natural justice because this is mandatory and irrespective of reasons for delay one has to pay. Therefore, the levy is unjust. By levy of such fees government appears to have increased burden of tax deductor and tax collectors just to reduce work load of officers which they felt in exercise of levying of penalty in a proper manner.

This levy also require to be examined about its validity.