• Feb
  • 25
  • 2014

Section 234E of Income Tax Act, 1961 Cracked

Dinesh Aravindh

Of late this month we must have received lot of demands from CPC seeking demand for non remittance of 234E FEES (not Tax). 

234E will not apply to cases where TDS payment is made beyond the time limit prescribed for payment of TDS u/s 200(3)

There are two reasons

Reason 1

Duty of person deducting tax.

200. [(1)] Any person deducting any sum in accordance with [the foregoing provisions of this Chapter] shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.

[(2) Any person being an employer, referred to in sub-section (1A) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs.]

[(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,[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.]

Section 200(3) says we have to file our Quarterly return AFTER paying the TDS within the prescribed time.

If we pay the TDS amount to the credit of the CG after the due date for payment there is no requirement for us to file our TDS return at all as per section 200(3).

When Charging mechanism fails where is the question of collection FEES Case law of Supreme Court P.C.Srinivasa Chetty (Sine charging mechanism for operation of 234E fees is 200(3). They can charge fees only when we made the tds payment within the prescribed time but have not filed my Quarterly return within the prescribed time

 Reason 2

Okay We will harmoniously interpret the section in spirit along with section 201. After payment within the prescribed time or after the prescribed time we have to file the Quarterly return!! i hope we all agree.

Section 200(3) say we should pay and file Quarterly return else our TDS return is invalid. I missed the prescribed date for payment and also the prescribed date for the Quarterly return Now We paid our TDs to government along with interest u/s 201 and filed our return immediately.

Part 1

Then you cannot charge us fees under 234E, since without payment of tax we cannot upload the return. If Department is not accepting the return how can they ask fees for not filing within the due date

LAW CANNOT ASK PEOPLE TO DO WHAT IS NOT POSSIBLE TO DO

Part 2

Let me recall  a splendid decision given a decade ago

Where  books of accounts are not maintained you cannot penalize Assessee for not getting his books of accounts audited Ram Prakash C Puri – 77 ITD 210

Department said you have not paid our tax pay interest (interest is compensatory in nature) We pay from due date to date of payment. Now when we pay interest for late payment how can wer / why should we again compensate the Government in the form of 234E fees.

Section 234E starts saying “Without prejudice to the provisions of the Act”   and does not start as ‘NOTWITHSTANDING ANYTHING CONTAINED IN THE PROVISIONS OF THIS ACT’ .

So Technically the Start of Days for 234E  Fees is from Due date from filling of Quarterly return or Date of TDS remittance which ever is latter.


19 Responses to “Section 234E of Income Tax Act, 1961 Cracked”

  1. C P CHUGH says:

    Dear Sanjiv B ji,

    Section 234-E is yet to pass the Constitutional Validity Test but to say entire mechanisim of Deduction and Collection of Tax at Source is unconstitutional will be a little devoid of merits. Chapter XIIB has been successfully defended by the GOI in various judicial pronouncements and the chapter has passed the constituional test on more than one occasions.

    GOI being an Soverign State has every right to pass laws and cast obligations upon its Netizens. And as a Citizen of India we are oblidged to follow that dictate of law and comply with it.

    Deduction/Collection of tax by Tax Payers is not new. Acroos India all reistered delears under the State VAT/Sales Tax law do the same for Government and are equally penalised/fined for defaults in complying with the conditions laid down in such statutes.

  2. Sanjeev B says:

    TDS itself is unconstitutional. Why should I do the work of the Government? Are they paying me for it? Do I have a choice to agree to work for them? It is not my job to collect taxes. I would love to see the TDS law challenged in court.

  3. Santosh says:

    TDS Payment is made within the prescribed time limit but PAN No is not alloted by the Income tax department. Due to absence of PAN no. it is not possible to upload the TDS Return. The Income tax Department send notice to pay late fee u/s 234E? Whether late fee will be waived or not? What steps we should take?

  4. MANYAM says:

    The analysis forgets a basic premise that now a days the department initiate prosecution proceedings for even delayed payment of one day. The prosecution guidelines have been changed and the department does not wait till the default of 12 months in remitting the deducted amount. So, logically you may interpret the way you did but that is sure to invite prosecution proceedings from department. Think…

  5. Pravin Majik says:

    Query – if half challans are paid within due date & remaining challans paid after due date at that time we are liable to pay late filing fees under sec 234E or not?

  6. RAMKRISHNA says:

    BANK OFFICIALS ARE RECEIVING NOTICES FROM CPC-TRACES, GHAZIABAD TO PAY LATE FEE U/S.234E FOR LATE SUBMISSION OF THEIR TDS RETURNS. ACTUALLY STILL SO MANY PEOPLE ARE NOT KNOWN ABOUT THE SUBJECT IN DETAIL AND THEIR HITHER AUTHORITIES ARE NOT GIVING PROPER TRAINING ALSO. NOW THE OFFICIALS WHO ARE ACTING NOW, ARE SUFFERING HOW TO COME OUT FROM THE PROBLEM. NOW THEIR HIGHER AUTHORITIES ARE INSISTED TO PAY THAT LATE FEE FROM THEIR POCKETS. HOW IS IT. PLEASE DO SOMETHING TO SAVE THAT SUCH GENTLEMENS. FIRST OF ALL WE HAVE SENT A REPLY TO CPC TRACES, GHAZIABAD OR TERRITORIAL OFFICERS WHO ARE LOOKING TDS MATERS TO GET STAY FOR THAT AMOUNTS.

  7. Rinav Khakhar says:

    S. 234E: High Court grants interim stay on enforcement of notices for levy of fee for failure to file TDS statement

    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). The constitutional validity of s. 234E has been challenged in the Karnataka High Court. Vide an interim order dated 19.02.2014 the High Court held as follows:

    Petitioners have questioned the constitutional validity of the provision of Section 234E of the income Tax Act and a notice to the petitioner levying fee vide annexure A1 to A21 and Annexure – B. Pending consideration of the grounds in the writ petition, it is desirable that enforcement of notices referred to above issued by the 4th respondent are stayed until further orders.

    Note: A similar stay has been granted by the Kerala High Court in Narath Mapila LP School vs. UOI

  8. Amit Somaiya says:

    Dear Mr Dinesh & All …

    CAN YOU PLEASE REFER BELOW AND LET ME KNOW ..WHETHER MY THINKING IS RIGHT OR WRONG …

    If we read Sec 234E .. it says “”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.”””

    In this it has been said that Fees has to be paid before delivering the TDS Return .. So, NSDL should have collected the fees before accepting the TDS return and such Demand notice received after delivering the TDS return is not VALID ..

    Correct me , if I m wrong .

    Thanks

  9. S.Santhana Krishnan says:

    The logic for collecting interest for default period is O.K. Again the collection of Late fees is illogical for the default. In view of 194 1A, advent of Technology, filing of TDS Return can be dispensed with. TDS can be remitted directly from TAN of the Deductor to the Deductee. Issuance of certificate is also not necessary. This was first suggested by PC before E filing.

  10. Sanjeev says:

    This article does not shed any new light in the Sec 234E. Hence it does not “crack” anything. Please elaborate on the Supreme Court case you have quoted.

  11. CA ASHOK VYAS says:

    Dear Sir,

    Firstly, You can’t say straight forward that section is cracked, because you are here providing the remedy or giving an option to take care in their future return or TDS deposition.

    And the second fact is that people have already deposited the TDS well in time but the issue is about the late filling of the return.

    If you have any remedy than please suggest.

    In this scenario we can also take refrence of KERALA high court, where case for the same is pending and stay of 2 months is granted for penalty.

  12. Devender Bisht says:

    Could you quote some/any case law which support your analysis…?

  13. SUNIL KUMAR says:

    Until what time people must wait for Kerala High Court decision, what about the demand notices received during the period. I think such critical issues must be set right immediately and if there is a stay, why is that CPC sending such demand notices to the assessees, is it not contempt of court.

    And in case the decision goes against the revenue will they reimburse the fee paid, if any by the assessees.

  14. ANISH says:

    The demand notices sent by the TDS CPC Ghaziabad says a different story. Hence, using terms such as ‘cracked’ in the title is certainly misleading.

  15. Ram S. says:

    Similarly,(1)The tax deducted and not deducted. (2) Tax remitted and not remitted. This could be easily attributed to the sequence of deductions first for the payments remitted similar to the TDS is first considered from Advance Tax due and balance for levying interest on it. There are number of issues for this TDS deductions.

  16. Ram S. says:

    The main problem of all govt. made tax laws and rules there is no one from govt. to study it and rectify the error with amendments and make the law as simple and amiable. When learned peoples like Ramayya and Shanbaugh can write volume and volume of explanations is it not possible for team of peoples to find errors and irrelevant clauses and bring an presentable law? First of all IT law should make it to file returns for payment and deductions which should be compulsory. Second part is how much remitted and how much not remitted that will give a start of meter for penalty and fees. Our laws are only budget ritual and not citizen friendly.

  17. S S ROY says:

    I do not agree to this view. Law will recognise subsequent consequential defaults in other areas and impose penalties. If you fail to maintain books of account, ‘consequentially’ you also fail to get your accounts audited and you commit cumulative defaults, all of which should be separately punishable.

  18. Rinav says:

    So, Mr. Dinesh, you suggest that we should not pay such late filing fees u/s 234E as received from the CPC..??
    Also, how can we justify it to the Assessing Officer..??

    It would be great if you could please help us on the same
    -Rinav Khakhar
    (Partner at)
    Khakhar Associates

  19. C P CHUGH says:

    Beautifully analysed, but i have the following reservations :-
    A) Govt Deductors are hard hit by the provisions of section 234E as there is no mechanism in our Govt Offices to fix responsibility and accountability. There payment of TDS is presumed to be on the day of deduction by book entry…………
    Hence both the logics fail in their case.

    B) There is no bar in uploading TDS quarterly statements without actually making payment of tax deducted at source, hence the first logic also fails in case of TDS not paid or late paid.

    However i am still of the opinion the levy is illegal and unconstitutional. Let us wait for Kerala High Court to decide.

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