Vanchinad Forgings (P) Ltd Vs ITO (TDS) (Kerala High Court)
Kerala High Court Limits TDS Late Fee Levy to Post-June 2015 Period
Kochi: The Kerala High Court has set aside demands for late fees levied under Section 234E of the Income Tax Act, 1961, for delays in filing TDS statements that occurred before June 1, 2015. The court ruled that the provision allowing for the computation and intimation of this fee through Section 200A of the Act is not retrospective and took effect only from that date.
The petitioner, Vanchinad Forgings (P) Ltd., an assessee responsible for deducting Tax Deducted at Source (TDS), had deducted tax on payments and remitted it to the Income Tax Department. However, the company incurred delays in filing the required statements detailing these TDS remittances. Consequently, upon processing the returns, the tax department levied late fees under Section 234E of the Act for periods starting from 2012-13 through intimations issued to the petitioner.
Section 234E(1) of the Income Tax Act stipulates that a person failing to deliver a TDS statement within the prescribed time shall be liable to pay a fee of two hundred rupees for every day the failure continues. This section was introduced by the Finance Act, 2012, effective from July 1, 2012.
The petitioner challenged the demands, arguing that while Section 234E itself existed from July 1, 2012, the mechanism for the computation and intimation of this fee was introduced through amendments to Section 200A(1). Specifically, clause (c) of Section 200A(1), which refers to the computation of the fee under Section 234E, was inserted only with effect from June 1, 2015. The petitioner contended that without this enabling provision in Section 200A, the department lacked the jurisdiction to automatically compute and demand the late fee for periods prior to June 1, 2015.
The tax department’s standing counsel sought time to file a formal response but also raised an objection regarding the considerable delay on the part of the petitioner in challenging the intimations.
However, the Kerala High Court, after hearing arguments from both sides, deemed a detailed statement from the department unnecessary in light of previous judgments on the matter. The court placed reliance on its own decision in M/s. Sarala Memorial Hospital v. Union of India and Another (W.P.(C) No.37775 of 2018). In that case, the court had considered the interplay between Section 234E and the amendment to Section 200A and held that the amendment, which facilitated the levy of the fee through the processing mechanism under Section 200A, was prospective in nature, taking effect only from June 1, 2015. The court in the present case reiterated that the Sarala Memorial Hospital judgment had become final and was binding on the tax authorities, establishing that the jurisdiction to levy late fee under Section 234E through the process under Section 200A arose only from June 1, 2015, and not earlier.
Addressing the department’s argument concerning the petitioner’s delay in approaching the court, the High Court held that delay typically cannot be a decisive factor when the challenge is rooted in a fundamental lack of jurisdiction on the part of the authority issuing the demand. The court distinguished the cases cited by the respondents on the issue of delay, noting that those cases (Digambar’s case, C.Gupta’s case, and Bhailal Bhai’s case) did not involve a total absence of jurisdiction, unlike the present situation where the very authority to compute and demand the fee for the period prior to June 1, 2015, was in question due to the prospective nature of the relevant statutory amendment.
In view of its finding that the authority to demand the late fee under Section 234E for the period from 2012-13 was absent, the Kerala High Court concluded that the demands contained in the intimations (Ext.P1 to Ext.P4) for that specific period were legally unsustainable.
Accordingly, the court quashed the intimations to the extent they demanded late fees under Section 234E for the period spanning from 2012-13 onwards but prior to June 1, 2015. The writ petition was allowed to this extent. The judgment reinforces the principle that tax laws, particularly those introducing mechanisms for computation and demand of fees or penalties, are generally interpreted as prospective unless the legislature explicitly provides for retrospective application.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
