No Section 234E Late Fee for TDS return for the period prior to 01.06.2015

Olari Little Flower Kuries Pvt. Ltd. Vs Union of India (Kerala High Court)

The Kerala High Court recently delivered a significant judgment in the case of Olari Little Flower Kuries Pvt. Ltd. Vs Union of India. The judgment addresses the issue of late fees under Section 234E of the Income Tax Act for TDS returns filed before June 1, 2015. This article provides a detailed analysis of the case, the arguments presented, and the court’s ruling.

Detailed Analysis:

Background: The case revolves around the applicability and constitutionality of Section 234E of the Income Tax Act, which pertains to late fees for delayed filing of TDS (Tax Deducted at Source) returns. The petitioners, including M/s. Sarala Memorial Hospital and Olari Little Flower Kuries Pvt. Ltd., challenged intimations (Exts.P1 to P6) issued by the Income Tax Department, demanding late fees for the Financial Years 2012-13 and 2013-14.

The Petitioners’ Arguments: The writ petitioners contended that the introduction of clause (c) to Section 200A(1) of the Act on June 1, 2015, had a retrospective effect. They relied on Circular No. 19 of 2015 issued by the Central Board of Direct Taxes (CBDT), which clarified the effective date of clause (c) as June 1, 2015. Therefore, they argued that late fees could not be imposed for the period before this date.

The Revenue’s Argument: The Income Tax Department maintained that clause (c) of Section 200A(1) was procedural and clarificatory in nature and should have a retrospective operation. They argued that the amendment to Section 200A(1) merely clarified the procedure and did not change the effective dates.

Judicial Opinion: The judgment quoted differing views from various High Courts. While the Karnataka High Court ruled in favor of the petitioners, the Gujarat High Court took the opposite stance. The Kerala High Court, in this case, considered the CBDT Circular and examined the retroactive nature of the amendment.

The Kerala High Court observed that Section 200A is a procedural provision, and the introduction of clause (c) specifying late fee computation came into effect from June 1, 2015. The court held that the demand for late fees for the period before this date could not be sustained. It cited principles of statutory interpretation, emphasizing that unless expressly provided or impliedly demonstrated, provisions of a statute should have prospective rather than retrospective effects.

Conclusion: The Kerala High Court, aligning with the Karnataka High Court’s view, ruled that late fees under Section 234E cannot be imposed for the period before June 1, 2015. This judgment provides clarity on the issue and sets a precedent for similar cases. Taxpayers who faced late fee demands for the specified period may find relief in this ruling.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

Heard Standing Counsel Mr Christopher Abraham, Adv. O Ramachandran Nambiar, Adv D S Sreekumaran and Adv. G Hariharan for parties.

2. The instant batch cases deal with an issue arising in the background of requirement of clause (c) of Section 200A(1) read with Section 234E of the Income Tax Act, 1961 (for short, ‘the Act’). W.A. No.600/2017 challenges the constitutional validity of Section 234E of the Act. The cases have been heard as batch matters. Though the petitioners/assessees are separate, we prefer to dispose of the appeals/petition by this common judgment since the circumstances preceding the filing of the respective cases, grounds of challenge, etc are substantially same and similar.

2.1 W.A. Nos.722, 752 & 753/2019 are treated as lead matters, and the circumstances referred to and considered in W.A. No.722/2019 is stated as representative appeal.

W.A.No.722/2019

3. The Income Tax Officer (TDS)/2^nd respondent in the writ petition is the appellant. M/s. Sarala Memorial Hospital, represented by its Managing Partner/respondent herein is the writ petitioner. The parties are referred to as arrayed in the writ petition. The petitioner challenged Exts.P1 to P6, prayed for a writ of certiorari, quash Exts.P1 to P6 as illegal etc. Exts. P1 to P6 are intimations received by the writ petitioner under Section 154 of the Act calling upon the writ petitioner to pay the amounts covered by respective intimations towards late fee for delayed filing of TDS returns, under Section 234E of the Act, for the Financial Years 2012-13 and 2013-14.

3.1 The petitioner effected tax deduction at source from the professional fees paid by the petitioner to individuals working with petitioner, in terms of Section 194(J) and had remitted the tax deducted at source to the credit of Central Government under Section 200(1) of the Act. According to respondents, the writ petitioner filed quarterly statements of deduction of tax at source as required under Section 200(3) belatedly for the Financial Year 2012-13, and for all the four quarters for the Financial Year 2013-14. The writ petitioner is under statutory obligation under Section 234E to pay late fee before submission of the returns. The belated quarterly statements submitted by the writ petitioner were processed under Section 200A and intimations in Exts.P1 to P6, under Section 154 of the Act, were issued.

3.2 The case of the writ petitioner is that clause (c) of Section 200A(1) was inserted with effect from 01.06.2015. The intimations in Exts.P1 to P6, as noted above, relate to Financial Years 2012-13 and 2013-14. The writ petitioner relied on the CBDT circular no.19 of 2015 which clarified the date of coming into effect of clause (c) of Section 200A(1) of the Act as 01.06.2015. The case of respondent is that clause (c) of Section 200A(1) is procedural and clarificatory in nature, would have retrospective operation. The effective dates of operation are not in dispute. The argument of respondents is that the amendment to Section 200A(1) by insertion of clause (c) is clarificatory and deals with procedure, the learned Judge ought not to have held and declared that the impugned intimations are illegal because clause (c) of Section 200A(1) has come into force with effect from 01.06.2015 and in other words does not have retrospective operation.

4. Mr Christopher Abraham reiterated the very argument which did not find favour in the judgment under According to him, Section 234E is rendered ineffective between the period 01.07.2012 and 31.05.2015 if the subject clause is held as operative with effect from 01.06.2015.

5. Adv D S Sreekumaran appearing for the writ petitioner contends that the CBDT Circular is one of the main reasons which convinced the learned Single Judge to accept the contention of petitioner. The respondent/Revenue does not deal with the effect and applicability of Circular referred to in the judgment for challenging the impugned judgment.

6. The grounds raised against the judgment under appeal are dealing with the very same arguments considered by the learned Single Judge. It is useful, at this juncture, to excerpt the operative portion of the learned Single Judge’s judgment:

“9. Interpreting Section 200A and Section 234E, the Karnataka High Court has held in Fatheraj that when the statute confers no express power under section 200A before 01.06.2015 on the authority either to compute and collect any fee under section 234E, the demand for the period before 01.06.2015 could not be sustained. Fatheraj in fact observes:

14. We may now deal with the contentions raised by the learned counsel for the appellants. The first contention for assailing the legality and validity of the intimation under section 200A was that, the provision of section 200A(1)(c), (d) and (f) have come into force only with effect from 1.6.2015 and hence, there was no authority or competence or jurisdiction on the part of the concerned Officer or the Department to compute and determine the fee under section 234E in respect of the assessment year of the earlier period and the return filed for the said respective assessment years namely all assessment years and the returns prior to 1.6.2015. It was submitted that when no express authority was conferred by the statute under section 200A prior to 1.6.2015 for computation of any fee under section 234E nor the determination thereof, the demand or the intimation for the previous period or previous year prior to 1.6.2015 could not have been made.

10. But the Gujarat High Court has taken a contrary stand in Rajesh Kourani. It has held:

“In plain terms, Section 200A is a machinery provision providing mechanism for processing a statement of deduction of tax at source and for making adjustments, which are, as noted earlier, arithmetical or prima facie in nature. With effect from 1.6.2015, this provision specifically provides for computing the fee payable under Section 234E. On the other hand, Section 234E is the charging provision creating a charge for levying fee for certain defaults in filing the statements. Under no circumstances a machinery provision can override or overrule a charging provision. Section 200A does not create any charge in any manner. It only provides a mechanism for processing a statement for tax deduction and the method in which the same would be done. When Section 234E has already created a charge for levying fee that would thereafter not have been necessary to have another provision creating the same charge. Viewing Section 200A as creating a new charge would bring about a dichotomy. In plain terms, the provision is a machinery provision and at best provides for a mechanism for processing and computing besides other, fee payable under section 234E for late filing of the statements”.

11. There is a cleavage in judicial opinion. But I am afraid, elaborate as the judgment may be in Rajesh Kourani, it does not seem to have considered the Circular No.19 of 2015, which in para 47.3 clarifies:

“47.3 Finance (No.2) Act, 2009 inserted section 200A in the Income-tax Act which provides for processing of TDS statements for determining the amount payable or refundable to the deductor. However, as section 243E was inserted after the insertion of section 200A of the Income-tax Act, the existing provisions of section 200A of the Income Tax Act did not provide for determination of fee payable under Section 234E of the Income Tax Act at the time of processing of TDS statements. Therefore, the provisions of Section 200A of the Income Tax Act has been amended so as to enable computation of fee payable under Section 234E of the Income Tax Act at the time of processing of TDS Statement under Section 200A of the Income Tax Act.”

(italics supplied)

6.1 A Division Bench of Karnataka High Court in W.A. Nos.2663-2674/2015 was answering the question whether clause (c) of Section 200A(1) is prospective or retrospective. The Division Bench held as follows:

“20. In view of the aforesaid observations and discussion, two aspects may transpire one, for Section 234E providing for fee and given privilege to the defaulter if he pays the fee and hence, when a privilege is given for a particular purpose which in the present case is to come out from rigors of penal provision of Section 271H(1)(a), it cannot be said that the provisions of fee since creates a counter benefit or reciprocal benefit in favour of the defaulter in the rigors of the penal provision, the provisions of Section 234E would meet with the test of quid pro quo

21. However, if Section 234E providing for fee was brought on the state book, keeping in view the aforesaid purpose and the intention then, the other mechanism provided for computation of fee and failure for payment of fee under Section 200A which has been brought about with effect from 1.6.2015 cannot be said as only by way of a regulatory mode or a regulatory mechanism but it can rather be termed as conferring substantive power upon the authority. It is true that, a regulatory mechanism by insertion of any provision made in the statute book, may have a retroactive character but, whether such provision provides for a mere regulatory mechanism or confers substantive power upon the authority would also be a aspect which may be required to be considered before such provisions is held to be retroactive in nature. Further, when any provision is inserted for liability to pay any tax or the fee by way of compensatory in nature or fee independently simultaneously mode and the manner of its enforceability is also required to be considered and examined. Not only that, but, if the mode and the manner is not expressly prescribed, the provisions may also be vulnerable. All such aspects will be required to be considered before one considers regulatory mechanism or provision for regulating the mode and the manner of recovery and its enforceability as retroactive. If at the time when the fee was provided under Section 234E, the Parliament also provided for its utility for giving privilege under Section 271H(3) that too by expressly put bar for penalty under Section 272A by insertion of proviso to Section 272A(2), it can be said that a particular set up for imposition and the payment of fee under Section 234E was provided but, it did not provide for making of demand of such fee under Section 200A payable under Section 234E. Hence, considering the aforesaid peculiar facts and circumstances, we are unable to accept the contention of the learned counsel for respondent-Revenue that insertion of clause (c) to (f) under Section 200A(1) should be treated as retroactive in character and not prospective.

22. It is hardly required to be stated that, as per the well established principles of interpretation of statute, unless it is expressly provided or impliedly demonstrated, any provision of statute is to be read as having prospective effect and not retrospective effect. Under the circumstances, we find that substitution made by clause (c) to (t) of sub-section (1) of Section 200A can be read as having prospective effect and not having retroactive character or effect. Resultantly, the demand under Section 200A for computation and intimation for the payment of fee under Section 234E could not be made in purported exercise of power under Section 200A by the respondent for the period of the respective assessment year prior to 1.6.2015. However, we make it clear that, if any deductor has already paid the fee after intimation received under Section 200A, the aforesaid view will not permit the deductor to reopen the said question unless he has made payment under protest.

23. In view of the aforesaid observation and discussion, since the impugned intimation given by the respondent Department against all the appellants under Section 200A are so far as they are for the period prior to 1.6.2015 can be said as without any authority under law. Hence, the same can be said as illegal and ”

6.2 Firstly, we are convinced with the reasoning and basis for the view taken by the learned Single Judge in the judgment under appeal, and secondly, the view taken by the Karnataka High Court in the judgment referred to above is to the same effect. Keeping in view the grounds of challenge and the view taken by this Court as well as the Karnataka High Court in the judgment referred to above, we are of the view that the appeal at the instance of 2^nd respondent is without merit and is liable to be dismissed. Accordingly dismissed.

W.A. Nos.752 & 753/2019

7. These two appeals are at the instance of the Revenue and are similar to the issues dealt with by this Court in W.A. No.722/2019. For the reasons stated supra, the appeals fail and are accordingly dismissed.

W.A. No.600/2017

8. M/s.Olari Little Flower Kuries Pvt. Ltd/writ petitioner is the appellant. The challenge laid by the writ petitioner on the validity of Section 234E of the Act was negatived. Hence the appeal.

8.1 Mr Christopher Abraham relies on the judgment of the Bombay High Court in Rashmikant Kundalia v. Union of India¹ wherein it has been held and declared that Section 234E is intra vires Constitution of India.

8.2 By following the judgment in Rashmikant Kundalia case, W.A. No.600/2017 stands dismissed. No order as to costs.

W.P.(C) No.23205/2017

9. M/s.Orion Holiday Resorts Ltd is the petitioner. The petitioner prays for the following reliefs:

“a). to declare that Section 234E of the Income Tax Act, 1961 as inserted by the Finance Act, 2012, making a person liable to pay, by way of “FEE”, a sum of Rs.200/- for every day for the delay in filing the statement referred to in such Section 200 (3) or Section 206C of the Income Tax Act, 1961 is illegal, arbitrary, invalid and unconstitutional.

b). to declare that the levy in the nature of “FEE” as per Section 234E of the Income Tax Act, 1961 on the person who fails to deliver or cause to be delivered a statement within the time specified in Section 200 (3) of the Income Tax Act, 1961 is illegal, arbitrary, discriminatory, unreasonable and is violative of Article 14 and 19(g) of the Constitution of India.

c), to declare that levy of “FEE” under Section 234E of the Income Tax Act, 1961 without granting an opportunity to the concerned person and also without vesting any powers on the Income Tax Officer to either waive or delete such fee is highly illegal, arbitrary and invalid.

d). to issue a writ of certiorari or such other writ, direction or order quashing Exhibits P1, P1 (a), P1 (b), P1 (c); Exhibits P2, P2 (a), P2 (b), P2 (c); Exhibits P3, P3 (a), P3 (b), P3 (c) and Exhibits P4, P4 (a), P4 (b) intimations issued by the 3rd respondent to the petitioner.

e), to issue a writ of certiorari or such other writ, direction or order quashing Exhibits P9 and P10 orders.

f) to issue a writ of mandamus or such other writ, direction or order restraining the respondents from enforcing Section 234E of the Income Tax Act, 1961 against the petitioner.

g) to call for the entire records relating to Exhibits P9 and P10

h) to award costs of the writ petition from the respondents. And

i) to grant such and other reliefs as may be deemed just and necessary for the facts and circumstances of the case.

9.1 Stated briefly, the writ petitioner challenges the intimation received under Section 200A from the mrespondent/Revenue calling upon the writ petitioner to pay late fee for delayed filing of quarterly statements of TDS. The periods for which the notices are issued are stated as prior to 01.06.2015. By following the judgment in W.P.(C) No.37775/2018, as confirmed in W.A. No.722/2019, the writ petition stands allowed and the intimations dealing with filing of belated statements prior to 01.06.2015 are set aside. A return filed subsequent to 01.06.2015 is present, the respondents are given liberty to issue notice, hear the writ petitioner, and pass orders in accordance with law.

Writ Petition allowed as indicated above.