2016 (9) TMI 964 - HC - Income Tax

Section 200A amendment held prospective; notices for computing Section 234E fees before 1.6.2015 set aside, demands invalid

The HC set aside notices issued under Section 200A insofar as they sought computation/intimation of fees under Section 234E for TDS periods prior to ... Late filing fee under Section 234E - Constitutional validity of Section 234E - exercise of power under Section 200A - Held that:- The intimation given in purported exercise of power under Section 200A are in respect of fees under Section 234E for the period prior to 1.6.2015. As such, it is on account of the intimation given making demand of the fees in purported exercise of power under Section 200A, the same has necessitated the appellant-original petitioner to challenge the validity of Section 234E of the Act. In view of the reasons recorded by us hereinabove, when the amendment made under Section 200A of the Act which has come into effect on 1.6.2015 is held to be having prospective effect, no computation of fee for the demand or the intimation for the fee under Section 234E could be made for the TDS deducted for the respective assessment year prior to 1.6.2015. Hence, the demand notices under Section 200A by the respondent-authority for intimation for payment of fee under Section 234E can be said as without any authority of law and the same are quashed and set aside to that extent. As such, as recorded earlier, it is on account of the intimation received under Section 200A for making computation and demand of fees under Section 234E, the same has necessitated the appellant to challenge the constitutional validity of Section 234E. When the intimation of the demand notices under Section 200A is held to be without authority of law so far as it relates to computation and demand of fee under Section 234E, we find that the question of further scrutiny for testing the constitutional validity of Section 234E would be rendered as an academic exercise because there would not be any cause on the part of the petitioners to continue to maintain the challenge to constitutional validity under Section 234E of the Act. At this stage, we may also record that the learned counsels appearing for the appellant had also declared that if the impugned notices under Section 200A are set aside, so far as it relates to computation and intimation for payment of fee under Section 234E, the appellant-petitioners would not press the challenge to the constitutional validity of Section 234E of the Act. But, they submitted that the question of constitutional validity of Section 234E may be kept open to be considered by the Division Bench and the Judgment of the learned Single Judge may not conclude the constitutional validity of Section 234E of the Act. Under these circumstances, we find that no further discussion would be required for examining the constitutional validity of Section 234E of the Act. Save and except to observe that the question of constitutional validity of Section 234E of the Act before the Division Bench of this Court shall remain open and shall not be treated as concluded. In view of the aforesaid observations and discussion, the impugned notices under Section 200A of the Act for computation and intimation for payment of fee under Section 234E as they relate to for the period of the tax deducted prior to 1.6.2015 are set aside. It is clarified that the present judgment would not be interpreted to mean that even if the payment of the fees under Section 234E already made as per demand/intimation under Section 200A of the Act for the TDS for the period prior to 01.04.2015 is permitted to be reopened for claiming refund. The judgment will have prospective effect accordingly. It is further observed that the question of constitutional validity of Section 234E shall remain open to be considered by the Division Bench and shall not get concluded by the order of the learned Single Judge. Issues Involved:1. Constitutional validity of Section 234E of the Income Tax Act, 1961.2. Legality and validity of intimations under Section 200A for the computation and demand of fees under Section 234E for periods prior to 1.6.2015.Detailed Analysis:Issue 1: Constitutional Validity of Section 234EThe petitioners challenged the constitutional validity of Section 234E of the Income Tax Act, 1961, arguing that the fee imposed under this section lacked the basic element of any services rendered to the deductor by the Income Tax Department. They contended that since no service was being provided, the fee under Section 234E was ultra vires to the Constitution. The learned Single Judge, however, held that Section 234E did not suffer from any constitutional vices and was intra vires to the Constitution, thereby dismissing all petitions.Issue 2: Legality and Validity of Intimations under Section 200A for Periods Prior to 1.6.2015The petitioners argued that the provisions of Section 200A(1)(c), (d), (e), and (f), which allow for the computation and intimation of fees under Section 234E, came into force only on 1.6.2015. Therefore, they contended that any demand or intimation for the period prior to 1.6.2015 was without authority and jurisdiction.The respondent-Department countered that the liability to pay the fee under Section 234E accrued from 1.7.2012, irrespective of the insertion of clauses (c) to (f) in Section 200A, and thus the demand or intimation was valid.The court examined the contentions and found that Section 234E, which came into force on 1.7.2012, was a charging section for the fee, generating liability if there was a failure to deliver TDS statements within the prescribed time. However, the court noted that Section 234E must be read with the mechanism provided for its enforcement. The court observed that Section 271H, which was also inserted on 1.7.2012, provided for penalties for failure to furnish TDS statements, and the fee under Section 234E allowed defaulters to avoid these penalties if they complied within one year.The court concluded that the insertion of clauses (c) to (f) in Section 200A on 1.6.2015, which provided for the computation and intimation of fees under Section 234E, conferred substantive power upon the authority and could not be applied retroactively. Therefore, any demand or intimation for the period prior to 1.6.2015 was without authority and invalid.Conclusion:The court held that the amendments to Section 200A, effective from 1.6.2015, could not be applied retroactively. Consequently, the demands and intimations under Section 200A for the computation and payment of fees under Section 234E for periods prior to 1.6.2015 were set aside as invalid. The court clarified that if any deductor had already paid the fee after receiving intimation under Section 200A, they could not reopen the question unless the payment was made under protest. The court also noted that the question of the constitutional validity of Section 234E remained open for consideration by the Division Bench and was not concluded by this judgment.The appeals were partly allowed, and no order as to costs was made.