2022 (4) TMI 1654 - AT - Income Tax

Tax Law Triumph: Late Fee Under Section 234E Limited to Prospective Application, Favoring Taxpayer Rights and Fair Interpretation

Om Prakash & Sons, Matta Garg & Co. Versus ITO (TDS), Dehradun

Tribunal resolved a key tax law issue regarding retrospective application of late fee under section 234E of Income Tax Act. After analyzing conflicting HC ... Levy of fee u/s 234E - assessment u/s 200A for delay in filing of quarterly TDS statement for fourth quarter - period of tax deduction prior to 01.06.2015 - HELD THAT:- Hon’ble Karnataka High Court in case of Fatehraj Singhvi & Ors. vs. UOI & Ors.[ 2016 (9) TMI 964 - KARNATAKA HIGH COURT] is in favour of the assessee holding that the amendments brought in statute w.e.f. 01.06 .2015 are prospective in nature and as such, notices issued u/s 200A of the Act for computation and intimation of payment of late filing fee u/s 234E of the Act relating to the period of tax deduction prior to 01.06.2015 was not maintainable. Assessee appeal allowed. The core legal question considered in this judgment is whether the levy of late fee under section 234E of the Income Tax Act, 1961, is applicable retrospectively to delays in filing TDS statements occurring before the amendment date of 01.06.2015, or whether it applies only prospectively from that date onwards.Issue-wise detailed analysis:Issue: Applicability and retrospective effect of late fee levy under section 234E read with section 200A of the Income Tax Act, 1961.Relevant legal framework and precedents: The relevant statutory provisions are section 234E, which imposes a late fee for delay in furnishing TDS statements, and section 200A, which deals with processing of TDS statements and related adjustments. Section 234E was introduced by the Finance Act, 2015, effective from 01.06.2015. Section 200A(1)(c), inserted simultaneously, provides for computation of fee under section 234E during processing of TDS statements.Two conflicting High Court decisions were considered. The Karnataka High Court in Fatehraj Singhvi & Ors. v. Union of India held that the amendment introducing section 234E is prospective, and thus, late fees cannot be levied for defaults occurring before 01.06.2015. Conversely, the Gujarat High Court in Rajesh Kourani v. Union of India took an opposite view, allowing retrospective application of the fee.Court's interpretation and reasoning: The Tribunal examined the legislative intent behind the amendment and the absence of any machinery provisions enabling retrospective levy of the late fee. The Tribunal noted that section 234E was introduced w.e.f. 01.06.2015, indicating a prospective application. The Tribunal also relied on the Supreme Court precedent in Vegetable Products Limited, which directs that in cases of conflicting judicial decisions, the view favorable to the assessee should be followed.Key evidence and findings: The Tribunal noted that the notices for late fee were issued for delays in filing TDS statements for quarters ending prior to 01.06.2015. Since the statutory provision for levy of late fee was not in existence before this date, the Tribunal found the imposition of fee for pre-amendment defaults to be unsustainable.Application of law to facts: The Tribunal applied the principle of prospective operation of tax amendments and the principle favoring the assessee in case of conflicting judicial opinions. It concluded that the levy of late fee under section 234E cannot be applied retrospectively to defaults occurring before 01.06.2015.Treatment of competing arguments: The Tribunal acknowledged the contrary decision of the Gujarat High Court but preferred the Karnataka High Court ruling and the Supreme Court guidance favoring the assessee. This approach was consistent with established principles of statutory interpretation and judicial precedent hierarchy.Conclusions: The Tribunal held that the late fee under section 234E is leviable only prospectively from 01.06.2015 and not retrospectively. Consequently, the fee levied for defaults prior to this date was ordered to be deleted.Significant holdings:'The decision rendered by Hon'ble Supreme Court in the case of Vegetable products Limited pronouncing that, when there are conflicting decisions the view taken in favour of the assessee should be followed is relevant to adjudication of the matter before us.''Hence, the impugned order passed by the First Appellate Authorities confirming the late fee levied by the AO u/s 200A read with section 234E in all the cases wherein the defaults were prior to 01.06.2015 is not sustainable in the eyes of law.''As a result, the fee levied u/s 234E is hereby ordered to be deleted.'Core principles established include the prospective operation of tax amendments unless explicitly stated otherwise, and adherence to the principle that in case of conflicting judicial decisions, the interpretation favorable to the assessee prevails.Final determination was that the late fee under section 234E cannot be levied for delays in filing TDS statements occurring before 01.06.2015, and all such levies are to be deleted.