Order for Levy of Fees u/s. 234E and Intimation u/s. 200A

Section
234E of the Income tax Act, with effect from 1st January, 2012, makes
an assessee liable to pay, by way of fee, a sum of Rs. 200 for every day
of default in filing a statement within the time prescribed in section
200(3) or section 206C(3). However, the fee shall not exceed the amount
of tax deductible or collectible. The amount of fee payable is required
to be paid before filing the statements. The constitutionality of that
levy of fees has been upheld by various high courts. A delay in
furnishing the statement is thus made liable to a fee u/s. 234E.

Section
200A inserted by the Finance (No.2) Act, 2009, w.e.f. 01.04.2010,
provides for the processing of a statement of TDS, furnished u/s 200(3),
to enable the processor to ascertain the correctness of TDS and in
doing so carry out permissible adjustments and levy interest for delay
in payment of the deducted tax. The processor is also required to
prepare and generate an intimation of the sum payable or refundable to
the deductor, and send the same to him. These provisions of the
processing and issue of intimation are modified w.e.f. 01.06.2015 to
provide for the computation of the fee payable u/s. 234E while issuing
an intimation. Simultaneously, section 206 CB is inserted by the Finance
Act, 2015 to provide for processing of the statement of TCS and issue
of intimation w.e.f. 01.06.2015, for the first time.

In recent
times, a number of intimations are issued by the processor u/s 200A,
inter alia levying the fee payable u/s. 234E of the Act and demanding
the same vide such intimations. An aspect common to such intimations is
that all of them are issued before 1st June, 2015.

The
intimations issued before 1st June, 2015, levying and demanding fee u/s
234E, are being challenged by the tax deductors on the ground that the
processor had no authority to demand, under an intimation, any fee prior
to 1st June, 2015 – as such authority is available only from 1st June,
2015. In addition, it is also contended that the processor and/or an AO
in any case had no authority to pass any orders for computing and
levying such fee u/s. 234E of the Act in as much as no power is vested
in them for doing so.

The Amritsar bench of the Income Tax
Appellate Tribunal, under the circumstances held that an intimation,
issued u/s. 200A, demanding the fees u/s 234E, was not valid in law
where it was issued on or before 1st June, 2015. The Chennai bench of
the Tribunal, while concurring with the view, held that the AO was
empowered to pass a separate order for levy of such fee outside the
intimation u/s. 200A of the Act.

Sibia Healthcare’s case
The
issue first arose in the case of the Sibia Healthcare Private Limited,
171 TTJ 145(Asr.). The AO in that case, had processed the statement of
TDS filed for the third quarter of the financial year 2012-13 by the
assessee and had in the process thereof levied the fees u/s. 234 E for
the default of delay in filing the statement. The assessee in the appeal
before the tribunal had called into question the correctness of the
order of the CIT(A) upholding levy of fees, u/s 234 E of the Income-tax
Act, 1961 and challenged such levy by way of intimation dated 11th
January 2014 issued u/s. 200A.

The Tribunal noted that it was a
case in which there was admittedly a delay in filing of the TDS returns,
and the AO(TDS), in the course of the processing of the TDS return, had
raised a demand under an intimation issued u/s. 200A of the Act, for
levy of fees u/s. 234 E for delayed filing of TDS statement. Aggrieved
by the levy of fees, the assessee carried the matter in appeal before
the CIT(A), but without any success. The assessee, not being satisfied,
filed a further appeal before the Tribunal. The Tribunal, on the above
facts, concerned itself with the question as to whether or not, for the
period prior to 1st June 2015, fees u/s. 234 E of the Act in respect of
defaults in furnishing TDS statements, could be levied in issuing
intimation u/s. 200A of the Act.

The Tribunal noted that there
was no enabling provision for raising a demand in respect of levy of
fees u/s. 234E prior to 1st June, 2015 . It noted that at the relevant
point of time, section 200A permitted computation of amount recoverable
from, or payable to, the tax deductor after making the adjustments on
account of “arithmetical errors” and “incorrect claims apparent from any
information in the statement ” and for “interest, if any, computed on
the basis of sums deductible as computed in the statement”. No other
adjustments in the amount refundable to, or recoverable from, the tax
deductor, were permissible in accordance with the law as it existed at
that point of time.

In the considered view of the Tribunal; the
adjustment in respect of levy of fees u/s. 234E was beyond the scope of
‘permissible adjustments’ contemplated u/s. 200A; as an intimation was
an ‘appealable order’ u/s. 246A(a), the CIT(A) ought to have examined
legality of the adjustment made under the said intimation in the light
of the scope of section 200A which the CIT(A) had not done and instead
he had justified the levy of fees on the basis of the provisions of
section 234E. The answer to the question whether such a levy could be
effected in the course of intimation u/s. 200A. was clearly in the
negative.

Importantly, the Tribunal noted that no other
provision enabling a demand in respect of the levy had been pointed out
to the Tribunal, and it was thus an admitted position that in the
absence of the enabling provision u/s. 200A, no such levy could be
effected. The Tribunal also held that the said intimation was issued
beyond the time permissible in law by noting that a demand u/s. 200A, in
the facts of the case, was to be issued latest by 31st March 2015 and
the defect of delay in issuing the intimation thus was not curable.
Bearing in mind the entirety of the case, the impugned levy of fees u/s.
234 E was found by the tribunal to be unsustainable in law. The
Tribunal therefore, upholding the grievance of the assessee, deleted the
levy of fee u/s. 234E of the Act.

G. Indhirani & Other cases
The
issue again came up before the Chennai bench of the Income tax
Appellate Tribunal in the case of G. Indhirani in ITA No. 1020
&1021/Mds./2015 and other cases. The appeals of the different
assessees directed against the respective orders of the CIT(A), Salem
were heard together and disposed of by a common order as the issue
involved was common. The only issue for consideration of the Tribunal
was with regard to the levy of fee u/s 234E of the Income-tax Act, while
processing the statement furnished by the assessees, u/s. 200A of the
Act.

Attention was invited to section 234E of the Act to highlight that when an assessee failed to deliver the statement within the prescribed time, he was liable to pay by way of fee a sum of Rs. 200/- for every day during the period of the failure. Referring to the words used in the section 234E “he shall be liable to pay”, it was pointed out that the assessee was liable to pay fee and the section did not empower the AO to levy the fee which was clear by reading of section 234E(3) of the Act that provided for payment of the fee before delivery of statement u/s. 200(3) of the Act. It was thus clear that the fee had to be paid by the assessee voluntarily before filing the statement u/s. 200(3) of the Act and the AO had no power to levy the fee before the amendment.

On the contrary,on behalf of the Income tax Department, it was submitted that section 234E of the Act provided for payment of fee in cases where the assessee failed to deliver the statement as prescribed in section 200(3) of the Act and therefore, the AO had every authority to levy fee either by a separate order or while processing the statement u/s. 200A of the Act.

On consideration of the rival submissions on either side and perusal of the relevant material on record, the Tribunal noted that section 200A of the Act provided for processing of the statement of tax deducted at source by making adjustment as provided therein; the AO could not make any adjustment other than the one prescribed in section 200A of the Act; it was obvious that prior to 01.06.2015, there was no enabling provision in section 200A of the Act for making adjustment in respect of the statement filed by the assessee with regard to tax deducted at source by levying fee u/s. 234E of the Act; the parliament for the first time enabled the AO to make adjustment by levying fee u/s. 234E of the Act with effect from 01.06.2015.

The Tribunal accordingly held that while processing the statement u/s. 200A of the Act, the AO could not make any adjustment by levying fee u/s. 234E prior to 01.06.2015 in the following words; “In the case before us, the Assessing Officer levied fee u/s. 234E of the Act while processing the statement of tax deducted at source u/s. 200A of the Act. Therefore, this Tribunal is of the considered opinion that the fee levied by the Assessing Officer u/s. 234E of the Act while processing the statement of tax deducted at source is beyond the scope of adjustment provided u/s. 200A of the Act. Therefore, such adjustment cannot stand in the eye of law.”

The assessee next contended that the AO had no authority to levy the fee u/s. 234E in view of the language of the said section 234E which provided that ‘the assessee’ “shall be liable to pay” ‘by way of fee’. The language in the assessee’s opinion clearly conveyed that the assessee had to voluntarily pay the fee and the AO had no authority to levy fee. This argument was found to be very attractive and fanciful by the Tribunal, but was also found to be devoid of any substance.

The Tribunal held that;

•    the assessee shall pay the fee as provided u/s. 234E(1) of the Act before delivery of the statement u/s. 200(3) of the Act when section 234E clearly stated that the assessee was liable to pay fee for the delay in delivery of the statement with regard to tax deducted at source,

•     if the assessee failed to pay the fee for the periods of delay, then the assessing authority had all the powers to levy fee while processing the statement u/s. 200A of the Act by making adjustment after 01.06.2015,

•    prior to 01.06.2015, the AO had every authority to pass an order separately levying fee u/s. 234E of the Act,

•    what was not permissible was levy of fee u/s. 234E of the Act while processing the statement of tax deducted at source and making adjustment before 01.06.2015, it did not mean that the AO could not pass a separate order u/s. 234E of the Act levying fee for the delay in filing the statement as required u/s. 200(3) of the Act.

The Tribunal proceeded to examine the contention of the assessee that the AO had no power to levy fee u/s. 234E in the light of the provisions of Indian Penal Code and in particular section 396 of the Code that provided for punishment for dacoity with murder as also for the liability to fine. It also examined section 408 of the said Code which provided for payment of fine in addition to the punishment in cases of criminal breach of trust by a clerk or servant. Similarly, the other provisions of the Code that provided for fine were referred to by the Tribunal to observe as follows; “The language used by the Parliament in Indian Penal Code is “shall also be liable to fine”. This means that the Magistrate or Sessions Judge, who tries the accused for an offence punishable under the provisions of Indian Penal Code, in addition to punishment of imprisonment, shall also levy fine. If the contention of the Ld. counsel for the assessees is accepted, then the Magistrate or Sessions Judge, as the case may be, who is trying the accused for the offence punishable under Indian Penal Code, may not have authority to levy fine. .. It is well known principle that the fine prescribed under the Indian Penal Code has to be levied by the concerned Magistrate or Sessions Judge who is trying the offence punishable under the Indian Penal Code. Therefore, the contention of the Ld. counsel that merely because the Parliament has used the language “he shall be liable to pay by way of fee”, the assessee has to pay the fee voluntarily and the Assessing Officer has no authority to levy fee could not be accepted. No one would come forward to pay the fee voluntarily unless there is a compulsion under the statutory provision. The Parliament welcomes the citizens to come forward and comply with the provisions of the Act by paying the prescribed fee before filing the statement u/s. 200(3) of the Act. However, if the assessee fails to pay the fee before filing the statement u/s. 200(3) of the Act, the assessing authority is well within his limit in passing a separate order levying such a fee in addition to processing the statement u/s. 200A of the Act. In other words, before 01.06.2015, the assessing authority could pass a separate order u/s. 234E levying fee for delay in filing the statement u/s. 200(3) of the Act. However, after 01.06.2015, the assessing authority is well within his limit to levy fee u/s. 234E of the Act even while processing the statement u/s. 200A and making adjustment.”

The Tribunal, in the facts of the case however, was of the considered opinion that the AO had exceeded his jurisdiction in levying fee u/s. 234E while processing the statement and making adjustment u/s. 200A of the Act and therefore, the impugned intimation of the lower authorities levying fee u/s. 234E of the Act could not be sustained in law. At the same time while holding so in the assessee’s favour, it was made clear by the Tribunal that it was open to the AO to pass a separate order u/s. 234E of the Act for levying fee provided the limitation for such a levy had not expired.

Observations

The constitutional validity of section 234E of the Act has been examined by the Bombay High Court in the case of and Rashmikant Kundalia (Bom.), 373 ITR 248 and is upheld by the court. However, in a series of the decisions of the court in the cases of Narath Mapila LP School, [WP (C)    31498/2013(J)](Ker.), Adithya Bizor P. Solutions(Karn.) [WP No. 6918-6938/2014(T-IT), Om Prakash Dhoot (Raj.) [WP No. 1981 of 2014], a stay has been granted on the recovery of the demands raised in respect of fees u/s. 234E.

The power of the AO, while processing the statement of TDS u/s. 200A, to levy fee u/s. 234E and demand the same vide an intimation issued on 1st June, 2015 or thereafter is not in dispute. Also not in dispute is the fact that such fee cannot be demanded under an intimation that is issued before that date. The amendment of section 200A by the Finance Act, 2015 has made up for the deficiency, if any, by enabling the levy of the fee while processing the statement of TDS and demanding the payment of such levy under an intimation. The dispute appears to be about the power of the AO to levy a fee u/s. 234E outside the intimation u/s. 200A of the Act. Can an income-tax authority levy and demand the fee prescribed u/s. 234E on the basis of provisions of section 234E alone? Can it pass an order outside the provisions of section 200A for demanding the levy of fee? Is it prevented from demanding such fee in view of specific language of section 234E that require an assessee to pay the fee and pay the same before filing the statement u/s. 200(3) of the Act? These are the questions that require Section 234E of the Act, was inserted by the Finance Act 2012 brought into effect from 1st July 2012 reads as under:

234E. Fee for defaults in furnishing Statements

(1)    Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.

(2)    The amount of fee referred to in s/s. (1) shall not exceed the amount of tax deductible or collectible, as the case may be.

(3)    The amount of fee referred to in s/s. (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.

(4)    The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012

On a bare reading of the provisions of section 234E, one gathers that the liability to pay the fee is that of the assessee who had defaulted in filing the statement of TDS within the time prescribed u/s. 200(3). It is also clear that the fee is to be paid before the filing of the statement of TDS u/s. 200 by the assessee. It is further clear from a bare reading of the amended provisions of section 200A, in particular clauses (c) and (d), that with effect from 1st June 2015, the fee, if any, shall be computed in accordance with the provisions of section 234E while processing the statement of TDS and the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of the amount computed under clause (b) and clause (c) against any amount paid u/s. 200 or section 201 or section 234E and any amount paid otherwise by way of tax or interest or fee and an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d) and the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor.

It is true that there was no express or specific provisions on or before 1st June, 2015 that empowered an authority to levy such fee and demand the payment of the same. However, such an interpretation would mean that the provisions of section 234E, though introduced w.e.f 1st July, 2012 has no teeth and are redundant till 31st May, 2015. Such an interpretation shall also render many provisions of the Act redundant where they provide for a levy or payment for an offence specified in the respective provision without express provision for levy and demand thereof. It also would mean that for each provision for any tax, interest, fee, levy, fine there should be an express and corresponding provision authorising an income-tax authority to effectively levy the same and demand the same from the assessee failing which the charge would remain ineffective.

The Chennai bench of the Tribunal in G. Indrihani’s case is right in holding that the AO or the authority is empowered to pass an appropriate order for levy of the fees u/s 234E and to demand the same under such an order. The effect of the amendment in section 200A is limited to authorising the AO or any other authority to levy the fee or ascertain the correctness of the fee paid while processing the statement of TDS and demand the same vide an intimation, a power which was not hitherto available till 31st May, 2015. An independent power to pass an order had always been vested in the AO or other authority once a liability to fee for the default was imposed under the Act.