Introduction

The case of Executive Engineer, Tubewell Division Barabanki v. Income Tax Officer (TDS)-II, Lucknow adjudicated by the Income Tax Appellate Tribunal (ITAT) Lucknow Bench "B" on November 30, 2022, serves as a significant milestone in the interpretation of Section 234E of the Income Tax Act, 1961. This case revolves around the levy of late fees under Section 234E in relation to Tax Deducted at Source (TDS) returns for the assessment years 2013-14 and 2015-16.

The appellant, Executive Engineer, Tubewell Division Barabanki, challenged the levy of late fees imposed by the Respondent, the Income Tax Officer (TDS)-II, Lucknow. The central issue pertained to the applicability of Section 234E before its amendment effective from June 1, 2015, questioning whether such fees could be charged retrospectively.

Summary of the Judgment

The ITAT Lucknow Bench "B" examined five consolidated appeals filed by the appellant against the orders of the Commissioner of Income Tax (Assessments)-II, Lucknow, dated November 14 and 18, 2019. The appeals contended that the levying of late fees under Section 234E for the assessment years in question was erroneous, as Section 234E was applicable only prospectively from June 1, 2015.

After admitting the condonation of delay in filing the appeals, which was justified due to exceptional circumstances including the COVID-19 pandemic and unavoidable delays, the Tribunal focused on the substantive issue of the applicability of Section 234E.

Citing multiple precedents, including decisions from the ITAT Lucknow, Gujarat High Court, Kerala High Court, and statutory interpretations, the Tribunal concluded that Section 234E cannot be applied retrospectively. Consequently, the appeals were allowed, setting aside the levied late fees for the periods prior to June 1, 2015.

Analysis

Precedents Cited

The Tribunal extensively referenced several key precedents that were pivotal in shaping its decision:

• ITA No. 793, 794 and 795/Lkw/2015 (Dr. Saumya Singh v. ACIT): This case established that the imposition of late fees under Section 234E is prospective and not retrospective.
• ITA No. 121 to 125/Lkw/2022 (Shivansh Infraestate Pvt. Ltd. v. ACIT): Reinforced the non-retroactive application of Section 234E, aligning with previous ITAT decisions.
• Rajesh Kournani Vs. UOI (Gujarat High Court): While initially cited by the Respondent, this decision was distinguished by the Delhi Tribunal in ITA No. 5380/DEL/2017 (Udit Jain v. ACIT), supporting the appellant's position.
• Fatheraj Singhvi Vs. Union of India (Karnataka High Court): Clarified that Section 234E's provisions are not retroactively applicable, emphasizing the principles of statutory interpretation.
• United Metals v. ITO TDS (Kerala High Court): Echoed the stance that Section 234E applies prospectively from the date of its amendment.

Legal Reasoning

The Tribunal's legal reasoning was anchored in the principles of statutory interpretation, particularly the presumption against retrospective operation of legislation unless expressly stated. It emphasized that:

• Section 234E was amended to include a mechanism under Section 200A for the computation and imposition of late fees, effective June 1, 2015. This implies a prospective application.
• The nature of the amendment, conferring substantive power for the imposition of fees, does not support a retrospective application.
• Citing the Hon'ble Karnataka and Kerala High Courts, the Tribunal underscored that any fee provisions or regulatory mechanisms introduced post the effective date of the amendment cannot be applied to periods before the amendment.
• The Tribunal distinguished the Rajesh Kournani case by referencing the Delhi Tribunal's decision, which did not find Section 234E to be retroactive.

Furthermore, the Tribunal opined that without explicit legislative intent to the contrary, the default position is that new tax provisions apply only to future conduct, not past actions.

Impact

This judgment has significant implications for taxpayers and tax authorities alike:

• Taxpayers: Offers relief from retrospective penalties, ensuring that late fees under Section 234E are only applicable from the date of amendment forward.
• Tax Authorities: Clarifies the limitations on the retroactive application of tax provisions, prompting a review of past levies that might have been imposed retrospectively.
• Future Cases: Sets a clear precedent that amendments to the Income Tax Act, unless explicitly stated, will not have retrospective effect. This will guide tribunals and courts in similar cases, promoting consistency in tax law interpretation.
• Legislative Clarity: Encourages lawmakers to be explicit about the retrospective or prospective nature of legislative amendments to avoid ambiguity and litigation.

Complex Concepts Simplified

Section 234E of the Income Tax Act, 1961

Section 234E mandates the deduction of a late fee for delayed filing of TDS (Tax Deducted at Source) returns. Specifically, if a deductor fails to file the TDS return by the due date, a late fee is imposed.

Prospective vs. Retroactive Application

• Prospective Application: The law applies to actions or events occurring after the law comes into effect.
• Retroactive Application: The law applies to actions or events that occurred before the law was enacted or amended.

Statutory Interpretation Principles

When interpreting statutes, unless the law clearly states otherwise, it is presumed that new laws or amendments apply only to future conduct and not to past actions.

Condonation of Delay

This refers to the Tribunal's acceptance to hear an appeal despite it being filed after the stipulated deadline, granted here due to justified reasons like the COVID-19 pandemic and administrative errors.

Conclusion

The ITAT Lucknow's decision in Executive Engineer, Tubewell Division Barabanki v. ITO (TDS)-II, Lucknow reinforces the fundamental principle that legislative amendments are, by default, prospective unless explicitly stated otherwise. By upholding the non-retroactivity of Section 234E, the Tribunal provided much-needed clarity and relief to taxpayers burdened with unnecessary penalties for periods preceding the amendment's effective date.

This landmark judgment not only aligns with established judicial interpretations but also sets a precedent that will influence future deliberations on the applicability of tax provisions. It underscores the judiciary's role in ensuring fair application of tax laws, safeguarding taxpayers from unwarranted penalties, and promoting legal certainty in the realm of taxation.