Bank liable for TDS default on LTC reimbursements to employees under section 201(1)(1A) despite interim relief

The ITAT Delhi held that the assessee bank was in default under section 201(1)(1A) for failing to deduct TDS under section 192 on LTC reimbursements to employees, including foreign travel through circuitous routes. Despite the Madras HC's interim order stating LTC payments would not constitute income requiring TDS deduction, the SC's subsequent decision affirmed that banks must deduct TDS on LTC payments to employees. Following the SC precedent, the ITAT ruled the assessee was liable for non-deduction of tax at source and dismissed the appeals.

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Issues Involved:
1. Whether the assessee is liable to deduct tax at source on the Leave Travel Concession (LTC) payments made to its employees.
2. Whether the assessee can be treated as "assessee in default" for non-deduction of tax at source.
3. The applicability of interest under Section 201(1A) for non-deduction of tax at source.

Detailed Analysis:

1. Liability to Deduct Tax at Source on LTC Payments:
The primary issue was whether the appellant (assessee) was in default for not deducting tax at source while releasing LTC payments to its employees. The Hon'ble Supreme Court in the case of SBI Vs. ACIT determined that LTC payments are exempt from income tax only if the travel is strictly within India and follows the shortest route. The Court found that the employees in question had included foreign travel in their itineraries, thereby violating the statutory provisions under Section 10(5) of the Income Tax Act, 1961, and Rule 2B of the Income Tax Rules, 1962. Consequently, the Court held that the assessee ought to have deducted tax at source on these payments.

2. Assessee in Default:
The Revenue's position, supported by the Hon'ble Supreme Court, was that the assessee-employer failed to fulfill its statutory duty under Section 192(1) of the Income Tax Act, which mandates the deduction of tax at source from salary payments. The Court emphasized that the employer cannot claim ignorance of the travel plans of its employees, as the details are available during the settlement of LTC bills. Therefore, the assessee was rightly held as "assessee in default" under Section 201 for not deducting tax at source.

3. Applicability of Interest under Section 201(1A):
The assessee also contested the interest charged under Section 201(1A) for non-deduction of tax. The Court upheld the imposition of interest, reiterating that the employer's statutory duty to deduct tax at source was clear and unambiguous. The failure to do so warranted the charging of interest as per the provisions of the Income Tax Act.

Conclusion:
The appeals filed by the assessee were dismissed. The Tribunal upheld the findings of the Hon'ble Supreme Court and the Delhi High Court, affirming that the assessee was liable to deduct tax at source on LTC payments involving foreign travel. The decision also confirmed that the assessee was correctly treated as "assessee in default" and the interest charged under Section 201(1A) was justified. The interim order by the Hon'ble Madras High Court was deemed irrelevant in light of the Supreme Court's ruling.

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