TDS on leave fare concession reimbursements cannot be demanded when a subsisting court order barred deduction and interest also falls

Where leave fare concession reimbursements were paid to employees during the subsistence of the Madras HC interim order restraining tax deduction, the assessee could not be treated as an assessee in default under section 201 for not deducting tax at source. The Tribunal noted that the operative court directions then in force required the employer to refrain from deduction, with tax liability arising only if the writ petition ultimately failed. Following the coordinate bench ruling in the assessee's own case for the same year, the Tribunal held that no contrary deduction could be demanded. The consequential interest levy under section 201(1A) also failed, and the demand was deleted.

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Issues: Whether the assessee could be treated as an assessee in default under section 201 for not deducting tax at source on leave fare concession reimbursements made to employees during the period when the Madras High Court's interim order restraining deduction remained operative, and the consequential levy of interest under section 201(1A).

Analysis: The Tribunal noted that, on the relevant dates, the interim order of the Madras High Court was in force and had directed that amounts paid towards leave fare concession or reimbursement thereof would not be treated as income so as to enable the bank to deduct tax at source, with liability to pay tax arising only if the writ petition ultimately failed. Relying on the coordinate bench decision in the assessee's own case for the same assessment year, the Tribunal held that the assessee was bound to follow the subsisting court directions and could not be expected to deduct tax contrary to those directions. Since the demand under section 201(1) rested on the alleged failure to deduct tax at source, the related interest levy under section 201(1A) also could not survive.

Conclusion: The assessee was not liable to be treated as an assessee in default for the impugned leave fare concession payments, and the demand under sections 201(1) and 201(1A) was deleted.

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