Binding interim court restraint protects payer from TDS default and interest when tax deduction is prohibited during the relevant period.

A payer restrained by binding interim judicial directions from deducting tax at source cannot be treated as an assessee in default for that period under section 201(1), and consequential interest under section 201(1A) also fails. The Tribunal noted that, although the exemption position on leave fare concession had already been decided against the assessee, the relevant question was the effect of the subsisting Madras High Court interim order, which directed that no deduction be made pending the writ petition. As the assessee was bound to comply with that restraint, non-deduction during the operative period did not amount to default.

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Issues: Whether the assessee could be treated as an assessee in default under section 201(1) of the Income-tax Act, 1961, and charged interest under section 201(1A), for non-deduction of tax at source on leave fare concession payments during the period when binding interim directions of the Madras High Court restrained deduction.

Analysis: The issue on the merits of exemption under section 10(5) was already concluded against the assessee, but the dispute before the Tribunal was confined to the effect of the interim judicial orders in force during the relevant period. The Tribunal noted that the assessee was bound by the interim directions of the Madras High Court, which clarified that the payments would not amount to income so as to enable deduction at source and that the employees would be liable if the writ petition failed. It held that the obligation under section 192 could not be viewed in isolation and had to yield to the binding court order. Following the Kerala High Court and a coordinate bench decision, the Tribunal held that failure to deduct tax in compliance with a subsisting judicial restraint could not be treated as a default under section 201(1).

Conclusion: The assessee could not be treated as an assessee in default for the impugned period, and the interest under section 201(1A) also did not survive.

Ratio Decidendi: Where a payer is restrained by binding judicial directions from deducting tax at source, non-deduction during the period of such restraint does not attract section 201(1) or section 201(1A) of the Income-tax Act, 1961.

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