TDS default and interest cannot survive where non-deduction followed binding interim judicial directions.

Non-deduction of tax at source on leave fare/travel concession payments did not attract section 201 consequences where the assessee acted during a period governed by binding interim High Court directions restraining deduction. The Tribunal noted that the exemption dispute under section 10(5) had already been decided against the assessee by the Supreme Court, but the limited question was whether compliance with judicial orders could still constitute default. It applied coordinate bench and High Court authorities holding that tax deduction obligations cannot be enforced inconsistently with binding court directions. The assessee was therefore not an assessee in default under section 201(1), and interest under section 201(1A) did not survive.

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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/travel concession payments during the period when binding interim judicial directions were operating.

Analysis: The dispute on the merits of exemption under section 10(5) had already stood concluded against the assessee by the Supreme Court. The limited controversy was whether the assessee's failure to deduct tax at source could still attract section 201 consequences when, during the relevant period, it was acting under binding interim directions of the High Court that restrained deduction on such payments. The Tribunal followed the coordinate bench decision and the allied High Court authorities holding that the obligation to deduct tax cannot be enforced in a manner inconsistent with binding judicial orders, and that non-deduction in compliance with such directions does not amount to default under section 201(1).

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

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