Interim court directions barred TDS on LTC payments, so the bank was not treated as an assessee in default.

Subsisting interim orders of the Madras High Court restrained implementation of the bank's circular and directed that tax was not to be deducted from Leave Travel Concession payments made to employees during the relevant period. While those directions remained in force, the bank was legally prevented from withholding tax, and any contrary deduction could have exposed it to contempt consequences. On that basis, the bank could not be fastened with liability as an assessee in default under the withholding provisions for non-deduction of tax at source on the impugned LTC payments.

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Issues: Whether the assessee bank could be treated as an assessee in default for non-deduction of tax at source on Leave Travel Concession payments made to employees during the period when the Madras High Court's interim stay and directions were in force.

Analysis: The appeals turned on the effect of the subsisting interim orders of the Madras High Court, which restrained implementation of the bank's circular and directed that tax was not to be deducted on the relevant LTC payments. It was held that, during the period when those interim directions governed the field, the bank was prevented from deducting tax at source and any contrary deduction would have exposed it to contempt consequences. Reliance was also placed on the view that, on the same facts, the assessee could not be fastened with liability as an assessee in default under the withholding provisions.

Conclusion: The assessee bank was not liable to be treated as an assessee in default for non-deduction of tax at source on the impugned LTC payments, and the appeals were allowed.

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