Binding interim judicial directions barred TDS default liability where tax was not deducted on leave fare concession payments.

Binding interim High Court directions exempting TDS on leave fare concession payments prevented the assessee from being treated as an assessee in default under section 201(1) of the Income-tax Act. Although the section 10(5) exemption issue had already been decided against the assessee, the Tribunal held that the duty to deduct tax under section 192 could not override judicial orders in force during the relevant period, so non-deduction in obedience to those orders did not amount to default. As no legal obligation to deduct existed for that period, interest under section 201(1A) was also not sustainable.

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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 whether interest under section 201(1A) could survive, in respect of non-deduction of tax at source on leave fare concession payments made while bound by interim judicial orders.

Analysis: The issue on the merits of exemption under section 10(5) was already settled against the assessee, but the decisive question was whether default liability under section 201 could be fastened for the relevant period. The Tribunal accepted that the assessee was bound by operative interim directions of the High Court, under which deduction of tax at source was not to be made on the impugned payments. It held that the obligation to deduct tax under section 192 could not override binding judicial directions, and that failure to deduct in obedience to such orders could not constitute a default contemplated by section 201(1). Following the cited High Court and coordinate bench decisions, the Tribunal held that the assessee had no legal obligation to deduct tax during the relevant period.

Conclusion: The assessee was not an assessee in default under section 201(1), and interest under section 201(1A) was also not sustainable.

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