TaxTMI 
TaxTMI 
2026 (6) TMI 826
X X X X Extracts X X X X
X X X X Extracts X X X X
....A) had dismissed the appeal against the Order, dated 21/03/2024 passed under Section 201(1)/201(1A) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act'] for the Assessment Year 2017- 2018. 3. The Assessee has raised following grounds in the above appeal: 1. The Learned Commissioner of Income-tax (Appeals) ("CIT(A)") erred in confirming the order of the Assessing Officer ("Assessing Officer") holding the appellant to be an Assessee in default for failing to deduct tax at source under section 192 of the Income-tax Act, 1961 [the Act). 2. The CIT(A) erred in not appreciating that the Appellant had issued e-Circular no. CDO/P&HRD-PM/7/2014-15 dated 15% April 2014 stating that the employees shall not be entitled to visit overseas countries/ centers as part of leave travel concession ("LTC") which Circular was challenged by the All India State Bank Officers Federation & Ors. before the Madras High Court by way of a writ petition (WP No. 11991 of 2014) and that the Madras High Court had vide its order dated 25 April 2014 granted interim stay of the Circular. 3. The CIT(A) further erred in not appreciating that tax was not deducted at source by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ered the Appellant bank from not making any recoveries from its employees during the pendency of the petition. 8. Without prejudice to above grounds, the CIT(A) erred in not holding that the Appellant could not have been deemed to be an Assessee in default under section 201(1) of the Act if the employee had furnished the return of income, taken into account such sun for computing Income and paid the tax due on income declared by the employee." 4. The relevant facts in brief are that Assessee is a banking branch of State Bank of India (SBI) which is engaged in the banking business. The employees of the Assessee are entitled to receive reimbursement for Leave Fare Concession (LFC) under the State Bank of India Officers' Service Rules, 1992. 5. The Hon'ble Supreme Court, had, vide Order dated 04/11/2022 passed in Civil Appeal No. 8181 of 2022, held that once an employee undertakes travel involving a foreign leg, such travel cannot be regarded as travel within India and, therefore, does not fall within the ambit of Section 10(5) of the Act. It was held that it was incumbent upon the employer to apply their mind and discharge their statutory obligation under Section 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of the present case, the Assessee can be treated as an "Assessee in default" under section 201(1) of the Act for non-deduction of tax at source during the relevant period. 13. The contention of the Assessee has consistently been that during the year under consideration, it was bound by the interim orders passed by the Hon'ble Madras High Court in W.P. No.11991 of 2014, wherein vide order dated 16.02.2015 it was specifically clarified that the LFC payments would not amount to income so as to enable deduction of tax at source and further that if the writ petition was ultimately dismissed, the employees would be liable to pay tax. The Assessee has submitted that in view of such binding judicial directions, it could not have deducted tax at source and any such deduction would have amounted to disobedience of the order of the Hon'ble High Court. 14. We find considerable merit in the aforesaid contention of the Assessee. The interim directions of the Hon'ble Madras High Court were in force during the relevant previous year and the Assessee, being a party to the proceedings, was duty bound to comply with the same. The obligation under section 192 of the Act to deduct ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s restrained by judicial orders from deducting tax at source, the provisions of section 201 of the Act cannot be invoked and the Assessee cannot be treated as an Assessee in default. 18. In the present case also, the facts are materially identical. The Assessee was operating under the binding interim directions of the Hon'ble Madras High Court during the relevant period and therefore could not have deducted tax at source. The subsequent decision of the Hon'ble Supreme Court, though settling the issue on merits, cannot retrospectively fasten liability under section 201(1) of the Act for a period during which the Assessee was acting in compliance with judicial orders. 19. We also find force in the argument of the Assessee that the scheme of section 201 of the Act itself contemplates that a person can be treated as an Assessee in default only when there is a failure to deduct tax in spite of a legal obligation to do so. In the present case, such legal obligation stood eclipsed by the interim directions of the Hon'ble High Court. 20. In view of the above discussion, respectfully following the decision of the Hon'ble Kerala High Court in ITA No.45 of 2025 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed, since such conduct can never amount to wilful neglect, contumacious default, or deliberate defiance of law. 4. The learned CIT(A) failed to appreciate that deduction of tax in breach of the interim directions of the Hon'ble Madras High Court would itself have amounted to disobedience of the Court's order and could have exposed the Appellant to contempt proceedings; hence, the Appellant had more than sufficient and reasonable cause for not deducting tax. 5. The learned CIT(A) failed to appreciate that the Hon'ble Madras High Court had also clarified that, in the event the writ petition failed, the tax liability would fall upon the employees, thereby reinforcing that the Appellant's conduct was under judicial sanction and devoid of any revenue-evasive intent. 6. The learned CIT(A) erred in not appreciating that the issue was, in any event debatable and legally contentious, and therefore penalty under section 271C, being penal in nature, was wholly unsustainable. 7. The learned CIT(A) erred in not following / appreciating the ration of the judgment of the Hon'ble Kerala High Court in State Bank of India v. CIT (ITA No. 45 of 2025....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h Court in its order dated 16th February 2015 by which the Court held that the LTC paid or reimbursed would not amount to income and that no tax was to be deducted thereon. The CIT(A) ought to have appreciated that if the LTC was not to be treated as income of the employees as per the order of the Hon'ble Madras High Court, the same even otherwise would not require withholding of tax under section 192 of the Act. 4. The CIT(A) further erred in not appreciating that the Madras High Court vide its said order dated 16th February 2015 having directed the Appellant not to deduct at source on LTC had further stated that if the writ petition challenging the Circular was dismissed, the employees would be liable to pay tax on the LTC amount paid by the Appellant and, therefore, the CIT(A) ought to have quashed the order of the AO holding the Appellant to be an assessee in default. 5. The CIT(A) erred in not quashing the order of the AO holding the Appellant to be an assessee in default for the reason that the Appellant, even if it wanted to, could not have deducted tax at source on LTC paid during the year under consideration in view of the orders of the Hon'ble Ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 days in filing the present appeal and proceed to adjudicate the issues raised by the Assessee on merit. 20. During the course of hearing both sides had agreed that the grounds raised in the present appeal are identical to grounds raised in ITA No. 1338/AHD/2026. Since there is parity in facts, our finding and adjudication in the ITA No. 1338/AHD/2026 shall also apply to the present appeal. Accordingly, we proceed to adjudicate the ground raised in the present appeal adopting the reasoning given while adjudicating corresponding grounds raised in ITA No. 1338/AHD/2026. Therefore, in view of Paragraph 4 to 12 above, we hold that the Assessee cannot be treated as 'Assessee in Default' for non-deduction tax at source from the payments made towards LFC. As a result, the demand of INR.2,09,466/- (INR.1,12,014/- + INR.97,452/-) raised upon the Assessee by way of Order, dated 31/03/2023, passed under Section 201(1)/(1A) of the Act is deleted. Thus, Ground No. 1 to 7 raised by the Assessee are allowed and Ground No. 8 raised by the Assessee, raising the alternative contention, is dismissed. Hence, the appeal preferred by the Assessee is allowed. 21. In the result, the appeal of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid by the Appellant and, therefore, the CFT(A) ought to have quashed the order of the Assessing Officer holding the Appellant to be an Assessee in default. 5. The CIT(A) erred in not quashing the order of the Assessing Officer holding the Appellant to be an assessed in default for the reason that the Appellant, even if it wanted to, could not have deducted tax at source on LTC paid during the year under consideration. In view of the orders of the Hon'ble Madras High Court till the time they were in force as acting contrary to the orders of the Hon'ble Court would have amounted to contempt of Court. 6. The CIT(A) erred in not following the judgment of the Hon'ble Kerala High Court in State Bank of India v. CIT (ITA no. 45 of 2025) where the Hon'ble Court after considering the above set of facts held that the Appellant was justified in rut deducting tax at source in view of the interim directions issued by the Madras High Court asking the Appellant not to deduct tax at source. 7. The CIT(A) erred in observing that the legal obligation to deduct tax was reinstated once the interim order passed by the Hon'ble Mudras High Court was vacated....