TaxTMI 
TaxTMI 
2026 (6) TMI 857
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....foreign stop-over in their travel. 3. I have heard the rival submissions and perused the material available on record. The employees of the assessee bank had availed leave travel concession from the bank and had gone to certain foreign countries during their visit. The assessee had not deducted tax at source on the payment of LFC to its employees on the ground that the same is not taxable in the hands of the said employees as salary in terms of Section 192 of the Act. The assessee bank however was aware of the fact that the employee during their LTC visit had indeed travelled abroad as the same would be evident from the settlement of bills by the concerned employees to the assessee bank. The assessee bank took a stand that even if the said LFC is liable for TDS, the same would be protected in hands of the assessee as the employees would be in turn paying the tax in their individual hands. The assessee bank also took shelter of the order of Hon'ble Madras High Court in the case of All India State Bank Officer's Federation and All India Bank Officer's Confederation Vs. State Bank of India and others in MP No. 2 of 2014 in WP No. 11991 of 2014 dated 16.02.2015. Further, the Hon'ble....
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....he 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 16 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 AD holding the Appellant to be an assessee in default. 5. The CIT(A) erred in not quashing the order of the AG 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 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) wher....
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....r Rules against a foreign leg in the course of such travel. The assessee also relied upon industry practice, guidelines issued by the Indian Banks' Association, and various judicial precedents to contend that the assessee had acted under a bona fide belief and therefore could not be treated as an assessee in default. Further the assessee placed reliance on interim orders of the Hon'ble Madras High Court, wherein it was held that LFC payments would not amount to income for the purpose of TDS during the pendency of the writ proceedings, and therefore the assessee could not have deducted tax without violating the court's directions. 5. However, the Assessing Officer did not accept the contentions of the assessee. the Assessing Officer, relying upon the judgment of the Hon'ble Supreme Court dated 04.11.2022, held that exemption under section 10(5) of the Act is available only in respect of travel within India and not where foreign travel is involved. The Assessing Officer observed that once the journey includes a foreign leg, the exemption is not admissible and the amount becomes taxable in the hands of the employee. Accordingly, the assessee was held to be an assessee in defa....
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....es a foreign leg now stands concluded against the assessee by the judgment of the Hon'ble Supreme Court dated 04.11.2022. There is no dispute on this legal position and the same is duly acknowledged. However, the limited controversy before us is whether, in the peculiar facts 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 cont....
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....nder an obligation not to deduct tax at source and therefore, the assessee could not be held to be assessee in-default for non-deduction of tax at source on impugned LFC payments." 17. The Hon'ble High Court has thus clearly held that where the assessee was 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 obligat....