TaxTMI 
TaxTMI 
2026 (7) TMI 1890
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....01(1A) of the Income Tax Act, 1961 (the Act) dated 26.09.2023 passed by the ITO TDS WARD MANGALORE (the ld. AO) was dismissed. 2. Assessee has raised following grounds of appeal before us :- 1. The order of the Learned Commissioner of Income Tax (Appeals) [CIT(A)] dated 17.12.2025 is opposed to law, facts, and principles of natural justice as it was passed without considering the written submissions filed by the Appellant, thereby rendering the order defective and liable to be set aside. 2. The Learned CIT(A) erred in law and on facts by upholding the Assessing Officer's order dated 26.09.2023 under Sections 201(1) and 201(1A) of the Act, deeming the Appellant an "assessee-in-default" for non-deduction of TDS under Section 192(1) on LFC/LTC reimbursements, without appreciating the Appellant's bona fide compliance with binding interim orders dated 25.04.20 14 and 16.02.2015 of the Hon'ble Madras High Court in W.P. No. 11991/2014, which expressly restrained TDS deductions by clarifying that such payments "would not amount to income so as to enable the Bank to deduct tax at source.' This binding was prevalent throughout the FY 2016- 17 (AY 2017-18)....
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....ellant's part, but rather mandatory compliance with a subsisting court order, rendering the rendering demands inequitable, unjust, and unreasonable. 3. The facts and circumstances in all the other appeals are similar, except for the quantum of tax and the dates of the respective orders. The core issue in all these appeals is that various branches of the State Bank of India did not deduct tax at source under section 192 of the Income-tax Act on Leave Fare Concession/Leave Travel Concession reimbursements paid to their employees. The Assessing Officers thereafter passed orders under sections 201(1) and 201(1A) of the Income-tax Act, 1961, treating the assessee as an assessee in default and levying interest for non-deduction of tax at source. On appeal, the learned CIT(A) confirmed the Assessing Officers' action. Hence, all these appeals are before us. 4. The facts show that State Bank of India ("the Bank") provides Leave Travel Concession/Leave Travel Allowance to its employees under the State Bank of India Officers' Service Rules, 1992. While deducting tax at source from salary, the Bank treated such LTC payments as exempt under section 10(5) read with Rule 2B and therefor....
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....cers from undertaking overseas travel under LTC/HTC. This circular was challenged before the Hon'ble Madras High Court in W.P. No. 11991/2014. The Bank filed a counter affidavit on 02.09.2014 opposing the writ petition. By order dated 25.04.2014, the Court granted an interim stay on the petitioners' undertaking that, if the writ petition was dismissed, members would refund the LTC amounts paid for foreign or overseas travel. The Bank thereafter clarified that foreign travel under LTC/HTC could be undertaken while the stay remained in force, subject to refund if the petition failed. These facts were also communicated to the Ministry of Finance by letter dated 25.08.2014. On 29.04.2015, the Bank filed an affidavit-in-reply stating that the High Court's order dated 16.02.2015 affected the Income-tax Act, the Rules, CBDT circulars, and the tax authorities, and that such authorities were necessary parties. The Bank accordingly sought vacation of the interim order. On 16.02.2015, the interim stay was extended until disposal of the writ petition, with a clarification that LFC payments or reimbursements made pursuant to the impugned order would not constitute income enabling deduction of t....
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.... 31.03.2017. Therefore, the Bank could not be denied the benefit of the law and judicial position prevailing at the relevant time. It was also submitted that courts have consistently held that an employer making a bona fide estimate of employees' income cannot be treated as an assessee in default under section 201. The learned authorised representatives further submitted that the Bank provides LFC under the State Bank of India Officers' Service Rules, 1992, industry-level settlements, IBA guidelines, and internal circulars. Reimbursement is allowed only where the designated destination is in India and is actually visited. If the journey includes travel outside India, reimbursement is restricted to the lower of the actual fare/hire charges or the fare to the hometown/designated place by the shortest route and entitled class. Only travel expenses are reimbursable, and ancillary benefits are excluded. For instance, where the itinerary is Mumbai-Kolkata-Singapore- Mumbai and Kolkata is the designated Indian destination, exemption is considered only for the national carrier economy fare for Mumbai-Kolkata- Mumbai, subject to the employee's monetary ceiling. The Bank granted exemption un....
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....justification for the assessee's failure to deduct tax at source on these payments. He submitted that the Assessing Officer had rightly treated the assessee as an assessee in default under section 201 of the Act, and that the shortfall in tax deduction, along with interest, was recoverable from the assessee. 8. In response, the learned authorised representative submitted that an identical issue had arisen before the Hon'ble Kerala High Court in ITA No. 45 of 2025, where the following two questions were answered in favour of the assessee in its own case. He therefore submitted that the orders passed by the learned Assessing Officer and confirmed by the learned CIT(A) deserve to be quashed, as the issue is squarely covered in favour of the assessee. The learned authorised representative referred to the following two questions: i Whether, in the facts and circumstances of the case, the appellant could be treated as an assessee in default under Section 201 of the Income Tax Act,1961? ii. Whether, in the facts and circumstances of the case; when the assessee bank, by the interim order of the High Court of Madras, was under an obligation not to deduct tax at source, ....
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....e would not amount to his income so as to enable the bank to deduct tax at source. In view of this, the appellant could not deduct tax while making payment to the employees during the financial year 2015- 16 relevant to the assessment year 2016-17. The appellant points out that the afore writ petition was ultimately dismissed on 24.06.2022, against which W.A No.1653 of 2022 was filed, which led to the issuance of Annexure-C interim order dated 08.08.2022 interdicting the appellant from making recovery from the salary of the employee. Ultimately, the appellant points out that by Annexure- D judgment dated 08.06.2023, the Division Bench of the Madras High Court directed reconsideration of the issue as regards the withdrawal of LTC benefits. The afore judgment is again challenged by the appellant bank before the Apex Court, and by an order dated 28.08.2023 in SLP (C) 16734 of 2023, while issuing notice, the Apex Court interdicted the bank from making recoveries from employees during the pendency of the matter. It was the contention of the bank before the department, when steps under Section 201(1) and (1A) of the Act were initiated, that though payments were made, deduction could not ....
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....fore, the bank could not make any deductions at source. iv. If ultimately the writ petition stood rejected, it is for the employee to pay tax on the amount paid by the bank. It is also not in dispute that the above state of affairs continued throughout the year 2015-16. 7. It is on the face of the afore, provisions of Section 201 of the Act requires to be analysed so as to consider the question as to whether the appellant could be treated as an 'assessee in default'. Under Section 192 of the Act, the appellant had a statutory duty to deduct income tax while making payments to the employee 'at the time of payment'. 8. The provisions of Section 201 of the Act, to the extent relevant herein, read as under: - "201 Consequences of failure to deduct or pay. (1) Where any person, including the principal officer of a company,-- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or....
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...., which provides for actual deduction of tax at source. But in the case at hand, when so visualised, there cannot be any dispute that the appellant assessee could not have made any deduction in view of the interim order issued as noticed earlier. It is only when the appellant-assessee, after having a liability to deduct tax, fails to do so, the question of invoking Section 201 of the Act and treating it as an 'assessee in default' arises. Here, the Madras High Court found, prima facie, that the amount paid would not be the income of a payee so as to deduct tax. Therefore, we are of the opinion that the provisions of Section 201(1) of the Act are not attracted to the case at hand. For the same reasons, the provisions of sub-section (1A) of Section 201 of the Act providing for the levy of interest are also not attracted. 9. The issue can be addressed from yet another angle, also. Section 192 of the Act, as noticed earlier, provides for making deductions while making payments to the employee. At the time of such payment, the interdiction by the Madras High Court did not permit the appellant to deduct tax, since the appellant-assessee was directed to make such....
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....notice dated September 2, 1994, which is extracted above. We have already extracted the relevant portion of our order dated August 2, 1994, which directed the mode of payment. Further, the petitioners/appellants in Contempt Appeal No. 5 of 1994, were required to pay under the teeth of punishment imposed in the contempt proceedings. Our order did not give any scope or option to the appellants in the contempt appeal to deduct 20 per cent, of the amount payable to the respondents at source. In such a situation, the proviso to section 201 of the Act is attracted as it specifically empowers the concerned Assessing Officer to extend the benefit to such an assessee and not to treat him as the assessee in default in respect of the tax. On this question also, we have heard learned senior standing counsel for the Department, who fairly submitted that as the petitioners were obliged to make payment pursuant to the order of this court, they cannot be treated as defaulters and they would fall within the proviso to section 201 of the Act, and the Assessing ITA NO.45 OF 2025 2025:KER:87679 Officer would be suitably advised in this regard, on an application filed by the petitioners pursua....
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....pon the final disposal of the main case that would be subject to the observation to the contrary in the interim order or the final judgment. Applying this principle to the case at hand, even though the main writ petition/writ appeal has been later disposed of insofar as the interim order has directed the treatment of the amount paid without deduction of tax in the manner laid down therein, the appellant bank cannot be treated as an assessee in default. 13. Sri.Jayashankar also contended that insofar as steps under Section 201 of the Act were initiated with reference to the deduction within the State of Kerala, the interim orders issued by the Madras High Court were of no consequence, and hence the appellant cannot seek refuge thereunder. But we are of the opinion that since the Act is an all-India statute and since what was challenged before the Court was the circular issued by the bank at the instance of the Association of Bank employees, the appellant cannot be faulted for having honoured the stay orders issued by the Madras High Court. Therefore, the afore contention raised is only to be rejected. 14. We also take note of the fact that the Apex Court, by judgme....