TaxTMI 
TaxTMI 
2026 (8) TMI 872
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....aptioned appeals is as to whether the Assessing Officer (in short 'the AO') was justified in treating the assessees, which are separate branches of the State Bank of India (in short 'SBI'), as assessees in default, u/s. 201(1) and 201(1A) of the Act for non-deduction of TDS on the amount paid as Leave Travel Concession (in short 'LTC') for undertaking the foreign journeys or journeys involving foreign leg. 3. SBI had been providing reimbursement of LTC to its employees. Pursuant to a Circular dated 15.04.2014 issued by the Bank, the LTC as regards overseas travel facilities to the employees, stood withdrawn. The Circular was challenged before the Hon'ble Madras High Court at the instance of the Association of employees of the bank. The Madras High Court vide order dated 25.04.2014 stayed operation of the Circular. Later on, the aforesaid stay order was sought to be modified / clarified at the instance of the petitioners. The Hon'ble Madras High Court, therefore, issued interim order dated 16.02.2015 in W P No.11991 of 2014 clarifying the said order as under: "5. There is no dispute that the Bank would be paying LTC amount to the concerned officers pursuant to the interi....
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....eign travel is involved. 8. However, the issue is no mor res integra as various benches of this Tribunal has decided the issue in favour of the SBI Bank holding that the assessee bank was prevented from deducting the TDS on the reimbursement of LTC paid to its employees because of the interim directions of the hon'ble Madras High Court restraining the SBI to do so. Even the Hon'ble Kerala High Court, in ITA No.45 of 2025 (order dated 18th November 2025) has held that the assessee (SBI) under the circumstances, was under 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. The co-ordinate Ahmedabad Bench of the Tribunal in ITA Nos.453 & 454/Ahd/2026 in the case of "State Bank of India Bhavnagar Para Branch vs. ITO, vide order dated 26.03.2026, in the identical facts and circumstances, after taking note of the above decision of the hon'ble Kerala High Court and also of the decision of the other co-ordinate Bench of this Tribunal, has held as under: "3. The brief facts of the case are that the assessee is a branch of State Bank of India which had provid....
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....fore the CIT(Appeals). Before CIT(Appeals), the assessee reiterated its submissions regarding compliance with Rule 2B, absence of any statutory bar on foreign travel during the journey, and its bona fide belief supported by judicial precedents. It was also contended that the Bank had only allowed exemption where the designated place was in India and that the foreign leg was merely incidental. 7. The CIT(A), however, did not accept the submissions of the assessee. The CIT(Appeals) observed that a combined reading of section 10(5) of the Act and Rule 2B clearly indicates that the exemption is available only for travel from one place in India to another place in India by the shortest route. The CIT(A) further relied upon the decision of the Hon'ble Supreme Court dated 04.11.2022, wherein it was categorically held that LTC/LFC exemption is not available in cases where the travel involves a foreign leg. The CIT(Appeals) held that the moment foreign travel is involved, the journey ceases to be a journey within India and therefore falls outside the scope of section 10(5) of the Act. 8. With regard to the argument of bona fide belief and reliance on earlier judicial order....
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....he obligation under section 192 of the Act to deduct tax at source cannot be read in isolation and must yield to binding judicial orders. Therefore, the failure to deduct tax in such circumstances cannot be equated with a default contemplated under section 201(1) of the Act. 15. We further find that an identical issue has been considered by the Co-ordinate Bench of the Tribunal in the case of State Bank of India in ITA No.514/Agr/2024, wherein after considering the decision of the Hon'ble Supreme Court as well as the interim orders of the Hon'ble Madras High Court, ITAT held that the assessee bank could not be treated as an assessee in default since it was bound to follow the interim directions of the Hon'ble High Court. The Tribunal categorically observed that the assessee had no option but to comply with the orders of the Hon'ble High Court and non-deduction of tax in such circumstances could not invite the rigours of section 201(1) and 201(1A) of the Act. 16. More importantly, the Hon'ble Kerala High Court in ITA No.45 of 2025 (order dated 18th November 2025) has examined this issue in detail and has held in favour of the assessee. The relevant findings of the ....