The Income Tax Appellate Tribunal (ITAT) in Ahmedabad has granted significant relief to the State Bank of India (SBI) by deleting demands raised for alleged tax deduction at source (TDS) default on leave travel concession (LTC) payments. The tribunal held that the bank could not be treated as an 'assessee in default' when it acted under binding interim directions of the Madras High Court.
Background of the Dispute
The dispute pertained to LTC benefits extended by SBI branches in Gandhinagar and Bhavnagar during the financial years 2016-17 and 2017-18 (assessment years 2017-18 and 2018-19). In certain instances, employees undertook travel that included foreign legs. SBI computed TDS by treating the eligible Indian portion of the journey as exempt and deducted tax accordingly. However, the Income Tax Department argued that when travel involved foreign destinations, the entire LTC reimbursement became taxable, requiring full TDS deduction.
Proceedings Initiated Against SBI
The department initiated proceedings under Section 201(1) and Section 201(1A) of the Income Tax Act, treating SBI as an assessee in default for short deduction or non-deduction of TDS and levying interest. The assessing officer and the Commissioner (Appeals) upheld the demand. The department also relied on judicial precedents, including a Supreme Court ruling, which stated that LTC exemption is not available when travel is undertaken on foreign soil.
SBI's Argument Before the Tribunal
According to CA Sulabh Padshah, SBI argued before the tribunal that during the relevant period, it operated under interim orders of the Madras High Court. These orders restrained banks from deducting TDS in such LTC cases. SBI submitted that compliance with the High Court's interim directions was mandatory, and deducting TDS contrary to those orders would have exposed the bank to contempt proceedings.
ITAT's Decision
Accepting SBI's contention, the ITAT, Ahmedabad held that the bank was bound by the Madras High Court's interim orders. In such circumstances, non-deduction of TDS could not be treated as a default under Section 201(1). Consequently, the tribunal ruled that interest charged under Section 201(1A) also could not survive once the principal default itself was deleted.
Padshah commented, 'Where a taxpayer's conduct is governed by a High Court's specific directions, the resulting non-deduction cannot be branded as a default. Disregarding such directions would amount to contempt; therefore, Section 201 consequences should not be invoked in these facts.'
Outcome of the Appeals
The tribunal allowed SBI's appeals for both assessment years and deleted the demands raised under Section 201(1) along with interest under Section 201(1A). The order referred to earlier rulings, including State Bank of India Bhavnagar Para branch vs ITO (TDS), State Bank of India vs CIT (Kerala High Court), and State Bank of India vs CIT(A) (Agra Tribunal).
