State Bank of India Vs ITO (ITAT Ahmedabad)
SBI Wins LTC TDS Dispute: No Assessee-in-Default When Bank Followed High Court Orders
The Ahmedabad ITAT held that State Bank of India could not be treated as an “assessee in default” under sections 201(1) and 201(1A) for not deducting TDS on Leave Travel Concession (LTC/LFC) reimbursements involving foreign travel. The Tribunal noted that during the relevant period, SBI was bound by interim directions of the Madras High Court, which had specifically directed that LTC reimbursements would not be treated as income and that no tax was to be deducted at source. Therefore, compliance with the Court’s order could not subsequently be treated as a TDS default.
The Tribunal observed that although the Supreme Court later held that LTC exemption under section 10(5) is not available where the journey includes a foreign leg, such later decision could not retrospectively fasten liability under section 201 for a period when the employer was acting in accordance with binding judicial directions. Relying on earlier Tribunal decisions and the Kerala High Court ruling in SBI’s case, it held that where a taxpayer is restrained by a court order from deducting tax, the statutory obligation to deduct TDS stands eclipsed during that period and section 201 cannot be invoked.
Consequently, the Tribunal deleted the demands raised under sections 201(1) and 201(1A) against various SBI branches and also cancelled the related penalty under section 271C, holding that obedience to a subsisting High Court order constituted a valid and reasonable cause.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
