State Bank of India Vs ITO TDS (ITAT Rajkot)
Summary: ITAT Rajkot allowed State Bank of India’s appeal for AY 2017-18 and directed deletion of the demand raised under Sections 201(1) and 201(1A) in respect of Leave Fare Concession (LFC) payments involving foreign travel. The Assessing Officer had treated SBI as an assessee in default for not deducting tax under Section 192(1).
Although the Supreme Court in State Bank of India v. ACIT, Civil Appeal No. 8181 of 2022, had settled the substantive issue against SBI by holding that LTC involving a foreign leg was not exempt under Section 10(5), the Tribunal noted that the issue of default during the operation of the Madras High Court’s interim directions had subsequently been considered by coordinate Benches and the Kerala High Court.
The Ahmedabad Bench had held that SBI was duty-bound to comply with the Madras High Court’s interim order and therefore could not be treated as an assessee in default for not deducting TDS during the protected period. The Kerala High Court similarly held that Section 201(1) would apply only where there was a liability to deduct tax followed by failure to do so; where SBI was under a judicial obligation not to deduct tax, the provision was not attracted.
Finding no change in the factual matrix or legal position, ITAT Rajkot followed the coordinate Bench decision and directed the Assessing Officer to delete the demand under Sections 201(1) and 201(1A). The assessee’s appeal was accordingly allowed.
Cases Discussed
- State Bank of India v. Assistant Commissioner of Income-tax, Civil Appeal No. 8181 of 2022, order dated 04.11.2022 (Supreme Court) — considered on the substantive issue of exemption under Section 10(5); the Supreme Court held that LTC involving a foreign leg could not be regarded as travel within India and that the employer was required to discharge its TDS obligation under Section 192(1).
- State Bank of India, Bhavnagar Vs. ITO, ITA Nos. 453 & 454/Ahd/2026, order dated 26.03.2026 (ITAT Ahmedabad) — followed for holding that SBI could not be treated as an assessee in default under Section 201(1) where it was bound by the Madras High Court’s interim directions not to deduct tax on the relevant LFC payments.
- State Bank of India v. CIT (Appeals), ITA No. 514/Agr/2024 (ITAT Agra) — considered for the coordinate Bench ruling that SBI could not be treated as an assessee in default when non-deduction of tax resulted from compliance with the binding interim directions of the Madras High Court.
- State Bank of India v. CIT, ITA No. 45 of 2025, order dated 18.11.2025 (Kerala High Court) — followed for holding that where SBI was under an obligation pursuant to a judicial order not to deduct tax at source, Section 201(1) was not attracted and SBI could not be treated as an assessee in default.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2017-18, is directed against the order under section-250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the Commissioner of Income-tax (Appeals) [in short ‘Ld.CIT(A)’], dated 23.03.2026, which in turn arises out of an order passed by ITO TDS u/s 201 of the Act, dated 26.10.2023.
2. Brief facts of the case are that the present case of the assessee for the Assessment year 2017-18 was required to deduct TDS at source u/s 192(1) of the Act, on Leave Fair Concession (LFC) payments which include Foreign Travel undertaken by its employees. During the course of proceedings, the Ld. ITO TDS observed that the assessee had allowed exemption in respect of LFC payments made to its employees and tax were required to be deducted at source as required u/s 192(1) of the Act. Accordingly, the AO treated the assessee as an assessee in default u/s 201 & 201(1)(A) of the Act, vide order dt. 26.10.2023 and raised a demand of tax and interest aggregating to Rs.1,32,649/-.
3. Dissatisfied with the above order, the assessee preferred an appeal before the Ld. CIT(A). However, the Ld. CIT(A) upheld the action of the Assessing Officer and dismissed the appeal of the assessee
4. Still, aggrieved by the above order, assessee is in appeal before this Tribunal.
5. At the time of hearing, Ld. AR stated that the issue involved in the present appeal is squarely covered by the decision of the co-ordinate bench of the Tribunal in the assessee’s own case in I ITA No.365/Ahd/2026 dt. 09.02.2026 in the case of State Bank of India v. Income Tax Officer It was submitted that the facts and circumstances of the present case are identical to those considering by the Tribunal in the aforesaid decision and therefore the issue stand covered in favour of the assessee.
5. On the other hand, Ld. DR supported fairly admitted that the issue is covered by the aforesaid decision of the coordinate bench.
6. We have heard, rival submissions and perused the material available on considered by the coordinate bench of Ahmedabad Bench in the assessee’s own case in ITA No.365/Ahd/2026, dt. 09.04.2026. For seeking up ready reference the authority portion of the said order is reproduced as under:
The facts of the case are that assessee, M/s. State Bank Of India (TAN: BRDS034528), is a banking branch of M/s. State Bank of India (SBI), which is engaged in the banking business. The Hon’ble Supreme Court, vide order dated 04.11.2022 in Civil Appeal No. 8181 of 2022 held that once an employee undertakes travel involving a foreign leg, such travel cannot be regarded as travel “within India” and, therefore, does not fall within The ambit of section 10(5) of the Act. The Court further held that it is incumbent upon the employer to apply its mind and discharge its statutory obligation under section 192(1) of the Act by deducting tax at source. In view of the above decision of the Hon’ble Apex Court, information was obtained regarding employees who had availed Leave Fare Concession (LFC) during the relevant period, in Uo instant case, in order to verify the correctness of the TDS liability and compliance with the TDS provisions of the appellant, the Assessing Officer (AO) initiated proceedings under section 201(1) of the Act. Consequently, vide order passed under sections 201 and 201(1A) dated 31.03.2023, the AO held the appellant to be an “assessee in default for non-deduction of TDS on an amount of Rs. 20,69,011/-
4. Heard the argument of both the parties and perused the material available on record.
5. At the outset, both the parties fairly submitted that the issue raised by the assessee in the present appeals stands covered by the order of the Tribunal in the case of State Bank of India, Bhavnagar Vs. ITO for A.Y 2016-17 in ITA Nos.453 & 454/Ahd/2026 dated 26.03.2026.For the sake of ready reference, the operative portion of said order is reproduced as under:
“…11. We have heard the rival contentions and perused the material available on record.
12. At the outset, we note that the issue on merits regarding allowability of exemption under section 10(5) of the Act in cases where the journey involves 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 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 contention of the assessee. The interim directions of the Hon’ble Madras High Court were in force during the relevant previous year and the assessee, being a party to the proceedings, was duty bound to comply with the same. The 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 Coordinate Bench of the Tribunal in the case ofState 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 Hon’ble High Court, which have a direct bearing on the issue before us, are reproduced below for ready reference:
“The interim order granted by this Court is explained to the effect that any amount paid to the petitioner towards LTC or re-imbursement of LTC pursuant to the impugned order would not amount to income so as to enable the Bank to deduct tax at source. It is made clear that if the writ petition is dismissed, the employees are liable to pay tax on the amount paid by Bank.”
“It is only when the appellant-assessee, after having a liability to deduct tax, fails
‘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.” “The appellant-assessee was under an obligation not to deduct tax at source and therefore, the assessee could not be held to be assessee indefault 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 obligation to do so. In the present case, such legal obligation stood eclipsed by the interim directions of the Hon’ble High Court.
20. In view of the above discussion, respectfully following the decision of the Hon’ble Kerala High Court in ITA No.45 of 2025 and the decision of the Coordinate Bench in ITA No.514/Agr/2024, we hold that the assessee cannot be treated as an assessee in default under section 201(1) of the Act for the impugned period. Consequently, the interest charged under section 201(1A) also does not survive.
21. Accordingly, we direct the Assessing Officer to delete the demand raised under section 201(1) and 201(1A) of the Act…”
6. In the absence of any change in factual matrix and legal proposition brought to our notice, State Bank of India v. ITO
7. In the result, the appeal of the assessee is allowed.
7. We respectfully following the decision of the co-ordinate bench of the Tribunal inITA No.365/Ahd/2026 dt. 08.09.2026 (supra),we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the demand raised u/s 201(1) and 201(1A) of the Act.
8. Accordingly, appeal of the assessee, is allowed.
Order is pronounced in the open Court on 11/06/2026.
