State Bank of India Vs CIT (ITAT Agra)
Summary: The Income Tax Appellate Tribunal, “SMC” Bench, Agra considered an appeal filed by State Bank of India for Assessment Year 2016-17 against demand raised under Sections 201(1) and 201(1A) of the Income-tax Act, 1961 for non-deduction of tax at source on Leave Travel Concession/Leave Fare Concession (LTC/LFC) payments involving foreign travel.
The Assessing Officer had passed an order dated 31 March 2023 treating the assessee as an assessee-in-default and raising demand of approximately Rs. 4.05 lakh, including applicable interest. The CIT(A) subsequently confirmed the demand by order dated 30 September 2024. At the hearing before the Tribunal, none appeared for the assessee, while the Departmental Representative supported dismissal of the appeal, relying upon the decision of the Supreme Court in the assessee’s own case.
The dispute arose from LFC payments made by the assessee-bank to two employees involving a foreign leg, aggregating to Rs. 7.06 lakh. The Assessing Officer held that the payments were not exempt under Section 10(5) of the Income-tax Act. The assessee had contended that tax was not deducted under a bona-fide belief that deduction was not required.
The Tribunal noted that the Supreme Court, in State Bank of India Vs ACIT, Civil Appeal No. 8181 of 2022, dated 4 November 2022, had already concluded the substantive issue concerning exemption under Section 10(5). The Supreme Court held that where the journey of employees involved a foreign leg, the benefit of exemption under Section 10(5) could not be granted. It also held that the employer’s obligation to deduct tax was distinct from the employee’s payment of tax and that, where relevant travel details were available to the employer, the plea of bona-fide mistake could not be accepted.
The Tribunal, however, considered the separate question of whether the assessee could be treated as an assessee-in-default under Section 201(1) for the particular LFC payments made during the period when an interim order of the Madras High Court was operative.
The impugned LFC payments related to the period from 15 February 2016 to 24 February 2016. During that period, an interim order dated 16 February 2015 passed by the Madras High Court in W.P. No. 11991 of 2014 was in operation. The order clarified that amounts paid towards LTC or reimbursement of LTC pursuant to the impugned order would not amount to income so as to enable the bank to deduct tax at source. It further stated that, if the writ petition were dismissed, the employees would be liable to pay tax on the amount paid by the bank.
The Tribunal observed that the assessee-bank was bound to comply with the directions of the Madras High Court. The Tribunal therefore held that the assessee had no option but not to deduct tax at source on the impugned reimbursements while the interim order was operative. Deducting tax despite the binding judicial direction would have been contrary to the order of the High Court and could have amounted to contempt of court.
The Tribunal also noted the subsequent decision of the Madras High Court in All India State Bank Officers Association vs. SBI, reported at 140 Taxmann.com 221, dated 14 June 2022, concerning withdrawal of the additional concession granted to officers of the bank for travel abroad under LTC. The Tribunal referred to that decision while recording the procedural history concerning the overseas LTC facility.
On the facts before it, the Tribunal distinguished the question of substantive exemption from the question of TDS default during the period covered by the binding interim directions. Although the Supreme Court decision had settled the substantive exemption issue against the assessee where a foreign leg was involved, the Tribunal found that the assessee could not be treated as an assessee-in-default for failing to deduct TDS when it was under a binding judicial direction not to do so.
Accordingly, the Tribunal held that the assessee-bank was under an obligation to comply with the Madras High Court’s interim order and therefore could not be treated as an assessee-in-default for non-deduction of TDS on the impugned LFC payments. The demand raised under Sections 201(1) and 201(1A) was deleted.
The appeal filed by State Bank of India was accordingly allowed.
Cases Discussed
- State Bank of India Vs. Assistant Commissioner of Income Tax, Civil Appeal No. 8181 of 2022 — considered on the substantive issue concerning exemption under Section 10(5) for LTC where the employee’s journey involved a foreign leg and the employer’s obligation to deduct tax at source under Section 192.
- All India State Bank Officers Association vs. SBI, 140 Taxmann.com 221, dated 14-06-2022 — referred to in relation to the withdrawal of the additional concession granted to officers of the respondent bank for travel abroad under LTC and the proceedings concerning the Madras High Court’s interim directions.
FULL TEXT OF THE ORDER OF ITAT AGRA
1. Aforesaid appeal by assessee for Assessment Year (AY) 2016-17 assails demand raised against the assessee u/s 201(1) / 201(1A) of the Act vide order dated 31-03-2023. The first appeal order has been passed by learned Addl. / Joint Commissioner of Income Tax (Appeals), Prayagraj [CIT(A)] on 30-09-2024. At the time of hearing, none appeared for assessee and accordingly, the appeal was heard with the able assistance of Ld. Sr. DR who pleaded for dismissal of the appeal in the light of decision of Hon’ble Apex Court in assessee’s own case.
2. Upon perusal of order passed u/s 201(1)/201(1A) by Ld. AO on 31-03-2023, it could be seen that the assessee reimbursed LTC / LFC payments involving foreign LFC to two of its employees for Rs.7.06 Lacs without deduction of tax at source. The details of the employees have been tabulated at para 6.1 of the order. The Ld. AO held that the said payment was not exempt u/s 10(5) whereas the assessee stated that TDS was not deducted under bona-fide belief that no TDS was required to be deducted against such payments. The Hon’ble High Court of Madras passed an interim order in WP No. 11991/2014 on 16-02-2015 restraining the assessee bank not to deduct TDS on such reimbursements. However, going by the decision of Hon’ble Apex Court in assessee’s own case SBI vs. ACIT (CA No.8181 of 2022 dated 04-11-2022; 144 Taxmann.com 131) holding that the assessee should have deducted TDS u/s 192(1), Ld. AO held the assessee to be assessee-in-default and raised a demand to Rs.4.05 Lacs for short-deduction of tax at source along with applicable interest. The Ld. CIT(A) confirmed the demand against which the assessee is in further appeal before us.
3. From the facts, it is quite clear that the impugned LFC payments involving foreign LFC are not exempted u/s 10(5) as per the final decision of Hon’ble Apex Court in assessee’s own case (supra). It has been held by Hon’ble Court that the when the assessee-bank claimed exemption towards leave travel concession (LTC) granted to its employees, since travel of said employees was not from one place in India to another place in India but involved a foreign leg, benefit of exemption under section 10(5) could not be granted to assessee. The Hon’ble Court further held that the obligation of deducting tax is distinct from payment of tax. The assessee cannot claim ignorance about the travel plans of its employees as during settlement of LTC Bills the complete facts would be available before the assessee about the details of their employees’ travels. Therefore, it cannot be a case of bona fide mistake, as all the relevant facts were before the Assessee employer and he was therefore, fully in a position to calculate the ‘estimated income’ of its employees. The contention that there may be a bona fide mistake by the assessee-employer in calculating the ‘estimated income’ cannot be accepted since all the relevant documents and material were before the assessee- employer at the relevant point of time and the assessee employer therefore ought to have applied his mind and deducted tax at source as it was his statutory duty u/s 192(1) of the Act. The issue thus attained finality in favor of the revenue.
4. At the same time, it could be seen that the impugned payments pertain to LFC granted by assessee bank for the period 15-02-2016 to 24-02-2016 when the operation of interim order dated 16-02-2015 of Hon’ble High Court of Madras was in operation, the relevant portion of which read as under: –
“6. The interim order granted by this court is explained to the effect that any amount paid to the petitioner towards LTC or reimbursement of LTC pursuant to the impugned order would not amount to the 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 the bank.”
The Hon’ble Court thus restrained the assessee bank not to deduct tax at source on such reimbursement. Finally, the decision has been rendered by Hon’ble High Court of Madras in case titled as All India State Bank Officers Association vs. SBI (140 Taxmann.com 221; dt. 14-06-2022) holding that withdrawal of additional facility would not infringe services rights or service conditions of officers of respondent bank and therefore, there was no perversity in respect of decision taken for withdrawal of additional concession granted to officers of respondent bank to travel abroad under LTC. It is thus clear that at the time of impugned payments, the interim order of Hon’ble High Court of Madras was in force which assessee bank was bound to follow. We concur that assessee bank had no option but not to deduct TDS on such reimbursements as per the interim order of Hon’ble Madras High Court. The directions given by the Hon’ble High Court were binding on the assessee and had the assessee deducted tax at source on impugned payment, it would have been contrary to the orders of Hon’ble High Court which could have amounted to contempt of court order. Finally, the decision in the aforesaid case has been rendered by Hon’ble High Court on 14-06-2022. Under these circumstances, we would hold that assessee bank, by interim order of Hon’ble High Court of Madras, 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. We order so. The impugned demand as raised against the assessee stand deleted.
5. The appeal stand allowed in terms of our above order.
Order pronounced u/r 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.
