State Bank of India Vs ITO (ITAT Rajkot)
Employer Cannot Be Penalised for Obeying a High Court: SBI Not an Assessee-in-Default for Non-Deduction of TDS on Foreign-Leg LFC
The Rajkot ITAT has held that State Bank of India could not be treated as an assessee-in-default u/s 201(1) for not deducting TDS on Leave Fare Concession payments involving foreign travel where, during the relevant period, the bank was acting in obedience to a binding interim order of the Madras High Court.
The subsequent Supreme Court decision holding that LFC involving a foreign leg was not exempt u/s 10(5) could settle the taxability of the payment but could not retrospectively convert SBI’s compliance with the prevailing judicial order into a TDS default. Consequently, the demands raised u/s 201(1) & 201(1A) and the connected penalty u/s 271C were deleted.
The four appeals were filed by different branches of SBI and related to AYs 2016-17 & 2017-18. The disputes arose from orders treating the respective branches as assessees-in-default for failure to deduct tax u/s 192 from LFC reimbursements paid to employees who undertook journeys involving a foreign destination or foreign leg.
The Supreme Court, by its decision dated 04.11.2022 in State Bank of India v. ACIT – Civil Appeal No. 8181 of 2022, held that once an employee undertakes travel involving a foreign leg, the journey cannot be regarded as travel “within India.” Consequently, such reimbursement does not fall within the exemption available u/s 10(5).
