State Bank of India Vs CIT (Kerala High Court)
The Kerala High Court considered an appeal filed by the assessee, a nationalised bank, challenging the Income Tax Appellate Tribunal’s order dated 09.12.2024 upholding action under Sections 201(1) and 201(1A) of the Income-tax Act, 1961 for Assessment Year 2016-17. The bank had reimbursed Leave Travel Concession (LTC) to its employees. After issuing a circular dated 15.04.2014 withdrawing overseas LTC benefits, the circular was challenged before the Madras High Court, which first stayed its operation and, by an interim order dated 16.02.2015, clarified that LTC payments made pursuant to the interim order would not amount to the employees’ income for the purpose of deduction of tax at source, while also stating that if the writ petition was ultimately dismissed, the employees would be liable to pay tax on such amounts. The bank accordingly did not deduct tax during the financial year 2015-16. The writ petition was subsequently dismissed, followed by further proceedings before the Division Bench and the Supreme Court, where interim protection against recovery from employees was granted.
The Income-tax Department nevertheless treated the bank as an assessee in default under Section 201(1) and levied interest under Section 201(1A). The first appellate authority and the Tribunal upheld the action. Before the High Court, the principal questions were whether the bank could be treated as an assessee in default under Section 201 and whether failure to deduct tax while complying with the Madras High Court’s interim order could attract liability under Section 201.
