State Bank of India Vs CIT (Kerala High Court)
The Kerala High Court considered an appeal filed by a nationalised bank challenging the Income Tax Appellate Tribunal’s order upholding proceedings initiated against it under Sections 201(1) and 201(1A) of the Income-tax Act, 1961 for Assessment Year 2016-17. The dispute related to the bank’s failure to deduct tax at source on Leave Travel Concession (LTC)/Leave Fare Concession (LFC) payments made to employees.
The bank had earlier withdrawn the facility of overseas LTC through a circular dated 15.04.2014. The circular was challenged before the Madras High Court, which initially stayed its operation. Subsequently, by an interim order dated 16.02.2015, the Madras High Court clarified that amounts paid towards LTC or reimbursement of LTC pursuant to its interim directions would not amount to income so as to enable the bank to deduct tax at source. The Court further clarified that if the writ petition was eventually dismissed, the employees themselves would be liable to pay tax on such amounts. This position continued throughout the financial year 2015-16 relevant to Assessment Year 2016-17.
When proceedings under Section 201 were initiated, the bank contended that it had complied with the binding interim directions of the Madras High Court and, therefore, could not deduct tax at source. The Department rejected the explanation, treated the bank as an assessee-in-default under Section 201(1), levied interest under Section 201(1A), and the Tribunal affirmed that action.
