Case Law Details
State Bank of India Vs CIT (Appeals) (ITAT Agra)
The appeal before the Income Tax Appellate Tribunal, Agra Bench, concerned Assessment Year 2016-17 and challenged the demand raised against the assessee under Sections 201(1) and 201(1A) of the Income-tax Act for failure to deduct tax at source on Leave Fare Concession (LFC) reimbursements involving foreign travel.
The Assessing Officer found that the assessee-bank had reimbursed LFC claims amounting to Rs.7.06 lakh to two employees without deducting tax at source. According to the Assessing Officer, the payments were not eligible for exemption under Section 10(5) because the travel involved a foreign leg. Although the bank contended that it had acted under a bona fide belief that no tax was deductible, the Assessing Officer relied upon the Supreme Court’s decision in the assessee’s own case, which held that exemption under Section 10(5) was unavailable where travel was not confined to destinations within India. Consequently, the bank was treated as an assessee-in-default, and a demand of Rs.4.05 lakh, including interest, was raised. The CIT(A) affirmed this demand.
The Tribunal observed that the Supreme Court had conclusively held that LFC reimbursements involving foreign travel did not qualify for exemption under Section 10(5). The Supreme Court had also rejected the plea of bona fide mistake, holding that employers possess complete information regarding employees’ travel plans while processing LTC claims and are under a statutory obligation to deduct tax under Section 192(1).
However, the Tribunal noted that the impugned LFC reimbursements related to the period from 15.02.2016 to 24.02.2016, during which an interim order dated 16.02.2015 passed by the Madras High Court was operative. By that order, the High Court had clarified that amounts paid towards LTC reimbursements pursuant to the impugned proceedings would not be treated as income warranting deduction of tax at source. It further specified that if the writ petition ultimately failed, the employees would be liable to pay the tax.
The Tribunal held that the interim directions of the Madras High Court were binding upon the assessee-bank. The bank had no option but to comply with the judicial order restraining it from deducting tax at source. Deduction of tax in violation of the High Court’s directions could have exposed the bank to proceedings for contempt of court. The Tribunal also noted that the final judgment of the Madras High Court was rendered only on 14.06.2022.
In these circumstances, the Tribunal concluded that, although the legal position regarding non-exemption of foreign LFC stood settled in favour of the Revenue, the bank could not be regarded as an assessee-in-default for the relevant period because it had acted in obedience to a subsisting interim order of the High Court. Accordingly, the demand raised under Sections 201(1) and 201(1A) was deleted, and the appeal of the assessee was allowed.
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 3103-2023, 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 0411-2022; 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.
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