State Bank of India Vs CIT (Kerala High Court)
The appeal was filed by the assessee, a nationalised bank, challenging the Tribunal’s order dated 09.12.2024 upholding action taken under Section 201(1) and 201(1A) of the Income Tax Act for Assessment Year 2016–17. The dispute concerns whether the bank could be treated as an “assessee in default” for not deducting TDS on Leave Travel Concession (LTC) payments made to its employees during financial year 2015–16.
The bank had issued a circular on 15.04.2014 withdrawing LTC benefits relating to overseas travel. This circular was challenged before the Madras High Court. On 25.04.2014, the Court stayed operation of the circular. Subsequently, when employees complained that the bank was attempting to deduct TDS on LTC amounts paid under the stay, the Madras High Court issued an interim order dated 16.02.2015 clarifying that any LTC paid pursuant to the interim order would not constitute income for purposes of TDS. The Court stated that the bank could not deduct tax on such payments, and if the writ petition was eventually dismissed, the employees—not the bank—would be liable to pay the tax.
The bank therefore did not deduct TDS on LTC payments during 2015–16. The writ petition was eventually dismissed on 24.06.2022, after which further interim orders were issued preventing recovery from employees. The matter ultimately reached the Supreme Court, which also issued interim protection against recoveries. Meanwhile, during departmental proceedings, the bank explained that non-deduction of tax was due to the binding interim orders of the Madras High Court. However, by order dated 30.03.2023, the bank was treated as an assessee in default, and the first appellate authority as well as the Tribunal affirmed the demand.
