Income Tax Act | SBI Not 'Assessee In Default' U/S 201 For Not Deducting TDS While Obeying Court's Interim Order: Kerala High Court

Justices A. Muhamed Mustaque and Harisankar V. Menon examined whether the SBI, having been restrained by an interim order of the High Court from deducting TDS, could be held to be an assessee in default under Section 201 of the Income Tax Act,1961, for non-deduction of TDS on LFC payments.

Section 201 of the Income Tax Act, 1961, outlines the consequences for failure to deduct or pay Tax Deducted at Source (TDS) as required by law.

In this case, the State Bank of India/assessee (appellant) has been providing reimbursement of Leave Travel Concession (LTC) to its employees.

Pursuant to a circular dated 15.04.2014 issued by the bank, LTC as regards overseas travel facility to the employees stood withdrawn. The circular was challenged before the Madras High Court at the instance of the association of the employees of the bank. The Madras High Court stayed the operation of the circular.

Later, the stay order as above was sought to be modified/clarified at the instance of the petitioners therein complaining that the bank (assessee) was taking steps to 'deduct tax at source', treating the payments to the employees on the basis of the interim order as 'income' of the employees.

The Madras High Court, therefore, issued an interim order clarifying the earlier order. The interim order says that any amount paid to the petitioner towards LTC or re-imbursement of LTC would not amount to income, so as to enable the Bank to deduct tax at source.

The assessee contends that in view of the interim order, no tax could be deducted while making payment to the employees, since, in the order, it was found that the payment to the employee would not amount to his income to enable the bank to deduct tax at source.

The department argued that insofar as steps under Section 201 of the Income Tax Act were initiated with reference to the deduction within the State of Kerala, the interim orders issued by the Madras High Court were of no consequence, and hence the assessee cannot seek refuge thereunder.

As the assessee, having complied with the orders of the Madras High Court, cannot be treated as an 'assessee in default' under the provisions of Section 201 of the Act, stated the bench.

The bench opined that even though the main writ petition/writ appeal has been later disposed of insofar as the interim order has directed the treatment of the amount paid without deduction of tax in the manner laid down therein, the assessee bank cannot be treated as an assessee in default.

The bench further stated that since the Act is an all-India statute and since what was challenged before the Court was the circular issued by the bank at the instance of the Association of Bank employees, the assessee cannot be faulted for having honoured the stay orders issued by the Madras High Court.

In view of the above, the bench allowed the appeal.

Case Title: State Bank Of India v. Commissioner of Income Tax

Case Number: ITA NO.45 OF 2025

Citation: 2025 LiveLaw (Ker) 785

Counsel for Appellant/Assessee: G. Mini

Counsel for Respondent/Department: P.G. Jayashankar

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