2025 (4) TMI 44 - AT - Income Tax

TDS u/s 192 - order u/s 201(1)/ 201(1A) - assessee reimbursed LTC / LFC payments involving foreign LFC to two of its employees without deduction of tax at source - 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 HELD THAT - Decision has been rendered in case titled as All India State Bank Officers Association vs. SBI 2022 (7) TMI 291 - MADRAS HIGH COURT 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 - Demand as raised against the assessee stand deleted.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

• Whether the assessee bank was required to deduct tax at source on Leave Travel Concession (LTC) payments involving foreign travel under Section 192(1) of the Income Tax Act.
• Whether the interim order by the Hon'ble High Court of Madras, which restrained the bank from deducting tax at source on such reimbursements, absolves the bank from being considered an assessee-in-default.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Requirement to Deduct Tax at Source on LTC Payments

• Relevant legal framework and precedents: Section 192(1) of the Income Tax Act mandates employers to deduct tax at source on salaries. Section 10(5) provides an exemption for LTC payments, but only for travel within India.
• Court's interpretation and reasoning: The Tribunal referred to the decision of the Hon'ble Apex Court in the assessee's own case, which clarified that LTC payments involving foreign travel are not exempt under Section 10(5). The obligation to deduct tax is distinct from the actual payment of tax, and the employer is responsible for estimating the taxable income of its employees.
• Key evidence and findings: It was found that the assessee reimbursed LTC payments for foreign travel without deducting tax at source, believing it was not required. However, the Apex Court had previously ruled that such payments are not exempt from tax deduction requirements.
• Application of law to facts: The Tribunal concluded that the assessee should have deducted tax at source on the LTC payments, as the travel involved a foreign leg and was not exempt under the relevant section.
• Treatment of competing arguments: The assessee's argument of a bona fide belief that no tax deduction was required was rejected. The Tribunal emphasized that the employer had all necessary information to determine the taxability of the payments.
• Conclusions: The Tribunal upheld the requirement for tax deduction at source on the LTC payments, aligning with the Apex Court's decision.

Issue 2: Impact of the Interim Order by the Hon'ble High Court of Madras

• Relevant legal framework and precedents: The interim order by the Hon'ble High Court of Madras restrained the bank from deducting tax at source on LTC reimbursements during its operation.
• Court's interpretation and reasoning: The Tribunal acknowledged that the interim order was binding on the assessee bank, and compliance with it was mandatory to avoid contempt of court.
• Key evidence and findings: The interim order was in effect during the period when the LTC payments were made, and it explicitly prohibited tax deduction at source on such reimbursements.
• Application of law to facts: The Tribunal found that the assessee bank acted in accordance with the interim order and could not be held liable for non-deduction of tax during its operation.
• Treatment of competing arguments: The Tribunal recognized the conflict between the Apex Court's decision and the interim order but prioritized adherence to the binding court order during its effective period.
• Conclusions: The Tribunal held that the assessee bank was not an assessee-in-default for the non-deduction of tax during the period covered by the interim order, and the demand for tax was deleted.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "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."
• Core principles established: The Tribunal established that adherence to a binding interim court order takes precedence over general statutory obligations, provided the order is in effect.
• Final determinations on each issue: The Tribunal concluded that while the general requirement to deduct tax at source on LTC payments involving foreign travel stands, the specific circumstances of the interim order exempted the assessee bank from being considered in default for the period in question. Consequently, the demand for tax was annulled, and the appeal was allowed.