Ahmedabad: ITAT clears SBI in LTC-TDS dispute, not a defaulter

Ahmedabad: The Income Tax Appellate Tribunal (ITAT), Ahmedabad recently granted significant relief to State Bank of India (SBI) by deleting demands raised for alleged tax deduction at source (TDS) default on leave travel concession (LTC) payments, holding that the bank could not be treated as an “assessee in default” when it acted under binding interim directions of the Madras high court.The dispute related to LTC benefits extended by SBI branches in Gandhinagar and Bhavnagar during FY 2016-17 and FY 2017-18 (AY 2017-18 and AY 2018-19). In certain cases, employees undertook travel involving foreign legs. SBI computed TDS by treating the eligible Indian portion of the journey as exempt and deducted tax accordingly. The income tax department, however, held that where travel involved foreign destinations, the entire LTC reimbursement became taxable, and therefore full TDS ought to have been deducted.The department initiated proceedings under Section 201(1) and 201(1A), treating SBI as an assessee in default for short deduction or non-deduction of TDS and levying interest. The assessing officer and the commissioner (appeals) upheld the demand. The department also relied on judicial precedents, including a Supreme Court ruling cited for the proposition that LTC exemption is not available where travel is undertaken on foreign soil.According to CA Sulabh Padshah, before the tribunal, SBI argued that during the relevant period it operated under interim orders of the Madras high court which restrained banks from deducting TDS in such LTC cases. SBI submitted that compliance with the high court’s interim directions was mandatory, and that deducting TDS contrary to those orders would have exposed the bank to contempt proceedings.Accepting SBI’s contention, the ITAT, Ahmedabad held that the bank was bound by the Madras high court’s interim orders and, in such circumstances, non-deduction of TDS could not be treated as a default under Section 201(1). Consequently, the tribunal ruled that interest charged under Section 201(1A) also could not survive once the principal default itself was deleted.Padshah said, “Where a taxpayer’s conduct is governed by high court’s specific directions, the resulting non-deduction cannot be branded as a default. Disregarding such directions would amount to contempt; therefore, Section 201 consequences should not be invoked in these facts.”The tribunal allowed SBI’s appeals for both assessment years and deleted the demands raised under Section 201(1) along with interest under Section 201(1A). The order referred to earlier rulings including State Bank of India Bhavnagar Para branch vs ITO (TDS), State Bank of India vs CIT (Kerala high court), and State Bank of India vs CIT(A) (Agra Tribunal).