SBI Judicial Shield Prevails

The dispute arose from proceedings initiated against State Bank of India branches for alleged failure to deduct tax at source under Section 192 on Leave Fare Concession and Leave Travel Concession reimbursements granted to employees who had undertaken journeys involving foreign travel legs during AYs 2016-17 and 2017-18. 

The Department relied upon the Supreme Court ruling in State Bank of India v. ACIT, which held that exemption under Section 10(5) read with Rule 2B is restricted strictly to travel within India and ceases once foreign travel forms part of the itinerary.

The assessee-bank contended that during the relevant period it was operating under binding interim directions issued by the Madras High Court in litigation involving SBI officers’ federations, wherein the Court had specifically directed that such LTC reimbursements would not amount to income for TDS purposes and clarified that, if the litigation ultimately failed, tax liability would fall upon employees and not the bank. The bank argued that any deduction of TDS contrary to such judicial directions would have amounted to disobedience of binding court orders.

The Tribunal accepted the assessee’s contentions and followed earlier Ahmedabad Bench, Agra Bench, and Kerala High Court rulings holding that an employer acting in obedience to judicial directions cannot subsequently be branded an assessee in default under Section 201.