ORDER
Inturi Rama Rao, Accountant Member. – These four appeals filed by the Assessee Bank are directed against the separate orders of Learned Additional / Joint Commissioner of Income Tax(Appeal)-2, Siliguri dated 24.12.2025, 22.12.2025, 22.12.2025 and 22.12.2025 passed u/s.250 of the Income Tax Act, 1961 for the Assessment Years 2017-18, 2016-17, 2016-17 and 2017-18 respectively.
2. Since identical facts and issues are involved in all these four appeals, these appeals were heard together and disposed of vide this common order. For the sake of clarity and convenience the facts relevant in the ITA No.938/CHNY/2026 for the Assessment Year 2017-18 are stated herein:
3. The Assessee in ITA No.938/CHNY/2026 raised the following grounds of appeal :
“1. The Learned Commissioner of Income-tax (Appeals) (“CIT(A)”) erred in confirming the order of the Assessing Officer (“AO”) holding the appellant to be an assessee in default for failing to deduct tax at source under section 192 of the Income-tax Act, 1961 (‘the Act’).
2. The CIT(A) erred in not appreciating that the Appellant had issued eCircular no. CDO/p&HRD-PM/7/2014-15 dated 15th April 2014 stating that the employees shall not be entitled to visit overseas countries/ centers as part of leave travel concession (“LTC”) which Circular was challenged by the All India State Bank Officers Federation & Ors. before the Madras High Court by way of a writ petition (WP no. 11991 of 2014) and that the Madras High Court had vide its order dated 25th April 2014 granted interim stay of the Circular.
3. The CIT(A) further erred in not appreciating that tax was not deducted at source by the Appellant on the LTC paid to its employees during the year under consideration in view of the specific interim directions issued by the Hon’ble Madras High Court in its order dated 16th February 2015 by which the Court held that the LTC paid or reimbursed would not amount to income and that no tax was to be deducted thereon. The CIT(A) ought to have appreciated that if the LTC was not to be treated as income of the employees as per the order of the Hon’ble Madras High Court, the same even otherwise would not require withholding of tax under section 192 of the Act.
4. The CIT(A) further erred in not appreciating that the Madras High Court vide its said order dated 16th February 2015 having directed the Appellant not to deduct at source on LTC had further stated that if the writ petition challenging the Circular was dismissed, the employees would be liable to pay tax on the LTC amount paid by the Appellant and, therefore, the CIT(A) ought to have quashed the order of the AO holding the Appellant to be an assessee in default.
5. The CIT(A) erred in not quashing the order of the AO holding the Appellant to be an assessee in default for the reason that the Appellant, even if it wanted to, could not have deducted tax at source on LTC paid during the year under consideration in view of the orders of the Hon’ble Madras High Court till the time they were in force as acting contrary to the orders of the Hon’ble Court would have amounted to contempt of Court.
6. The CIT(A) erred in not following the judgment of the Hon’ble Kerala High Court in State Bank of India v. CIT (ITA no. 45 of 2025) where the Hon’ble Court after considering the above set of facts held that the Appellant was justified in not deducting tax at source in view of the interim directions issued by the Madras High Court asking the Appellant not to deduct tax at source.
7. The CIT(A) erred in observing that the legal obligation to deduct tax was reinstated once the interim order passed by the Hon’ble Madras High Court was vacated without appreciating that the order of the Single Judge of the Hon’ble Madras High Court was challenged before the Division bench and later the Division bench’s order before the Hon’ble Supreme Court and that the Hon’ble Supreme Court in SLP(C) no. 16734 of 2023 has ordered the Appellant bank from not making any recoveries from its employees during the pendency of the petition.
8 Without prejudice to above grounds, the CIT(A) erred in not holding that the Appellant could not have been deemed to be an assessee in default under section. 201(1) of the Act if the employee had furnished the return of income, taken into account such sum for computing income and paid the tax due on income declared by the employee.
The appellant craves leave to add, amend, alter or delete and/or modify the above grounds of appeal before or during the course of hearing.”
4. Briefly, the facts of the case are that the appellant is a Branch of Public Sector Bank. The DCIT, TDS, Coimbatore (hereinafter called “TDS Officer) had called upon the appellant bank vide notice dated 20.07.2023, 11.10.2023, 01.11.2023 to furnish the details of Leave Fair Concession(LFC) claimed by the appellant bank during the previous year relevant to assessment year 2017-18. On examination of those details the TDS Officer found that the appellant bank had reimbursed his employees Leave Fair Concession involving foreign travel to its employees. He was of the opinion that reimbursement of Leave Fair Concession involving the foreign travel is not eligible for exemption u/s.10(5), therefore, he called-upon the appellant to show cause to why the appellant bank cannot be treated as “Assessee in default” for non-deduction of tax at source on reimbursement of Leave Fair Concession.
5. In response to the show cause notice, the appellant bank submitted that the appellant bank had not deducted tax at source of reimbursement of Leave Fair Concession amounts to its employees following the directions of Hon’ble High Court of Madras vide interim order dated 16.02.2015. Thus, it was submitted that the question of deduction of tax does not arise. However, the TDS Officer was of the opinion that the in view of the judgment of Hon’ble Supreme Court in assessee’s own case in State Bank of India v. Asstt. CIT 449 ITR 192 (SC) vide order dated 04.11.2022 assessee should have deducted the TDS under provisions of 192 of the Act as the reimbursement of Leave Fair Concession payments to its employees is not exempt from tax under the provisions to section 10(5) of the Act, accordingly proceeded to treat the assessee as “assessee in default” and demand tax u/s.201, interest 201(A) of the Income Tax Act, 1961.
6. Being aggrieved by the above order, the appellant preferred an appeal before ld.CIT(A), who vide impugned order dismissed the appeal.
7. Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal. It is submitted that the appellant bank is under bonafide belief that in view of the direction of Hon’ble High Court of Madras, the bank is not under obligation to recover money from the employees. Even though, the Hon’ble Supreme Court stayed the operation judgment of Hon’ble High Court of Madras, however directed the appellant bank not to make any recoveries from its employees during the pendency of SLP. Thus, he submits that the appellant bank was not under obligation to deduct Tax at Source on such payment in view of the judgment of Hon’ble High Court of Madras and subsequent direction of Hon’ble Supreme Court during the previous year relevant to Assessment Years 2016-17 and 2017-18, he also relied on the judgments.
8. On the other hand, learned Sr.DR vehemently opposed the above submissions.
9. We heard rival submissions and perused the material available on record. The solitary issue that arises for our consideration is whether there was obligation on the part of the appellant bank to deduct Tax in respect of reimbursement of Leave Fair Concession to its employees involving foreign travel. There is no dispute about the fact that subsequently, the Hon’ble Supreme Court in assessee’s own case State Bank of India (supra) held that such payments are not exempt from tax u/s.10(5) of the Act. However, during the relevant period, there is a binding judgment of Hon’ble High Court of Madras, wherein, the Hob’ble High Court clearly directed the appellant bank not to recover TDS from employees on such payments. Subsequently, even though the Hon’ble Apex Court stayed the judgment of Hon’ble High Court of Madras, however, specifically directed the appellant bank not to recover the money from its employees. Thus, it is very clear that the appellant bank was not bound to deduct TDS on such payments during the during the previous year relevant to assessment year under consideration. In terms of provisions of section 192, an employer is liable to deduct tax at source based on the bonafide estimate of the total income of the employees. There was no obligation to deduct tax at source by virtue of decision of the Hon’ble Madras High Court’s judgment and subsequent direction from the Hon’ble Supreme Court.
Hon’ble Kerala High Court in assessee’s own case in the case of State Bank of India v. CIT (Kerala)vide order dated 18.11.2025 involving identical facts and also considering the judgment of Hon’ble Madras High Court held as under :
“8…. ….. …. …. But in the case at hand, when so visualised, there cannot be any dispute that the appellant-assessee could not have made any deduction in view of the interim order issued as noticed earlier. It is only when the appellant-assessee, after having a liability to deduct tax, fails to do so, the question of invoking Section 201 of the Act and treating it as an ‘assessee in default’ arises. Here, the Madras High Court found, prima facie, that the amount paid would not be the income of a payee so as to deduct tax. Therefore, we are of the opinion that the provisions of Section 201(1) of the Act are not attracted to the case at hand. For the same reasons, the provisions of sub-section (1A) of Section 201 of the Act providing for the levy of interest are also not attracted.
9. The issue can be addressed from yet another angle, also. Section 192 of the Act, as noticed earlier, provides for making deductions while making payments to the employee. At the time of such payment, the interdiction by the Madras High Court did not permit the appellant to deduct tax, since the appellant-assessee was directed to make such payments without deduction of tax. The Court, however, cautiously made it clear that it is for the employees to pay tax directly on the amount paid by the bank, if ultimately, the writ petition is dismissed. Therefore, the appellant could not be called upon to make payment on a later date- after the dismissal of the writ petition in 2022- ignoring the liability of the payee to satisfy the tax.
10. We also take note of the first proviso to Section 201(1) of the Act, as per which the payer is not to be treated as an ‘assessee in default’ if a payee has furnished the return of income under the Act, taking into account the amount received for computing the income. The circumstances like the one herein are taken care of, through the first proviso to Section 201 of the Act.
11. We also notice the judgment of the Madras High Court in Leema Resorts (P.) Ltd. v. C.G. Suryakant
[1995] 129 CTR 317/215 ITR 618/[ (Madras), wherein a more or less similar issue arose for consideration. In that case, the appellants were the tenants of the premises concerned in the appeal. The appellants were found guilty of contempt of court for having wilfully disobeyed certain orders of the Court in an appeal filed against the order of the learned Single Judge. In the contempt appeal, the enforcement of the order was postponed in view of the undertaking made by the appellants to pay a certain sum of rupees ten lakhs on or before 01.08.1994. The amount of rupees ten lakhs was paid on 01.08.1994. The Division Bench recorded the payment of rupees ten lakhs on the previous day and permitted the appellants to make a deposit of rupees three lakhs in the manner stated thereunder. After payments were made as above, a notice was issued by the income tax department to the appellant in the contempt appeal, inviting attention to the provisions of Section 194-I of the Act introduced in June 1994, as per which 20% ought to have been deducted when rent exceeding Rs.1,20,000/- was paid in a financial year. The appellant in such circumstances approached the court seeking permission to deduct 20% of the amount already paid pursuant to the order noticed earlier. Considering this issue, the Court found as under: –
“One more question that remains for consideration is as to whether the petitioners should be subjected to the proceedings that are now initiated against them by notice dated September 2, 1994, which is extracted above. We have already extracted the relevant portion of our order dated August 2, 1994, which directed the mode of payment. Further, the petitioners/appellants in Contempt Appeal No. 5 of 1994, were required to pay under the teeth of punishment imposed in the contempt proceedings. Our order did not give any scope or option to the appellants in the contempt appeal to deduct 20 per cent, of the amount payable to the respondents at source. In such a situation, the proviso to section 201 of the Act is attracted as it specifically empowers the concerned Assessing Officer to extend the benefit to such an assessee and not to treat him as the assessee in default in respect of the tax. On this question also, we have heard learned senior standing counsel for the Department, who fairly submitted that as the petitioners were obliged to make payment pursuant to the order of this court, they cannot be treated as defaulters and they would fall within the proviso to section 201 of the Act, and the Assessing Officer would be suitably advised in this regard, on an application filed by the petitioners pursuant to the notice dated September 2,1994. As the case falls under the proviso to section 201(1) of the Act and as the submission of learned senior standing counsel is also to the same effect, and in addition to this it is also submitted by learned senior standing counsel that the Assessing Officer would be advised, accordingly, we do not consider it necessary to issue any such direction as prayed for in this miscellaneous petition as it would be sufficient to place the submissions made by learned standing senior counsel for the Department on record.”
(Underlining supplied)
Thus, it is clarified by the Madras High Court that the appellant therein is not to be proceeded against for payments already made pursuant to the orders issued, as per which there was no scope for tax deduction at source. We are of the opinion that the same is the position herein also, as the appellant, 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.
12. The Apex Court in State of U.P. v. Prem Chopra [2022] 2 SCR 990, considering the effect of an interim order granted by the Court, once the main matter itself is disposed of, has observed as under:-
“24. From the above discussion, it is clear that imposition of a stay on the operation of an order means that the order which has been stayed would not be operative from the date of passing of the stay order. However, it does not mean that the stayed order is wiped out from the existence, unless it is quashed. Once the proceedings, wherein a stay was granted, are dismissed, any interim order granted earlier merges with the final order. In other words, the interim order comes to an end with the dismissal of the proceedings. In such a situation, it is the duty of the Court to put the parties in the same position they would have been but for the interim order of the court, unless the order granting interim stay or final order dismissing the proceedings specifies otherwise. On the dismissal of the proceedings or vacation of the interim order, the beneficiary of the interim order shall have to pay interest on the amount withheld or not paid by virtue of the interim order.”
(underlining supplied)
Thus, though the effect of an interim order would come to an end upon the final disposal of the main case that would be subject to the observation to the contrary in the interim order or the final judgment. Applying this principle to the case at hand, even though the main writ petition/writ appeal has been later disposed of insofaras the interim order has directed the treatment of the amount paid without deduction of tax in the manner laid down therein, the appellant bank cannot be treated as an assessee in default.
13. Sri. Jayashankar also contended that insofar as steps under Section 201 of the 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 appellant cannot seek refuge thereunder. But we are of the opinion 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 appellant cannot be faulted for having honoured the stay orders issued by the Madras High Court. Therefore, the afore contention raised is only to be rejected.
14. We also take note of the fact that the Apex Court, by judgment dated 04.11.2022 in State Bank of India v. Assistant Commissioner of Income-tax (SC)/Civil Appeal No.8181 of 2022, has found that, as against payments made by the appellant bank to its employees towards LTC, it was bound to deduct tax at source. But this finding was with respect to the Assessment Year 2013-14 (financial year 2012-13). In the case at hand, during the financial year 201516relevant to the assessment year 2016-17, the interim directions issued by the Madras High Court governed the field, and the appellant-assessee was justified in not having deducted the tax.”
10. In view of the above legal position, we are of the considered opinion that the appellant bank cannot be treated as “assessee in default”.
11. In the result, appeal filed by the assessee in ITA No.938/CHNY/2026 stands allowed.
ITA Nos.939, 940 & 942/CHNY/2026
12. Since the facts and issues involved in the above captioned appeal is identical, therefore, our decision in ITA No.938/CHNY/2026 for the shall apply mutatis mutandis to these three appeals of the assessee i.e. ITA Nos.939, 940 and 942/CHNY/2026 also. Accordingly, grounds of appeal filed by the assessee are allowed.
13. To sum up, all the four appeals filed by the Assessee are allowed.
