Complying with binding interim High Court directions protects against TDS default, interest, and penalty.

“8. We have heard the rival submissions and perused the material placed before us. We have also gone through various decisions of the coordinate benches cited by the assessee for the same assessment year, i.e. AY 2016-17. Specifically, in the case of State Bank of India v/s CIT(A) in ITA No.514/Agr/2024, it has been held by the coordinate bench at Agra as under:

4. At the same time, it could be seen that the impugned payments pertain to LTC granted by assessee bank for the period 15-02-2016to 24-02-2016 when the operation of interim order dated 16-02-2015of Hon’ble High Court of Madras was in operation, the relevant portion of which read as under: –

“6. The interim order granted by this court is explained to the effect that any amount paid to the petitioner towards LTC or reimbursement of LTC pursuant to the impugned order would not amount to the income so as to enable the bank to deduct tax at source. It is made clear that if the writ petition is dismissed, the employees are liable to pay tax on the amount paid by the bank.”

The Hon’ble Court thus restrained the assessee bank not to deduct tax at source on such reimbursement. Finally, the decision has been rendered by Hon’ble High Court of Madras in case titled as All India State Bank Officers Association us. SBI ( ; dt. 14-06-2022) 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. We order so. The impugned demand as raised against the assessee stand deleted.”