ITAT Rajkot Protects Assessee from TDS Default on Foreign LTC During Active High Court Stay Period
The Rajkot Bench of the Income Tax Appellate Tribunal (ITAT) recently delivered a consolidated order addressing a critical intersection of substantive tax liability and procedural compliance during active judicial stays. The tribunal adjudicated a batch of six appeals filed by various branches of the State Bank of India, focusing on the non-deduction of Tax Deducted at Source (TDS) on Leave Travel Concession (LTC) and Leave Fare Concession (LFC) payments that included a foreign travel component.
The central legal question was whether an employer could be categorized as an "assessee in default" under Section 201(1) of the Income-tax Act, 1961, for failing to withhold tax under Section 192(1) during a specific period when a binding High Court interim order explicitly restrained such deduction.
Factual Matrix and Background of the Dispute
The appeals, encompassing ITA Nos. 161, 178, 190, 281, 328, and 343/Rjt/2026, pertained to the Assessment Years 2016-17 and 2017-18. The tribunal utilized ITA No. 343/Rjt/2026 as the lead case to establish the factual and legal foundation for its ruling.
The genesis of the dispute traces back to information received by the Assessing Officer from the TDS Circle in Mumbai. The intelligence indicated that during the Financial Year 2016-17, the assessee had disbursed LFC payments to its employees for travel itineraries that included foreign destinations. The revenue department noted that these disbursements were made without the corresponding tax deductions mandated by Section 192(1).
The Assessing Officer's Action
Relying on the premise that LTC exemptions are strictly meant for travel within India, the Assessing Officer initiated proceedings against the assessee. The officer concluded that by failing to deduct TDS on foreign travel reimbursements, the employer had violated its statutory obligations.
Consequently, the Assessing Officer passed an order treating the assessee as an assessee in default under Section 201(1) read with Section 201(1A). In the lead case (AY 2017-18), the tax authorities raised a total demand of Rs. 2,09,340/- as per the order. This amount was calculated as comprising a principal tax default of Rs. 1,09,602/- and a consequential interest component of Rs. 99,738/- for a calculated delay period of 91 months.