SBI (Erstwhile SBBJ) Not an Assessee in Default for LTC-TDS: ITAT Jaipur Rules in Favour of Bank Citing Binding Judicial Restraint

Background and Context

The Income Tax Appellate Tribunal, Jaipur Bench, has ruled in favour of SBI (erstwhile SBBJ) for Assessment Year 2017-18, holding that the bank cannot be treated as an assessee in default under Section 201(1) and Section 201(1A) of the Income Tax Act, 1961 for its failure to deduct tax at source on Leave Travel Concession payments made to employees whose journeys involved a foreign leg.

The case arose from an order passed by the Assessing Officer dated 28.07.2023, which identified LTC payments of ₹2,21,156 made during FY 2016-17 and raised a total demand of ₹1,15,984, comprising TDS of ₹63,034 and interest of ₹52,950 under Section 201(1A). The CIT(A) confirmed this order, following which the bank approached the Tribunal.

Grounds Raised by the Assessee

The assessee raised multiple grounds before the Tribunal, which can be broadly categorised as follows:

  1. Proceedings against a non-existent entity – The AO initiated and concluded proceedings in the name of State Bank of Bikaner and Jaipur (SBBJ), which had already ceased to exist following its merger with SBI. The assessee contended that such proceedings were void ab initio.

  2. Jurisdictional challenge – The assessee argued that proceedings under Section 201(1) and Section 201(1A) could only be initiated by a JCIT or ACIT, and the ITO lacked the requisite authority.

  3. Manual affixation of DIN – The reference number (DIN) on the order dated 28.07.2023 was affixed manually, which the assessee contended was in violation of CBDT Circular No. 19/2019 dated 14th August, 2019.

  4. Absence of inquiry powers – The assessee submitted that the AO had not invoked Section 133(6) before initiating proceedings under Section 201, and that Section 201 does not independently confer inquiry powers. The defect was argued to be non-curable under Section 292BB.

  5. Pendency of SLP before the Supreme Court – The assessee pointed out that Special Leave to Appeal (C) No. 16734/2023 was pending before the Supreme Court, and a stay order was in operation restraining the bank from making recoveries from employees. Raising a demand during this period was argued to be untenable.

  6. Binding court orders preventing TDS deduction – The assessee contended that it was operating under the interim directions of the Madras High Court, which had expressly clarified that LTC payments made pursuant to the interim order would not constitute income enabling the bank to deduct tax at source. Non-deduction in compliance with such directions could not constitute a default.

  7. Failure to proceed against employees – The assessee argued that the Revenue had not initiated proceedings against the actual beneficiaries — the employees — who bore the primary tax liability under Section 4(1) read with Section 190 and Section 191(1) of the Act.

The Assessing Officer's Order and Revenue's Position

The AO, relying on the Supreme Court's decision in State Bank of India Vs ACIT, Civil Appeal No. 8181 of 2022, decided on 04.11.2022, held that LTC payments involving a foreign leg fall outside the exemption available under Section 10(5) of the Act. The AO concluded that the bank, as employer, was obligated to deduct tax at source under Section 192(1) and its failure to do so rendered it an assessee in default.

The Revenue's representative before the Tribunal reiterated this position, asserting that the Supreme Court had conclusively settled the law on the taxability of foreign-leg LTC and the employer's statutory deduction obligation.

The Supreme Court's Ruling in Civil Appeal No. 8181 of 2022

The Tribunal acknowledged and accepted the legal position laid down by the Supreme Court in the SBI matter for AY 2013-14. The key findings of the Supreme Court, as extracted in the Tribunal's order, are reproduced below: