SBI’s Liability for TDS on LFC with Foreign Travel: Agra ITAT Ruling Explained
Background of the Dispute
The controversy in State Bank of India Vs ITO before the ITAT Agra revolved around whether a public sector bank could be treated as an “assessee in default” under Section 201 of the Income Tax Act, 1961, for not deducting tax at source on Leave Fare Concession (LFC) amounts paid to its employees when their journeys included foreign travel.
For the relevant AY 2014-15, the Assessing Officer (ITO (TDS), Aligarh) passed an order under Section 201(1A) dated 23.03.2021 and treated the bank as an assessee in default under Section 201 for non-deduction of TDS on such LFC payments, along with interest under Section 201(1A). The National Faceless Appeal Centre, Delhi (CIT(A)) upheld this view vide order dated 13.10.2022. SBI carried the matter in appeal to the ITAT Agra.
Core Issue Before ITAT Agra
Question for Determination
The sole substantive question before the Tribunal was:
Whether the
CIT(A)was correct in sustaining the Assessing Officer’s action in treating the assessee bank as an assessee in default under Section 201 and in levying interest under Section 201(1A), for failure to deduct TDS on LFC payments made to employees who undertook journeys with foreign stop-overs.
The assessee bank is a Public Sector Bank, and the dispute pertained to LFC payments treated by the bank as exempt in the hands of its employees under Section 10(5).
Facts Considered by the Tribunal
Nature of LFC Payments and TDS Position
- Employees of the assessee bank availed Leave Travel / Leave Fare Concession and, during these sanctioned trips, travelled to foreign destinations.
- The bank, while settling the employees’ LFC claims, had full knowledge from the travel bills and supporting documents that the journeys included foreign travel/foreign stop-overs.
- Despite this, the assessee did not deduct TDS under
Section 192, asserting that:- The LFC amounts were exempt under
Section 10(5), and - Consequently, no tax was deductible as “salary” in the employees’ hands.
- The LFC amounts were exempt under
Assessee’s Defence
The assessee advanced multiple lines of defence:
Exemption Claim under Section 10(5)
- The bank argued that LFC was being allowed in accordance with
Section 10(5)read with the relevant Rules, and it held a bona fide belief that the amounts were not chargeable to tax as salary in the hands of the employees.
- The bank argued that LFC was being allowed in accordance with
Employees’ Direct Tax Liability
- The bank further contended that even if there was any tax liability on such LFC amounts, the employees themselves would pay tax in their individual returns of income, and this should shield the bank from being treated as an assessee in default.
Reliance on Judicial Orders and Precedents
The assessee placed reliance on the following:Interim orders of the Hon’ble Madras High Court in
All India State Bank Officer’s Federation and All India Bank Officer’s Confederation Vs. State Bank of India and others in MP No. 2 of 2014 in WP No. 11991 of 2014 dated 16.02.2015
Judgment of the Hon’ble Kerala High Court in:
State Bank of India Vs. CIT in ITA 45 of 2025 dated 18.11.2025
Decision of the Ahmedabad Bench of the ITAT in:
State Bank of India, Bhavnagar Para Branch Vs. ITO for A.Y. 2016-17 in ITA Nos. 453 & 454/Ahd/2026 dated 26.03.2026