Back
2025 Supreme(Ker) 3107
IN THE HIGH COURT OF KERALA AT ERNAKULAM
A.Muhamed Mustaque, Harisankar V. Menon, JJ.
State Bank of India – Petitioner
Versus
Commissioner Of Income Tax - Respondent
ITA NO.45 OF 2025
Decided On : 18-11-2025
For the Petitioner: Smt.G.Mini, Shri.A.Kumar (Sr.), Shri.P.J.Anilkumar, Sri.P.S.Sree Prasad, Shri.Satyajith K. Warrier
For the Respondent: Sri.P.G.Jayashankar, Sri.Navaneeth.N.Nath
An appellant cannot be deemed an 'assessee in default' for tax deduction if mandated by court's interim orders.
Headnote:(A) Income Tax Act, 1961 - Section 201(1) and 201(1A) - Tax deduction at source - Appeal by assessee against revenue's steps for non-deduction of tax - Appellant claimed non-deduction justified based on interim orders of Madras High Court stating payments did not constitute taxable income - Court establishes that the appellant cannot be deemed an ‘assessee in default’ as tax was not due for deduction based on court orders - The provisions of the Act were held not to be applicable in the specific context of interim orders received - Also discussed relevant prior judgments and court’s binding decisions on deduction obligations. (Paras 2-14)
(B) Legal principles on interim orders - The court emphasized that compliance with interim court orders must be upheld, irrespective of subsequent judgments dismissing the original petition which may affect tax obligations of the employer.
Facts of the case:
The appellant bank's provision of Leave Travel Concession (LTC) faced challenge leading to interim orders clarifying that payments to employees were not taxable. The bank was penalized for failing to deduct tax under Section 201 based on these payments, leading to this appeal.
Findings of Court:
The High Court concluded that due regard must be given to the interim directives, permitting the appellant bank to refrain from tax deduction as mandated by court orders, thereby ruling in favor of the appellant and against the revenue.
Issues: The primary legal queries revolved around the capability of the appellant to be classified as an ‘assessee in default’ under specific tax provisions due to non-compliance of tax deduction.
Ratio Decidendi: The Court ruled that tax deductions could not be imposed against the appellant given their legal obligations under court injunctions, re-emphasizing that interim orders must shape tax responsibilities during their effectivity.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. context of tax deductions related to payments. (Para 1 , 2) |
| 2. arguments concerning interim orders and compliance. (Para 3 , 4 , 5 , 6) |
| 3. court's analysis of tax deduction obligations. (Para 7 , 8 , 9 , 10 , 11 , 12 , 13) |
| 4. final judgment ruling on tax deductions according to interim orders. (Para 14) |
JUDGMENT :
Harisankar V. Menon, J.
This appeal is at the instance of the assessee - a nationalised bank - seeking to challenge the order dated 09.12.2024 in ITA No.274 of 2024 of the Income Tax Appellate Tribunal, Cochin Bench upholding the steps initiated against it under Section 201 (1) and (1A) of the Income Tax Act,1961 (hereinafter referred to as the ‘Act’) with respect to the assessment year 2016-17.
2. The appellant has been providing reimbursement of Leave Travel Concession (LTC) to its employees. Pursuant to a circular dated 15.04.2014 issued by the bank, LTC as regards overseas travel facility to the employees stood withdrawn. The circular was challenged before the Madras High Court at the instance of the association of the employees of the bank. The Madras High Court, by an order dated 25.04.2014, stayed the operation of the circular. Later, the stay order as above was sought to be modified/clarified at the instance of the petitioners therein complaining that the bank (appellant-assessee) was taking steps to ‘deduct tax at source’, treating the payments to the employees on the basis of the interim order as ‘income’ of the employees. The Madras High Court, therefore, issued Annexure-A interim order dated 16.02.2015 in W.P. No.11991 of 2014 clarifying the earlier order as under: -
“5. There is no dispute that the Bank would be paying LTC amount to the concerned officers pursuant to the interim order granted by this Court. The Interim Order is subject to the result of the writ petition. The learned counsel for the petitioner is correct in his contention that the there is no taxable income for deduction at source.
6. The interim order granted by this Court is explained to the effect that any amount paid to the petitioner towards LTC or re-imbursement of LTC pursuant to the impugned order would not amount to 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 Bank.”
(Underlining supplied)
The appellant-assessee contends that in view of the afore interim order, no tax could be deducted while making payment to the employees, since, in paragraph 6 of the order, it was found that the payment to the employee would not amount to his income so as to enable the bank to deduct tax at source. In view of this, the appellant could not deduct tax while making payment to the employees during the financial year 2015-16 relevant to the assessment year 2016-17. The appellant points out that the afore writ petition was ultimately dismissed on 24.06.2022, against which W.A No.1653 of 2022 was filed, which led to the issuance of Annexure-C interim order dated 08.08.2022 interdicting the appellant from making recovery from the salary of the employee. Ultimately, the appellant points out that by Annexure-D judgment dated 08.06.2023, the Division Bench of the Madras High Court directed reconsideration of the issue as regards the withdrawal of LTC benefits. The afore judgment is again challenged by the appellant bank before the Apex Court, and by an order dated 28.08.2023 in SLP (C) 16734 of 2023, while issuing notice, the Apex Court interdicted the bank from making recoveries from employees during the pendency of the matter. It was the contention of the bank before the department, when steps under Section 201 (1) and (1A) of the Act were initiated, that though payments were made, deduction could not be carried out from the employees on such payment by virtue of the stay orders noticed above. However, by Annexure-B order dated 30.03.2023, the explanation offered as above was brushed aside, and the appellant was treated
