State Bank of India shielded from tax default by ITAT Rajkot ruling

The Income Tax Appellate Tribunal (ITAT) Rajkot has ruled that the State Bank of India (SBI) cannot be treated as an assessee in default regarding the non-deduction of tax at source on Leave Fare Concession (LFC) payments for the assessment years 2016-17 and 2017-18.

The dispute centered on whether LFC payments for journeys involving a foreign leg required tax deduction under Section 192. While the Supreme Court later determined that such foreign-leg travel does not qualify for exemption under Section 10(5), the Tribunal found that SBI was acting under binding interim directions from the Madras High Court at the time.

The Tribunal held that a subsequent Supreme Court ruling on the substantive taxability issue could not retrospectively create a default for a period when the bank was complying with judicial directions. Consequently, the tax demands and connected penalties were deleted.