A subsequent Apex Court ruling on the substantive issue cannot retrospectively make an act done in compliance of a binding judicial order a statutory default
In a recent judgment, ITAT Agra has held that a subsequent order passed by the Hon’ble Apex Court in respect of the substantive legal decision may not retrospectively convert an act performed in obedience to the binding judicial command into a statutory default.
ABCAUS Case Law Citation:
5240 (2026) (10) abacus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer (AO) in treating the assessee (public sector bank) as an assessee in default u/s 201 of the Act and consequential interest u/s 201(1A) of the Act in respect of non-deduction of tax at source for leave fare concession(LFC) given to its employees, who had a foreign stop-over in their travel.
The only issue involved in this appeal was as to whether the assessee bank can be treated as assessee in default u/s 201(1) and 201(1A) for not deducting tax from the employee’s LFC reimbursements on journey to foreign leg during the period when the interim directions issued by the Hon’ble Madras High Court were operative.
The said interim order stated as under, “the interim order granted by this court is explained to the effect that any amount paid to the petitioner towards LTC or reimbursement of LTC pursuant to the impugned order would not amount to the 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 the bank.”
The Tribunal noted that the issue related to these assessment years was also involved before the Mumbai bench which held that that an interim judicial order does not amend section 10(5) or create a substantive statutory exemption. The LFC reimbursements involving a foreign leg continued to possess the substantive character subsequently declared by the Hon’ble Supreme Court. However, the substantive taxability of the reimbursement and the liability of the assessee as a deductor under section 201 are separate questions.
The Mumbai ITAT had held that the judgment of the Hon’ble Supreme Court declaring the correct interpretation of section 10(5) was not prospective. Nevertheless, a subsequent declaration of the substantive legal position cannot retrospectively convert an act performed in obedience to a binding judicial command into a statutory default. The judgment of the Hon’ble Supreme Court determined the taxability of the reimbursement. It did not decide the distinct consequence of a deductor having acted during a later assessment year under an operative judicial direction which expressly restrained deduction.
The Tribunal further observed that in the instant case, the assessee bank was judicially bound under the interim direction of the Hon’ble Madras High Court during the relevant period and therefore, could not have deducted tax at source. The subsequent order passed by the Hon’ble Apex Court in respect of the substantive legal decision may not retrospectively convert an act performed in obedience to the binding judicial command into a statutory default. Hon’ble Kerala High Court had examined the issue and expressly distinguished the judgment of the Hon’ble Supreme Court on the basis of assessment year and the period of said interim protections granted by the Madras High Court. All these aspects had been dealt with by the Mumbai ITAT.
Accordingly, the Tribunal held that the assessee bank cannot be treated as assessee in default u/s 201(1). Consequently, the interest u/s 201(1A) being founded upon the default contemplated u/s 201(1) did not survive.
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