We know that as per Section 192 (1) of the Income Tax Act an employer is required to deduct tax at source from salary paid to its employees by estimating the income chargeable under the head “salaries” at average rate of income-tax. Also, the person responsible for making deduction may increase or reduce the amount to be deducted under this section for the purposes of adjusting any excess or deficiency arising out of any previous deduction. The deducted tax should be deposited within the prescribed time. If the tax has not been properly deducted or has not been properly paid after deducting, the person who is responsible is to be deemed to be an assessee in default in respect of the tax. In this article we are addressing the consequence when there is non deduction of TDS on conveyance allowance by employer. So, it is quite clear that the employer has to deduct tax from the salary paid to its employees on the basis of the estimated income of such employees. Hence, it can be concluded that if the ‘estimate’ made by the employer is bonafide, he cannot be faulted for not deducting tax. If, on the other hand, it is found that the estimate made by the employer was malafide then, the provisions of section 201 can be rightly applied i.e. he will be deemed to be an assessee in default. Firstly, let us understand that we are not concerned here whether TDS should be deducted on conveyance allowance or not. What we are talking about is whether non deduction of TDS on conveyance allowance will make you an assessee in default if the assessee company had bonafide belief that the conveyance allowance payment to its employees was not the subject matter of deduction of tax at source.  Let us go through a recent case law of high court of Allahabad, Commissioner of Income-tax v .I.T.C. Ltd. Here, the assessee was deducting the tax on the conveyance allowance up to January, 1993,and then  a bona fide doubt was felt as to whether the tax is to be deducted on the conveyance allowance paid for reimbursement of travelling. Consequently, the assessee obtained declarations from its employees that the amount received by the staff was actually spent on coming to office from residence and vice-versa, which were furnished to the revenue authorities during the course of proceedings. On the basis of such declaration, the tax was not deducted. The Assessee took up the plea that it had discussions with the Income Tax Officer and submitted a proof of letter dated 29-1-1993 in this regard. In the given case, the Assessing Officer was of the opinion that deduction of TDS on conveyance allowance was mandatory. The Commissioner (Appeals) did not accept the explanation of the assessee, that it had held a meeting with the then Income Tax Officer (TDS) on which the assessee was advised that the conveyance allowance was not taxable. No written intimation was issued by ITO (TDS). The letter of the assessee dated 29-1-1993 addressed to the concerned Income Tax Officer, referring to the discussions held with him, was not relied upon in proof of any such information or assurance given to the assessee that the conveyance allowance was not liable to be included for the purpose of deduction of tax at source The Tribunal, held that the action of the assessee in not deducting tax at source from conveyance allowance paid to its workmen, was based on bona fide belief. Thus, the assessee should not be treated as assessee in default in terms of section 201. The tribunal held that although no conclusive evidence is placed on the record to establish that the Income-tax Officer (TDS) advised the assessee company not to deduct tax on conveyance allowance, yet a reasonable inference can be drawn from the letter written by the assessee-company to the said Income-tax Officer on 29th January, 1993 in this regard. This showed that the action of the assessee, in not deducting tax at source from conveyance allowance paid to its workmen, was based on bonafide belief. Further a similar view was held in the decision of the Delhi High Court in the case of Nestle India Ltd. (supra). Thanks for reading for this article. Please feel free to write to us, if you are facing any issue with like this  at [info@taxmantra.com]. We would be more than happy to assist you.