LTC Claims Are Not Liable For Exemption As Employees Visited Foreign Countries Which Are Not Permissible Under Law: Supreme Court

Case Title: State Bank of India (Appellant) vs. Assistant Commissioner of Income Tax (Respondent)

Date of Order: November 4, 2022

Highlights: amount received by the employees of the assessee employer towards their LTC claims is not liable for the exemption as these employees had visited foreign countries which are not permissible under the law.

Legal Events: The appellant (State Bank of India) has challenged the judgement dated 13.01.2020 passed by a Division Bench of the Delhi High Court in ITA No. 05/2020 which has dismissed the appeal filed by the appellant and upheld the order passed by the Income Tax Appellate Tribunal (ITAT) dated 09.07.2019, holding the appellant as an assessee in default for the Assessment Year (AY) 2013- 14, for not deducting TDS of its employees.

Legal Issue(s): whether the appellant (SBI) was in default for not deducting tax at source while releasing payments to its employees as Leave Travel Concession (LTC)?

One of the legal issues in the present case was: Whether TDS could be applied on Leave Travel Concession (LTC)? Normally LTC is exempted income, and therefore no TDS. LTC may be availed with certain limitations as per law: Firstly, the travel must be done from one designated place in India to another designated place within India (not for foreign travel). Secondly, LTC is given for the shortest route between these two places.

In the present case, SBI employees not only travelled outside India, they didn’t take shortest route. It is plain and simple violation of law, and hence payment made couldn’t be exempted.

Counsel for the Appellant Shri K.V. Vishwanathan argued that no payment was made for foreign travel though a foreign leg was a part of the itinerary undertaken by these employees. And the reasons cited by Appellant-Bank didn’t find favor with the Assistant Commissioner of Income Tax or with the Commissioner of Income Tax (Appeals) or even the High Court.

Observations:

The Hon’ble Court made it clear that appellant (assessee-employer) ought to have deducted tax at source.

Having a close look over the relevant provisions of Income Tax Act (hereinafter the Act), 1961 and Rules, 1962 [Section 192(1), Section 201, Section 10(5) of the Act and Rule 2 of the Rules] it was observed that, “the travel undertaken by the employees as LTC was hence in violation of Section 10(5) of the Act read with Rule 2B of the Income Tax Rules, 1962.”

LTC is for travel within India, from one place in India to another place in India. There should be no ambiguity on this.

There was no intention of legislature to allow the employees to travel abroad in the garb of LTC available by virtue of Section 10(5) of the Act. Therefore, the Revenue has a valid objection (apart from other objections which are clearly violative of the Statute), that the intention and purpose of the scheme is also violated in the garb of tour within India, foreign travel is being availed.

It was further observed that obligation of deducting tax is distinct from payment of tax.

In conclusion the Hon’ble Supreme Court did not find any reason to interfere with the order passed by the Delhi High Court. The appeal is dismissed.

Case Details:

State Bank of India (Appellant) vs. Assistant Commissioner of Income Tax (Respondent)

CIVIL APPEAL NO. 8181 OF 2022 (ARISING OUT OF SLP (C) No. 9876 of 2020)

Bench:

CJI. UDAY UMESH LALIT

S. RAVINDRA BHAT, J.SUDHANSHU DHULIA, J.