Leave Travel Concession is for travel within India; TDS to be deducted from LTC if foreign visit: Supreme Court | Tech US News

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The Supreme Court observed that the grant of leave travel (LTC) is not for travel abroad and is meant for travel within India.

At the time the employees undertake a journey on foreign leg, it is not a journey within India and therefore not covered by the provisions of Section 10(5) of the Income Tax Act.

The court dismissed the appeal filed by State Bank of India against the Delhi High Court judgment which held that the amount received by SBI employees for their LTC claims is not liable for exemption as these employees had visited abroad. The Revenue had considered SBI as a “taxpayer in default”, for not deducting the tax at source from its employees.

Section 10(5) of the Income-tax Act exempts from ‘gross income’ payments received as LTC. Clause (5) reads as follows: In the case of a person, the value of any travel allowance or assistance received by, or due to him,— (a) from his employer for himself and his family, in relation to his proceeding with permission to any place in India.

In appeal, the SBI conceded that the journey undertaken by its employees under the LTC involved a foreign route and certainly a tortuous route rather than the shortest route was taken. But it was pointed out that (1) the employees traveled from a designated place in India to another place within India (although a foreign country was also involved in their travel itinerary) and (2) the payments actually made to them. employed was the shortest route of their journey between two designated places within India. In other words, no payment was made for foreign travel even though a foreign leg was part of the itinerary carried out by these employees.

The bench rejected these two allegations and made the following observations:

LTC is for travel within India, from one place in India to another place in India

“The contention of the appellant that there is no specific prohibition under Section 10(5) for a trip abroad and therefore one can avail of a trip abroad provided the points of departure and destination remain within India is also lacking of merits. LTC is for travel. within India, from one place in India to another place in India. There should be no ambiguity about it… The second argument raised by the appellant that the payments made to these employees was the shortest way of his actual journey also cannot be accepted .It has been clarified earlier that in view of the provisions of the Act, when the employees undertake a journey with foreign leg, it is not a journey within India and therefore not covered in the provisions of Section 10 (5) of the Act.

A trip abroad also defeats the basic purpose of LTC.

A trip abroad also defeats the basic purpose of LTC. The basic objective of the LTC scheme was to acquaint a government official or employee to gain some perspective of Indian culture by traveling across this vast country. That is why the 6th Pay Commission rejected the demand to pay cash compensation instead of LTC and also rejected the demand for foreign travel… There was no intention of legislature to allow employees to travel abroad in clothing LTC. available under article 10.5 of the Law. Therefore, the Revenue has a valid objection (apart from other objections which are clearly violative of the Statute), that the intent and purpose of the scheme is also violated in the suit of tour within India, foreign travel is being taken advantage of.

The employer cannot plead ignorance about the travel plans of its employees

The court observed that SBI cannot plead ignorance about the travel plans of its employees as during the settlement of LTC accounts complete data is available before the assessee about the travel details of its employees.

“Therefore, it cannot be a case of bona fide mistake as all the relevant facts were before the assessee employer and he was therefore fully in a position to calculate the ‘estimated income’ of his employees. The contention of Shri KV Vishwanathan, learned Sr. plea that there may be a bona fide mistake on the part of the assessee employer in computing the ‘estimated income’ cannot be accepted as all the relevant documents and materials were with the assessee employer at the relevant time and, therefore, the assessee employer should have applied his mind and deducted the tax at source as was his statutory duty under Section 192(1) of the Act.” the court added.

The court noted that many of the employees had traveled to Port Blair via Malaysia, Singapore or Port Blair via Bangkok, Malaysia or Rameswaram via Mauritius or Madurai via Dubai, Thailand and Port Blair via Europe, etc.

It is very difficult to appreciate how the appellant, who is the assessee employer, could have failed to take this aspect into consideration. This was the elephant in the room, said the court.

Details of the case

State Bank of India vs Assistant Commissioner of Income Tax | 2022 LiveLaw (SC) 917 | CA 8181 OF 2022 | November 4, 2022 | CJI UU Lalit, Justices Ravindra Bhat and Sudhanshu Dhulia

Headnotes

Income Tax Act, 1961; Section 10(5) and 192(1) – Income Tax Rules, 1962; Rule 2B – Appeal against Delhi HC judgment holding that such amount received by SBI employees towards their claims for grant of leave travel (LTC) is not liable for exemption as such employees had visited foreign countries, which is not permitted under law – Dismissed – LTC is not for travel abroad – The journey must be from a designated place in India to another designated place within India – At the time employees travel on a foreign leg, it is not a journey within India and therefore therefore, it is not covered by the provisions of Section 10 (5) – The employer cannot plead ignorance of the travel plans of his employees as during the settlement of LTC bills the complete particulars are available before the assessee about the travel details of the employees your employees Therefore, it cannot be a case of bona fide mistake.

Click here to read/download the judgment

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