The leave travel concession is for trips to India; TDS to be deducted from LTC if foreign visit is involved: Supreme Court

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The Supreme Court observed that Leave Travel Concession (LTC) is not for overseas travel and is for travel within India.

At the time employees undertake a trip with one leg abroad, it is not a trip to India and is therefore not covered by the provisions of Section 10 (5) of the Act of income tax.

The court dismissed the appeal by the State Bank of India against the judgment of the Delhi High Court which held that the amount received by the SBI employees for their LTC claims was not liable for the exoneration as these employees had visited abroad. The tax authorities had considered SBI as a “defaulted insured”, for not having withheld tax at source from its employees.

Section 10(5) of the Income Tax Act exempts from “total income” payments received as LTC. Subsection (5) reads as follows: In the case of an individual, the value of any travel concessions or assistance received by, or due to him,— (a) from his employer for himself and his family, in connection with his proceed on leave to any place in India.

On appeal, the SBI admitted that the trip taken by its employees under the SLD involved a stopover abroad and that a circuitous route as opposed to the shortest route had indeed been taken. But it was pointed out that (1) the employees traveled from a designated place in India to another place in India (although in their travel itinerary a foreign country is also involved), and (2) the payments which were actually paid to these employees was for the shortest route of their journey between two designated places in India. In other words, no payment was made for a trip abroad when a stopover abroad was part of the itinerary undertaken by these employees.

The bench rejected both of these arguments and made the following observations:

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

“The appellant’s contention that there is no specific prohibition under Article 10(5) for overseas travel and, therefore, overseas travel may be used as long as the origin and destination points remain in India is also without basis. LTC is for travel within India, from one place in India to another place in India. There should be no no ambiguity about it… The appellant’s second argument that the payments made to these employees corresponded to the shortest route of their actual trip cannot be accepted either. above that, in view of the provisions of the law, at the time employees undertake a trip with a foreign leg, it is not a trip to India and therefore is not covered by the provisions of the Section 10(5) of the Act.

A trip abroad also defeats the fundamental purpose of SLD.

A trip abroad also defeats the fundamental purpose of SLD. The basic objective of the LTC program was to acquaint a government official or employee with gaining some perspective of Indian culture while traveling in this vast country. It is for this reason that the 6th Wage Commission rejected the request for payment of cash compensation instead of LTC, and also rejected the request for travel abroad … There was no intention of the legislator to allow employees to travel abroad under the cover of LTC available under section 10(5) of the Act. Therefore, the Inland Revenue has a valid objection (apart from other objections which are clearly against the law), that the intent and purpose of the scheme is also violated under the guise of India tour, travel abroad are used.

The employer cannot claim to be unaware of the travel plans of its employees

The court observed that SBI cannot claim ignorance of its employees’ travel plans because when settling SLD invoices, the full facts are available before the assessee regarding the details of their employees’ trips.

“Therefore, it cannot be an honest mistake, because all the relevant facts were before the evaluated employer and he was therefore perfectly able to calculate the “estimated income” of his employees. assertion of Shri KV Vishwanathan, Senior Scholar claiming that there may be a bona fide error on the part of the assessed employer in calculating the “estimated income” cannot be accepted since all relevant documents and items were in front the assessed employer at the relevant time and the assessed employer should therefore have applied its spirit and deducted the withholding tax as was its statutory duty, under section 192(1) of the Act.”, the court added.

The court noted that many employees had undertaken to travel 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 assessed employer, could not have taken this aspect into account. It was the elephant in the room, said the court.

Case details

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

Summaries

Income Tax Act, 1961; Section 10(5), 192(1) – Income Tax Rules, 1962; Rule 2B – Appeal against Delhi HC Judgment ruling that the amount received by SBI employees for their Leave Travel Concession (LTC) claims is not eligible for the exemption as these employees had visited foreign countries which is not not permitted by law – Disallowed – LTC is not for overseas travel – Travel must be taken from a designated place in India to another designated place in India – At the time employees undertake travel with a foreign stage, it is not a trip to India and is therefore not covered by the provisions of Article 10 (5) – The employer cannot claim to be unaware of the travel plans of its employees, because when settling long term care bills, the full facts are available before the assessee regarding the details of their employee’s travels. Therefore, it cannot be an honest mistake.

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