The Supreme Court clarified that LTC is available only when travel is within India. Even if the destination points are within India but the travel includes a foreign country, the same will violate the conditions for LTC.
Brief Facts of the Case:
The Division Bench of the Delhi High Court had dismissed an appeal filed by the Appellant and upheld the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as “ITAT”) vide which Appellant was declared an assessee in default for the assessment year 2013-14 as he did not deduct TDS of its employees. The present appeal is filed against the judgment of the Delhi HC.
This Court considered whether the Appellant was in default for not deducting tax at source while releasing payments to employees as leave travel concession (hereinafter referred to as “LTC”).
LTC is a payment given to an employee and exempted as “income”. An employee can avail this facility only with certain statutory limitations. These are:
- Travel must be within India
- LTC is available for the shortest route between two places.
In the present case, the employees of SBI traveled outside India as well. Also, the route taken was not the shortest route. Therefore, the payment by the bank to the employees could not be exempted as it violated statutory conditions and the Bank should have deducted tax at source while making this payment.
Contentions of the Appellant:
The Appellant contended that firstly, the travel was from one designated place in India to another though the itinerary included a foreign country, and secondly, that the payments made were for the shortest route of the travel. It was argued that there was no payment made for the foreign trip.
Observations of the Court:
The Court observed that the Revenue had discovered that some of the employees had claimed LTC even when the travel was outside India. The Assessing Officer pointed out that there were 2 violations of the LTC Rules. One, that the travel was done outside India as well, and second, that instead of the shortest route, a circuitous route was taken.
The Apex Court opined that it is difficult to accept that no price was paid for the foreign tour and that so many foreign trips were taken by the employees and the same was missed by the assessor-employer. It was opined that LTC is only for travel within India and that if a foreign trip is included despite the destination points remaining within India the same would not qualify for LTC.
The Bench further analyzed the objective of LTC. It is to familiarize a civil servant or a government employee to learn about the Indian culture. Therefore, the demand for foreign travel was even rejected by the 6th pay commission.
The decision of the Court:
The SC opined that the obligation of deducting tax is distinct from payment of tax and therefore, the Appellant cannot claim ignorance of the fact that employees traveled to foreign places. Deducting tax at source was the statutory duty of the Appellant and he should have applied his mind and performed the same. Therefore, the Court dismissed the appeal and upheld the order passed by the Delhi HC
Cause Title: State Bank of India v. Assistant Commissioner of Income Tax
Bench: Hon’ble Mr. Chief Justice of India Uday Umesh Lalit; Hon’ble Mr. Justice Sudhanshu Dhulia; Hon’ble Mr. Justice S. Ravindra
Decided on: November 4th, 2022
Read Judgment @LatestLaws.com
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