Karnataka High Court
State Bank Of India vs The Deputy Commissioner Of Income Tax on 9 September, 2025
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ITA No. 66 of 2025
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 9TH DAY OF SEPTEMBER, 2025
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE C M JOSHI
INCOME TAX APPEAL NO. 66 OF 2025
BETWEEN:
1. STATE BANK OF INDIA
LOCAL HEAD OFFICE
NO.65, ST. MARK'S ROAD
BENGALURU - 560 001
REPRESENTED BY ITS
ASST. GENERAL MANAGER
SRI V.V. BHARADWAJ
AGED ABOUT 59 YEARS
SON OF SRI NARESH PRASAD SINGH
TAN NO.BLRS00572F
...APPELLANT
Digitally
signed by (BY SRI S. PARTHASARATHI, ADVOCATE FOR
PRABHAKAR MS. JINITA CHATTERJEE, ADVOCATE)
SWETHA
KRISHNAN
Location: High AND:
Court of
Karnataka
1. THE DEPUTY COMMISSIONER OF INCOME-TAX
TDS CIRCLE 3(1)
#59, HMT BHAVAN
4TH FLOOR, BELLARY ROAD
GANGANAGAR
BANGALORE - 560 032.
...RESPONDENT
(BY SRI ARVIND V. CHAVAN, ADVOCATE)
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ITA No. 66 of 2025
HC-KAR
THIS INCOME TAX APPEAL IS FILED UNDER SEC. 260-A OF
INCOME TAX ACT 1961, PRAYING TO ALLOW THE APPEAL AND
SET-ASIDE THE ORDER OF THE INCOME-TAX APPELLATE
TRIBUNAL DATED 28.06.2024 IN SO FAR IT PERTAINS TO THE
APPELLANT'S APPEALS IN I.T.A.Nos.317/Bang/2024 FOR THE
ASSESSMENT YEAR 2016-17 & ETC.
THIS APPEAL, COMING ON FOR ORDERS, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MR. JUSTICE C M JOSHI
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. For the reasons stated in the application―I.A.No.1 of 2025―
the same is allowed. The delay of 90 days in filing the present
appeal is condoned.
2. The appellant [Assessee] has filed the present appeal under
Section 260A of the Income Tax Act, 1961 [the Act] impugning an
order dated 28.06.2024 [impugned order] passed by the learned
Income Tax Appellate Tribunal [ITAT] in ITA No.317/Bang/2024 in
respect of the Assessment Year [AY] 2016-17.
3. The Assessee had preferred the said appeal against an
order dated 27.12.2023 passed by the Additional/JCIT(Appeals),
Prayagraj [CIT(A)], whereby the Assesses's appeal against an
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order imposing penalty and interest under Sections 201(1) and
201(1A) of the Act was dismissed.
4. A survey under Section 133A of the Act was conducted at
the business premises of the Assessee's local head office on
26.12.2013. During the course of the survey, it was noticed that the
Assessee had deducted Tax at Source [TDS] towards
reimbursement of Leave Travel Concession [LTC] to the
employees who had travelled outside India. Accordingly, the
Assessing Officer [AO] had raised a demand of tax and interest
under Sections 201(1) and 201(1A) of the Act, for default on the
part of the Assessee to deduct TDS under the provisions of Section
192(1) of the Act. According to the Assessee, the said LTC to its
employees was not chargeable to tax as it is required to be
excluded from the income of the employees under Section 10(5) of
the Act. The said Section is reproduced below:
"10. Incomes not included in total income.--In
computing the total income of a previous year of any
person, any income falling within any of the following
clauses shall not be included-
*** *** *** *** *** ***
(5) in the case of an individual, the value of any travel
concession or assistance received by, or due to, him,-
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(a) from his employer for himself and his family, in
connection with his proceeding on leave to any place in
India;
(b) from his employer or former employer for himself
and his family, in connection with his proceeding to any
place in India after retirement from service or after the
termination of his service,
subject to such conditions as may be prescribed
(including conditions as to number of journeys and the
amount which shall be exempt per head) having regard
to the travel concession or assistance granted to the
employees of the Central Government:
Provided that the amount exempt under this clause
shall in no case exceed the amount of expenses
actually incurred for the purpose of such travel.
Explanation. For the purposes of this clause, "family",
in relation to an individual, means-
(i) the spouse and children of the individual; and
(ii) the parents, brothers and sisters of the individual or
any of them, wholly or mainly dependent on the
individual;"
5. According to the Revenue, the said exemption was
unavailable in respect of reimbursement of LTC, which involved
overseas travel. The exemption was confined to LTC
reimbursement in respect of travel within any place in India.
6. The Assessee contested the said claim. Additionally, it was
contended on behalf of the Assessee that it had issued a circular
dated 15.04.2014 for withdrawing of LTC/HTC involving foreign
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travel. The said circular was impugned by certain employees
before the Madras High Court in W.P.No.11991/2014. The Madras
High Court had passed an interim order dated 25.04.2014, staying
the operation of withdrawal of the said circular. Thus, by virtue of
the interim order, the Assessee could not have deducted TDS from
LTC reimbursement granted to its employees. It was also stated
that the said writ petition, (being W.P.No.11991/2014) was finally
dismissed by the Madras High Court by an order dated 24.06.2022.
The appeal preferred against the said decision (being
W.A.No.1653/2022) before the Division Bench of the Madras High
Court was also dismissed. The writ petitioners had filed Special
Leave Petition (being SLP No.16734/2023) before the Hon'ble
Supreme Court against the judgment of the Madras High Court in
W.A.No.1653/2022. In the said proceedings, the Hon'ble Supreme
Court has passed an order dated 28.08.2023 staying the operation
of the judgment of the Madras High Court. It is submitted that since
the Assessee is unable to withdraw the benefit of the LTC
concession for foreign travel by virtue of the interim order passed
by the Madras High Court and subsequently by the Hon'ble
Supreme Court, the Assessee cannot be imposed any demand of
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tax under Section 201(1) or interest under Section 201(1A) of the
Act.
7. We find no merit in the aforesaid contention. The Assessee
cannot conflate the issue regarding providing the perquisite of LTC
to its employees and its obligation to deduct TDS on such
payments. The question whether the LTC reimbursement involving
foreign travel is exempted under Section 10(5) of the Act is no
longer res integra.
8. In State Bank of India v. Assistant Commissioner of
Income Tax : (2023) 1 SCC 162, the Hon'ble Supreme Court has
authoritatively held that payment of LTC involving foreign travel
was not excluded from income chargeable to taxes under the Act.
The said issue is squarely covered against the Assessee. The
relevant extract of the said decision is set out below:
"15. The provisions of law discussed above prescribe
that the air fare between the two points, within India
will be given and the LTC which will be given will be of
the shortest route between these two places, which
have to be within India. A conjoint reading of the
provisions discussed herein with the facts of this case
cannot sustain the argument of the appellant that the
travel of its employees was within India and no
payments were made for any foreign leg involved.
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16. We do not want to get into the role of the travel
agencies and the present dynamics of air fare, but it is
difficult for us to accept that a person will avail foreign
tour without paying any price for it. We leave it at that.
17. It can be seen from the records that many of the
employees of the appellants had undertaken 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 as to how the
appellant who is the assessee employer could have
failed to take into account this aspect. This was the
elephant in the room.
18. The contention of the appellant that there is no
specific bar under Section 10(5) for a foreign travel
and therefore a foreign journey can be availed as long
as the starting and destination points remain within
India is also without merits. LTC is for travel within
India, from one place in India to another place in India.
There should be no ambiguity on this.
19. The second argument urged by the appellant that
payments made to these employees was of the
shortest route of their actual travel cannot be accepted
either. It has already been clarified above, that in view
of the provisions of the Act, the moment employees
undertake travel with a foreign leg, it is not a travel
within India and hence not covered under the
provisions of Section 10(5) of the Act.
20. A foreign travel also frustrates the basic purpose
of LTC. The basic objective of the LTC scheme was to
familiarise a civil servant or a government employee to
gain some perspective of Indian culture by travelling in
this vast country. It is for this reason that the 6th Pay
Commission rejected the demand of paying cash
compensation in lieu of LTC and also rejected the
demand of foreign travel.
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21. In Para 4.3.4 of the 6th Pay Commission Report
dated March 2008 this is what was said:
"4.3.4. The demand for allowing travel abroad at least
once in the entire career under the scheme is not in
consonance with the basic objective of the scheme.
The government employee cannot gain any
perspective of the Indian culture by travelling abroad.
Besides, the attendant cost in foreign travel would also
make the expenditure under this scheme much higher.
The Commission is, therefore, not inclined to concede
the demand to allow foreign travel under LTC."
This is also an objection of the Revenue which has
been raised in its counter-affidavit filed by Respondent
1 Assistant Commissioner of Income Tax wherein the
Revenue has asserted that the provision for LTC was
introduced to motivate employees and encourage its
employees towards tourism in India and it is for this
reason that reimbursement of LTC was exempted.
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.
22. The aforementioned order passed by the CIT (A)
has rightly held that the obligation of deducting tax is
distinct from payment of tax. The appellant cannot
claim ignorance about the travel plans of its
employees as during settlement of LTC bills the
complete facts are available before the assessee
about the details of their employees' travels.
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
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calculate the "estimated income" of its employees. The
contention of Shri K.V. Viswanathan, learned Senior
Advocate that there may be a bona fide mistake by the
assessee employer in calculating the "estimated
income" cannot be accepted since all the relevant
documents and material were before the assessee
employer at the relevant time and the assessee
employer therefore ought to have applied his mind and
deducted tax at source as it was his statutory duty,
under Section 192(1) of the Act."
9. In view of the above, we find no infirmity with the decision of
the learned ITAT upholding the demand under Sections 201(1) and
201(1A) of the Act, which has arisen on account of failure on the
part of the Assessee to deduct TDS on LTC concessions involving
foreign travel.
10. No substantial question of law arises for consideration of this
Court. The appeal is accordingly dismissed.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C M JOSHI)
JUDGE
KPS,
