The Supreme Court ruled that there was no intention of the legislature to allow the employees to travel abroad in the garb of LTC available by virtue of Section 10(5) of the Act.
The appellant (State Bank of India) has challenged the judgment passed by a Division Bench of the Delhi High Court which has dismissed the appeal filed by the appellant and upheld the order passed by the Income Tax Appellate Tribunal (ITAT), holding the appellant as an assessee in default for the Assessment Year (AY) 2013- 14, for not deducting TDS of its employees.
Issue raised before the court is whether the appellant was in default for not deducting tax at source while releasing payments to its employees as Leave Travel Concession (LTC).
Senior Advocate K.V. Vishwanathan, appearing for the appellants, argued that though the travel made by its employees under LTC did involve a foreign leg and admittedly a circuitous route as opposed to the shortest route was taken, yet two things go in the favour of the employees.
He submitted that no payment made for foreign travel though a foreign leg was a part of the itinerary undertaken by these employees.
The three judges bench of The Chief Justice of India Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice Sudhanshu Dhulia noted that the provisions of law 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.
The court stated that a conjoint reading of the provisions discussed with the facts of the 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.
It was further added that LTC is for travel within India, from one place in India to another place in India. There should be no ambiguity on this.
“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” the court said.
The bench observed that 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 traveling in this vast country.
It was further observed that there was no intention of the legislature to allow the employees to travel abroad in the garb of LTC available by virtue of Section 10(5) of the Act.
The court held that 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 held by the court that 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.
“It cannot be a case of bonafide 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 its employees” , the court said.
The court dismissed the appeals.
Case title: State Bank of India v/s Assistant Commissioner of Income Tax
Citation: CIVIL APPEAL NO. 8181 OF 2022