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State Bank Of India vs. Assistant Commissioner Of Income Tax - (Supreme Court) (04 Nov 2022)

Leave Travel Concession has to be availed by an employee within certain limitations, prescribed by the law; LTC is not for a foreign travel


Direct Taxation

The Appellant (State Bank of India) has challenged the judgement passed by a Division Bench of the 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 in default for the Assessment Year (AY) 2013 for not deducting TDS of its employees.

The question which has fallen for consideration is whether the Appellant was in default for not deducting tax at source while releasing payments to its employees as Leave Travel Concession (LTC).

LTC is a payment made to an employee which is exempted as ‘income’ and hence under normal circumstances, there should be no question of TDS on this payment. All the same, LTC has to be availed by an employee within certain limitations, prescribed by the law. Firstly, the travel must be done from one designated place in India to another designated place within India. In other words, LTC is not for a foreign travel. Secondly, LTC is given for the shortest route between these two places. Admittedly, the employees of SBI in the present case, had done their travel not just within India but their journey involved a foreign leg as well. It was also not the shortest route, consequently, according to the Revenue, this was not a travel from a designated place within India to another designated place in India and thus it was in violation of the statutory provisions and hence the payment made to its employees by the Bank could not be exempted, and the Bank ought to have deducted Tax at source, while making this payment.

LTC is for travel within India, from one place in India to another place in India. 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 Income Tax Act, 1995.

The 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 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 contention that there may be a bonafide 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 IT Act. There is no reason to interfere with the order passed by the Delhi High Court. Appeal dismissed.


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