Dismissing an appeal, the Supreme Court ruled that State Bank of India (SBI) ought to have deducted tax at source (TDS) from the payment given to its employees who have availed leave travel concession (LTC) facility for foreign travel. While no LTC facility can be availed by employees for travel outside India, it is the responsibility of the employers to deduct TDS from payments to employees, the apex court says.
In an order passed earlier this month, the bench of chief justice Uday Umesh Lalit, justice S Ravindra Bhat and justice Sudhanshu Dhulia says, "The appellant (SBI) cannot claim ignorance about the travel plans of its employees as during settlement of LTC bills when the complete facts are available before the assessee (SBI) 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 (SBI), and he was therefore fully in a position to calculate the 'estimated income' of its employees."
During assessment year (AY) 2013-14, the income-tax (I-T) department found that many employees of SBI availed the LTC facility but have travelled to foreign countries. The assessing officer (AO) was of the opinion that the money received by an employee as LTC is exempted under Section 10(5) of the I-T Act. However, this exemption cannot be claimed by an employee for travel outside India, which has been done in this case and, therefore, SBI defaulted in not deducting TDS from this amount claimed by its employees as LTC, the AO says.
SBI challenged the AO's order before the commissioner of income-tax appellate (CIT A), which was dismissed and so was their appeal before the income tax appellate tribunal (ITAT).
On 13 January 2020, the Delhi High Court (HC) also dismissed the appeal filed by SBI, holding that there was no substantial question of law in the appeal. It was held that the amount received by the employees of SBI towards their LTC claims is not liable for the exemption as these employees had visited foreign countries, which is not permissible under the law.
LTC is a payment made to an employee which is exempted as 'income' and, hence, under normal circumstances, there is no question of TDS on this payment. Needless to say, 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 journey. Secondly, LTC is given for the shortest route between these two places.
In the present case, the SC observed that employees of SBI 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 I-T department, 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 SBI could not be exempted, and the Bank ought to have deducted TDS, while making this payment."
"To give an example of one of the employees of SBI, who availed LTC taking a circuitous route of Delhi- Madurai- Colombo-Kuala Lampur- Singapore- Colombo- Delhi and his claim was fully reimbursed by the appellant and no tax was deducted under Section 192(1) for the same," the bench noted.
Senior counsel KV Vishwanathan, representing SBI, contended that the Bank's employees did travel from one designated place in India to another place within India. However, in their travel itinerary, a foreign country was also involved. Further, he says, the payments which were made to these employees were for the shortest route of their travel between two designated places within India. In other words, no payment was made for foreign travel though a foreign leg was a part of the itinerary undertaken by these employees, he told the SC.
After perusing records, the bench observed that many SBI employees 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. "It is very difficult to appreciate how SBI could have failed to take this aspect into account. This was the elephant in the room."
Further, the bench says, "The contention of senior counsel Vishwanathan that there may be a bonafide mistake by SBI in calculating the 'estimated income' cannot be accepted since all the relevant documents and material were before SBI at the relevant time and SBI, therefore, ought to have applied its mind and deducted tax at source as it was its statutory duty, under Section 192(1) of the Act."
(Civil Appeal No8181 of 2022 Date: 4 November 2022)