Case Law Details
State Bank of India Vs DCIT (Karnataka High Court)
The Karnataka High Court condoned a delay of 90 days in filing the appeal under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal dated 28.06.2024 for AY 2016-17. The appeal arose from proceedings where penalty and interest were imposed under Sections 201(1) and 201(1A) for failure to deduct TDS under Section 192(1) on reimbursement of Leave Travel Concession (LTC) granted to employees who undertook foreign travel.
Read SC Interim Order in this case: SC Stays TDS Demand Notices Against SBI in Foreign LTC Reimbursement Case
A survey under Section 133A revealed that TDS had not been deducted on LTC reimbursements involving overseas travel. The assessee contended that such LTC was exempt under Section 10(5), and further argued that due to interim orders of the Madras High Court and the Supreme Court concerning withdrawal of foreign LTC benefits, it could not deduct TDS.
The High Court rejected these contentions, holding that the obligation to deduct TDS is distinct from granting the perquisite. Relying on the Supreme Court’s decision in State Bank of India v. Assistant Commissioner of Income Tax (2023) 1 SCC 162, the Court noted that LTC involving foreign travel is not exempt under Section 10(5), which applies only to travel within India. Since the issue was no longer res integra and the employer had full knowledge of employees’ travel details, failure to deduct TDS could not be treated as a bona fide mistake.
Finding no infirmity in the ITAT’s order upholding the demand under Sections 201(1) and 201(1A), and holding that no substantial question of law arose, the High Court dismissed the appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. For the reasons stated in the application―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 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-
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(5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,-
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 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 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.
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.
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 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.
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