State Bank of India Vs DCIT (Supreme Court of India)
The matter concerns the levy of tax and interest under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, for failure to deduct tax at source (TDS) under Section 192(1) on reimbursement of Leave Travel Concession (LTC) involving foreign travel. A survey under Section 133A conducted on 26.12.2013 revealed that the assessee had not deducted TDS on LTC reimbursements granted to employees who had undertaken overseas travel. The Assessing Officer consequently raised a demand of tax and interest, holding that exemption under Section 10(5) was confined to travel within India.
Read HC Judgment in this case: Karnataka HC Upholds TDS Demand on Foreign LTC as Section 10(5) Inapplicable
The assessee contended that LTC was exempt under Section 10(5) and further argued that, due to interim orders of the Madras High Court and subsequently the Supreme Court concerning withdrawal of LTC/HTC involving foreign travel, it could not deduct TDS. The Karnataka High Court rejected this contention, holding that the obligation to deduct TDS is distinct from granting the perquisite and that the issue was no longer res integra in view of the Supreme Court’s earlier decision in State Bank of India v. Assistant Commissioner of Income Tax (2023) 1 SCC 162.
In that decision, the Supreme Court authoritatively held that LTC exemption under Section 10(5) applies only to travel within India. It observed that once employees undertake travel involving a foreign leg, the travel ceases to be within India and is therefore not covered by Section 10(5). The Court rejected the contention that foreign travel could be permitted so long as the starting and destination points were within India. It further noted that foreign travel frustrates the basic objective of the LTC scheme, which was intended to promote travel within India. The Court emphasized that the employer cannot claim ignorance of travel details and that deduction of TDS is a statutory duty under Section 192(1). The obligation to deduct tax is distinct from the liability to pay tax, and failure to deduct cannot be justified as a bona fide mistake when relevant information is available.
Relying on the said authoritative pronouncement, the High Court upheld the demand under Sections 201(1) and 201(1A) and dismissed the appeal, holding that no substantial question of law arose.
Subsequently, in the present proceedings before the Supreme Court, delay was condoned, notice was issued, and the matter was directed to be tagged with SLP (C) No.26667/2024. Pending further hearing, the Supreme Court ordered that the demand notices issued by the respondents shall remain stayed. The interim stay thus operates until the next date of hearing.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Issue notice.
3. Tag with SLP (C) No.26667/2024.
4. Till the next date of hearing, the demand notices issued by the respondents shall remain stayed.
