Foreign Leg in LTC Travel Makes Employer Liable for TDS: SC

State Bank of India Vs Assistant Commissioner of Income Tax (Supreme Court of India)

The Supreme Court considered an appeal challenging the judgment dated 13.01.2020 of the Delhi High Court, which had upheld the order of the Income Tax Appellate Tribunal (ITAT) dated 09.07.2019. The ITAT had held the appellant, a public sector bank, to be an “assessee in default” for Assessment Year 2013–14 for not deducting tax at source (TDS) on Leave Travel Concession (LTC) payments made to its employees.

The central issue before the Court was whether the appellant was in default under Section 192(1) of the Income Tax Act, 1961 for failing to deduct TDS while reimbursing LTC to its employees.

LTC is exempt under Section 10(5) of the Act, subject to prescribed conditions. The exemption applies to travel within India from one designated place to another designated place in India and is subject to Rule 2B of the Income Tax Rules, 1962. The Rules stipulate that exemption is limited to the amount actually incurred, and calculated based on the shortest route between the origin and destination within India.

Proceedings commenced after a spot verification under Section 133A revealed that some employees had undertaken travel involving foreign destinations while claiming LTC. Though the claim forms showed travel between two points in India, the actual itinerary included foreign legs, resulting in circuitous routes. Examples included routes such as Delhi–Madurai–Colombo–Kuala Lumpur–Singapore–Colombo–Delhi, and travel to Port Blair via Malaysia or Bangkok, or to Rameswaram via Mauritius.