State Bank of India Vs ACIT (ITAT Mumbai)
A plain reading of the section 10(5) read with rule 2B does not indicate any requirement of taking the shortest route for travelling to “any place in India” or putting any kind of restrictions the route to be adopted for going to such a destination. Quite to the contrary, the statutory provisions do envisage the possibilities of someone taking a route other than the shortest route, as is implicit in the restriction that “an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination” will only be eligible for exemption under section 10(5). What is essentially implies, to give a simple example, is that if someone is based in Mumbai and he decides to go to Delhi via, let us say, Lucknow, Kolkata, or Chennai, the amount admissible for exemption under section 10(5) will be restricted to the price of direct flights between Mumbai and Delhi on the national carrier. This proposition is not even disputed by the income tax department. The question, however, arises whether when the same person goes to Delhi, via Dubai, the exempt leave travel concession being restricted to the price of Mumbai Delhi direct flight. Of course, the stand of the income tax department is that even the cost of the direct flight from Mumbai to Delhi, on the national carrier- assuming that it is less than Mumbai-Dubai-Delhi airfare, will not be admissible leave travel assistance exemption in such a case. That is the approach approved by the coordinate benches as well, and, therefore, we need not question that at this stage. The relevant question, however, is not the actual status of taxation; the relevant question is whether the assessee employer could be said to unreasonable or malafide in proceeding on the basis that in such a situation also, the cost of a direct flight between Mumbai Delhi on national airlines will be available for exemption under section 10(5). When we look at the detailed statement of facts, extracts from which have been extensively reproduced by us earlier in this order, we do not find anything wrong or unreasonable in the conduct of the assessee employer. There is no specific bar in the law on the travel, eligible for exemption under section 10(5), involving a sector of overseas travel, and, in the absence of such a bar, the assessee employer cannot be faulted for not inferring such a bar. The reimbursement is restricted to airfare, on the national carrier, by the shortest route- as is the mandate of rule 2B. The employee has actually travelled, as a part of that composite itinerary involving a foreign sector as well, to the destination in India. The guidance available to the assessee employer indicates that, in such a situation, the exemption under section 10(5) is available to the employee- though to the extent of farthest Indian destination by the shortest route, and that is what the assessee employer has allowed. In the light of this analysis of the legal position and the factual backdrop, whatever may be the position with respect of taxability of such a leave travel concession in the hands of the employee, the assessee employer cannot be faulted for not deducting tax at source from the leave travel concession facility allowed by him to the employees. As we hold so, we may add that we have not really addressed ourselves to the larger question with respect to the actual taxability of this leave travel concession in the hands of the employees concerned, even though we have our prima facie reservations on the coordinate benches decisions holding taxability of these amounts in the hands of the employees concerned, because that aspect of the matter is not really relevant as on now. We leave it at that for the time being. The coordinate bench decisions deal with only the issue of taxability of leave travel facility under section 10(5) and not with the broader question about the nature of tax deduction at source liability under section 192, as also the issue about bonafides of the stand of the assessee employer. These decisions, therefore, do not come in the way of our present decision. Once we hold, as we do in this case, that estimation of income, in the hands of the employees under the head’ income from salaries’, by the employer was bonafide and reasonable, the very foundation of impugned demands raised under section 201 r.w.s 192 ceases to hold good in law. We must, therefore, vacate these demands.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal calls into question the correctness of the order dated 11th December 2018 passed by the learned CIT(A), in the matter of tax withholding demands raised on the assessee under section 201 r.w.s 192 of the Income Tax Act, 1961, for the assessment year 2012-13.
2. Grievances raised by the assessee are as follows:
1. Order under section 201(1) and 201(1A) barred by limitation.
1.1. The learned CIT(A) erred in not holding that the order under section 201(1) and 201(1A) is barred by limitation and hence, void-ab-initio.
1.2. The learned CIT(A) erred in holding that provisions of section 201(3), as amended by Finance Act, 2014, are retrospective in nature and applies to the captioned assessment year.
2. Leave fare concession
2.1. LFC involving en-route foreign travel
2.1.1. The learned CIT(A) erred in holding the appellant as assessee in default on account of non-deduction of tax at source in respect of leave fare concession [LFC] provided by the appellant to its employees amounting to Rs. 3,09,576/- in cases where LFC was paid by the shortest route for a journey where the designated place was in India but the same also involved some en-route foreign travel being undertaken by the employee.
2.1.2. The learned CIT(A) erred in not appreciating that the benefit of exemption under section 10(5) is available to the appellant’s employees’ even in cases where the journey undertaken by an employee involves a foreign leg, but where the employee’s designated place is in India and he actually visits the place as designated.
2.1.3. The learned CIT(A) erred in relying on the Circular No. 8/2012 [F.No. 275/192/2012- IT(B)] dated 5 October 2012 issued by the Central Board of Direct Taxes for the purpose of tax deduction on salary payments for financial year 2012-13 for the captioned assessment year.
2.1.4. The learned CIT(A) erred in not appreciating that the appellant provided exemption under section 10(5) only when the employee’s designated place is in India and he actually visit the place as designated. Further, even in cases where the employee travels outside India during the course of his travel to a place in India, the exemption under section 10(5) is restricted for travel within India. Further, all conditions under section 10(5) and Rule 2B are satisfied.
2.1.5. The learned CIT(A) erred in not appreciating that if at all the LFC payments involving a foreign leg are to be held as taxable, the employee is entitled for exemption under section 10(5) to the extent of expenses incurred for travel in India where the employee’s designated place is in India and he actually visits the place as designated.
3. Bona fide belief
3.1. The learned CIT(A) erred in not appreciating that the appellant was of the bona fide belief that it was not liable to deduct tax at source in respect of LFC provide to employees, and accordingly the appellant cannot be held to be an assessee in default within the meaning of section 201 and 201(1A).
4. Each one of the above grounds of appeal is without prejudice to the other.
5. The appellant reserves the right to amend, alter or add to the grounds of appeal.
3. To adjudicate on this appeal and for the reasons we will set out in a short while, only a very few material facts need to be taken note of. The assessee before us is a branch office of a public sector bank, hereinafter referred to as ‘the assessee employer’. On 7th January 2014, this branch office was subjected to survey proceedings under section 133A. During the course of this survey, it was found that certain employees have claimed LFC (i.e., Leave Travel Concession) facility, wherein “travel to places outside India was involved”. It was noted that some of the employees, in these LFC claims, have taken a very circuitous route, involving travel abroad to one or more domestic destinations. It was in this backdrop that the matter was examined further by the Assessing Officer. He noted that the admissible leave travel concession in these cases was treated as tax-exempt under section 10(5), and estimated tax liability was computed without taking into account the admissible leave concession facility in such cases. The Assessing Officer was, however, of the view that exemption under section 10(5) was not available in such cases as “if the employee travels out of India, the LFC amount cannot be claimed as exempt under section 10(5)”, and, to that extent, the assessee was in error in not deducting tax at source in respect of such payment of the LFC facility. The Assessing Officer also noted that “the employees travelled to the Indian destinations not by direct and shortest route but by circuitous route including foreign journey”. It was in this backdrop that the Assessing Officer held that the LFC payment should have been included in the income of the employee concerned while deducting tax at source from the salaries, and the Assessing Officer also held that the assessee is required to be treated as an assessee in default for not deducting the related tax at source. Aggrieved, the assessee carried the matter in appeal before the CIT(A). In a very detailed statement of facts filed before the learned CIT(A), the assessee, inter alia, explained as follows:
9. The provisions of LTC are governed by the industry level settlement viz. ‘joint Notes’, signed by the Indian Banks’ Association [ISA] on behalf of the member banks and the representatives of Officers’ Organisations after industry level settlement.
10. Administrative and operating guidelines, issued by the Bank, are based on the clarifications issued by the Indian Banks’ Association i.e. IBA letter Nos. PLI/Set/25 dated 18 September 1982 and CIR/HR&R/2012-13/665/F/6245 dated 12 July 2012.
11. So long as the employee’s designated place is anywhere in India and he actually visits the place as designated, reimbursement may be made to him for his entire journey by the circuitous route provided the reimbursement made to him is limited to the actual fare / hire charges for the entire journey or the cost of fare to his home town / designated place, by the shortest route, by the entitled class whichever is lower.
12. The Bank reimburses the LTC claim made by the employees only where the employee’s designated place is anywhere in India and he actually visits the place as designated. In case an employee travels outside India during the course of his visit to a place in India, reimbursement is made to him for his entire journey by the circuitous route provided the reimbursement made to him is limited to the actual fare / hire charges for the entire journey or the cost of fare to his home town /designated place, by the shortest route, by the entitled class whichever is lower. The bank has issued Circular No. ADM/037239 dated 20 August 1981 in this regard.
13. An employee undertaking journey under LTC is eligible for reimbursement of travelling expenses i.e. air / rail / steamer / road fare by the entitled class for the permissible distance, or the actual cost of travelling for the entire journey, whichever is lower. Further, only travel expenses are reimbursable and other facilities, if any, provided by travel agents are not reimbursable. The Bank has issued Circular No. CDO/P&HRD-PM/41/2013-14 dated 29 October 2013 in this regard.
14. For example, where there is a single itinerary for India and overseas travel is also involved, say, Mumbai-Kolkata-Singapore-Mumbai, and where the designated place in India is Kolkata, the economy class fare by national carrier for journey within India (i.e. Mumbai-Kolkata and Kolkata-Mumbai) is considered as exempt, for the purpose of section 10(5) by the Bank, within the monetary ceiling to which the employee is eligible.
15. It is submitted that the Bank’s framework for provision of LTC benefit to employees and the administrative and operating guidelines issued by the IBA are framed taking into account the provisions of the Income-tax Act, 1961 and the Income-tax Rules, 1962.
Benefit granted by Bank only for travel to a place in India
Section 10(5) requires that the exemption is available for proceeding on leave to any place in India. In this connection, the Bank has granted the benefit of exemption under section 10(5) to the employees only in cases where the designated place of travel of the employee has been a place in India.
In other words, the Bank m no case has granted the benefit of exemption under section 10(5) to employees where the designated place of travel is outside India. Similarly, the benefit is granted only when the employee actually visits the designated place in India.
No bar on travel outside India if designated place is in India
19. Section 10(5) does not place a bar on travel to a foreign destination during the course of travel to a place in India. Similarly, detailed guidelines have been framed for the purpose of grant of exemption in terms of rule 2B – these guidelines do not restrict overseas travel while proceeding on leave to a place in India.
20. In other words, if the intention of the legislature or the Central Board of Direct Taxes was to not allow exemption under section 10(5) in case a foreign leg was involved in the journey, it would have explicitly provided so.
Travel by shortest route
21. Rule 2B(1) of the Income-tax Rules, 1962 which deals with LTC are reproduced below for ready reference.
“(1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding,—
(a) on leave to anyplace in India;
(b) to any place in India after retirement from service or after the termination of his service,
shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely:—
(i) where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination;
(ii) where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and
(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be:—
(A) where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on I such transport by the shortest route to the place of destination; and
(B) where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had\ been performed by rail “
22. At various places in the rules, as highlighted above, there is a reference to the fact1 that the benefit of exemption under section 10(5) is restricted to expenditure by j the shortest route from the place of origin to the destination. This clearly means that rule 2B envisages that a person can travel by a circuitous route to the designated place in India.
23. In other words, rule 2B supports the stand that an employee can travel to various/ places during the course of his travel to his ultimate destination in India. As discussed earlier, there is no requirement that such places travelled should be within India i.e. they can be outside India as well.
24. The annual Circular on TDS from salaries for financial year 2013-14 (CBDT Circular No. 8/2013 dated 10 October 2013) clarifies that where the journey is performed in a circuitous route, the exemption is limited to what is admissible by the shortest route. Likewise, where the journey is performed in a circular form touching different places, the exemption is limited to what is admissible for the journey from the place of origin to the farthest point reached in India, by the shortest route. This also appears to indicate that circuitous travel involving a foreign destination is permissible.
All conditions of section 10(5) and rule 2B are satisfied
26. It may be noted that even in cases where the employee travels outside India during the course of his travel to a place in India, the exemption under section 10(5) is restricted for travel within India. In other words, where the designated place in India is Kolkata and the travel itinerary is Mumbai-Kolkata-Singapore-Kolkata-Mumbai, exemption is granted o.ily for travel between Mumbai and Kolkata.
