Summary
State Bank of India reimbursed leave travel concession to employees whose journeys between two places in India took circuitous routes through foreign countries. It deducted no tax at source and was held an assessee in default for assessment year 2013-14. The Supreme Court upheld that finding. The Section 10(5) exemption read with Rule 2B covers travel from one place in India to another by the shortest route. A journey with a foreign leg is not travel within India, even if only the shortest domestic fare was paid. Foreign travel also defeats the purpose of LTC. The Bank had the full itineraries when settling the claims, so its failure to deduct under Section 192(1) could not be a bona fide mistake.
Issues
- Whether leave travel concession paid to employees whose journeys between two places in India included a foreign leg and a circuitous route was exempt under Section 10(5), so that the employer need not deduct tax at source.
- Whether the employer's failure to deduct tax on such payments could be excused as a bona fide mistake in estimating the employees' income.
Provisions considered
- Section 10(5), Income Tax Act, 1961The exemption is for travel concession in connection with proceeding on leave to any place in India; a journey involving a foreign leg is not travel within India and is not covered. (¶¶ 6, 13, 14)
- Rule 2B, Income Tax Rules, 1962The exempt amount is limited to the fare by the shortest route to the destination, and the employees admittedly did not take the shortest route. (¶¶ 6, 8, 10)
- Sections 192(1) and 201(1), Income Tax Act, 1961The employer had a statutory duty to deduct tax on the estimated salary income, and having all travel details before it when settling the claims, it was rightly held an assessee in default. (¶¶ 6, 16)
Held
- LTC is for travel from one place in India to another place in India by the shortest route; the argument that there is no specific bar on a foreign journey so long as the start and destination are within India was rejected. (¶¶ 10, 13)
- Once employees undertake travel with a foreign leg, it is not travel within India, so the plea that payment was limited to the shortest domestic fare cannot bring it within Section 10(5); the Court found it difficult to accept that a foreign tour was availed without paying for it. (¶¶ 11, 12, 14)
- Foreign travel frustrates the object of LTC, which is to let employees gain a perspective of Indian culture by travelling in the country, as the Sixth Pay Commission noted in rejecting a demand for foreign travel. (¶ 15)
- The obligation to deduct is distinct from payment of tax, and as the employer had the complete travel details when settling the bills, the failure to deduct could not be a bona fide mistake in estimating income. (¶ 16)
Result
Appeal dismissed; the Delhi High Court's judgment upholding the order treating the appellant as an assessee in default for not deducting tax on LTC payments for assessment year 2013-14 affirmed.