Benefit of LTA isn’t available if employees undertake domestic travel with a foreign leg: Apex Court

Case Details: State Bank of India v. ACIT - [2022] 144 taxmann.com 131 (SC)

Judiciary and Counsel Details

• • Uday Umesh Lalit, CJI., S.Ravindra Bhat & Sudhanshu Dhulia, JJ.

Facts of the Case

Assessee-State Bank of India (SBI) was engaged in the banking business. It provided benefits of leave travel concession/allowance (LTA) to its employees while deducting tax from their salary income.

Later, Assessee Officer (AO) observed that employees of the assessee had done their travel not just within India but their journey involved a foreign leg as well. Accordingly, there was violation of statutory provisions. Since the payment made to employees couldn’t be treated as exempt under section 10(5), the assessee ought to have deducted Tax at source, while making this payment.

Thus, AO treated SBI as an assessee-in-default for not deducting TDS under section 192 on the sum paid to employees. The lower authorities upheld the action of AO. The matter was carried to Supreme Court.

Supreme Court Held

The Supreme Court of India has clarified that the basic objective of the LTA Scheme was to familiarize a civil servant or a Government employee to gain some perspective of Indian Culture by traveling in this country.

The main aim of the insertion of LTA was to encourage employees towards tourism in India and because of this reason reimbursement of LTC was exempted. There was no intention of the legislature to allow foreign travel in the garb of LTA available under Section 10(5).

Further, since the assessee was aware of all the travel plans of the employee and had possession of all the bills submitted, this cannot be claimed as a bonafide mistake on the assessee’s part. The assessee had all the relevant material for computing the estimated income of the employees. Thus, the assessee’s appeal was dismissed and the order passed by the lower court was upheld.