Benefit of LTA isn’t available if itinerary of employee includes foreign visit: ITAT

Case Details: State Bank of India v. ACIT - [2022] 138 taxmann.com 102 (Karnataka)

Judiciary and Counsel Details

• • Mrs S. Sujatha & Ravi V. Hosmani, JJ
  • S. Parthasarathi & Smt. Jinita Chatterjee, Advs. for the Appellant.
  • K.V. Aravind, Adv. for the Respondent.

Facts of the Case

Assessee-State Bank of India had provided benefits of leave travel concession/allowance (LTA) to its employees while deducting tax from their salary income. A survey was conducted under section 133A on the business premises of the assessee and Assessing Officer (AO) noticed that the assessee had given exemption under section 10(5) towards reimbursement of LTA claim of the employees for travel outside India.

During the proceeding under sections 201(1) and 201(1A), the assessee contended that LTA was given to the employees only relating to proceeding on leave to any place in India. Further, it was also contended that there is no prohibition under the Act and Rules for providing LTA albeit the employee chose the circuitous route with the foreign leg.

However, AO did not accept the contention of the assessee and considered the appellant as assessee in default under section 201 for making a short deduction under section 192.

On appeal, both the CIT(A) and the Tribunal upheld the order of AO. The aggrieved assessee filed an instant appeal before the High Court.

High Court Held

The High Court held that the intention of the Legislature while allowing LTA exemption has two-fold. One is to provide some relaxation to an employee, who can spend time with the family and gain knowledge about the places. Secondly, to encourage tourism in India. Traveling abroad in the guise of LTA could not entitle to the exemption.

In terms of Section 10(5) and Rule 2B, LTA is available for an employee to proceed on leave to any place in India (destination) and thereafter return to the place of origin in the shortest route but not with a foreign leg. Such an amount to be allowed as a concession cannot exceed the air economy fare of the National Carrier by the shortest route to the destination in India.

It should be noted that the charges towards the tour received by the tour operator demonstrate that the assessee had paid the consolidated charges for the entire journey. In such circumstances, such charges couldn’t be split up to avail the benefit of LTA the employees.

Accordingly, no claim of exemption could be made out of the total ticket package spent on overseas travel with part of the journey being within India by the employee.

List of Cases Reviewed

• • State Bank of India v. Asstt. CIT [IT Appeal No. 1401 (Bang.) of 2017 dated 6-4-2018] (para 26) affirmed.
  • CIT v. Larsen & Toubro Ltd. [2009] 181 Taxman 71/313 ITR 1 (SC) (para 24) distinguished.

List of Cases Referred to

• • Syndicate Bank v. Asstt. CIT (TDS) [2017] 80 taxmann.com 179/164 ITD 319 (Bang. – Trib.) (para 7)
  • State Bank of India v. Dy. CIT (TDS) [2016] 67 taxmann.com 81/158 ITD 194 (Luck. – Trib.) (para 7)
  • Indian Institute of Science v. Dy. CIT (TDS) [IT Appeal No. 1589 (Bang.) of 2014, dated 27-2-2015] (para 16)
  • CIT v. Indian Institute of Science [IT Appeal No. 431 of 2015, dated 30-8-2019] (para 16)
  • Central Food Technological Research Institute v. ITO (TDS) [2021] 439 ITR 735 (Kar.) (para 17)
  • CIT v. Eli Lilly & Co. (India) (P.) Ltd. [2009] 178 Taxman 505/312 ITR 225 (SC) (para 21)
  • CIT v. Larsen & Toubro Ltd. [2009] 181 Taxman 71/313 ITR 1 (SC) (para 24).