2020 (1) TMI 118 - AT - Income Tax

Non-deduction of tax (TDS) on LTC/LFC in the cases where employees have travelled abroad - Claim of exemption u/s. 10(5) - demand raised u/s. 201 and 201(1A) - HELD THAT - After perusal of the provision of section 10(5) of the act, we observed that the said provision was introduced in order to motivate the employees and also encourage tourism in India, and therefore, the reimbursement on LTC/LFC was exempted but there was not any such provision which provide exemption to the employees for travelling abroad to get benefit of LTC by virtue of section 10(5) of the act. We consider that on identical facts and similar issues have been adjudicated by the ITAT Lucknow in the case of State Bank of India V. DCIT 2016 (3) TMI 282 - ITAT LUCKNOW We consider that assessee is not entitled for exemption u/s. 10(5) of the act, therefore, we do not find any merit in the appeal of the assessee. We observed that the claim of the assessee for exemption is without legal basis and assessee has failed to prove that how such foreign travel expenses would come within ambit of section 10(5) of the act. After taking into consideration the above judicial views and detailed finding of ld. CIT(A), we are of the view that the decision of ld. CIT(A) is justified and no interference is required. Therefore, the appeal of the assessee is dismissed.

Summary

Issues:
Interpretation of section 10(5) of the Income Tax Act, 1961 regarding exemption for Leave Travel Concession (LTC) reimbursement for foreign travel.

Detailed Analysis:
1. The appeal pertains to the issue of sustaining the demand raised under sections 201 and 201(1A) of the Income Tax Act, 1961, concerning the non-exemption of Leave Travel Concession (LTC) reimbursement for foreign travel under section 10(5) of the Act. The assessing officer found that the employees had traveled abroad via foreign countries, making the reimbursement not exempt under section 10(5) of the Act, leading to non-deduction of tax by the assessee.

2. The assessing officer referred to section 10(5) of the Income Tax Act along with Rule 2B, stating that LTC is allowed only for travel within India. The assessing officer concluded that the claim of the assessee for exemption under section 10(5) was not valid, as the Act does not provide for exemption when travel involves foreign countries. Consequently, the assessing officer treated the assessee as in default and passed an order under sections 201(1) and 201(1A) of the Act.

3. The CIT(A) upheld the order of the assessing officer, stating that the assessee was not exempt from tax under section 10(5) for LTC/LTA travel overseas to destinations in India. The CIT(A) emphasized that the purpose of section 10(5) was to motivate employees and encourage tourism in India, and it did not allow for exemption when travel involved foreign countries. Reference was made to a similar case adjudicated by ITAT Lucknow, where it was held that the Act does not intend to allow employees to travel abroad under the guise of LTC benefits under section 10(5).

4. The ITAT Ahmedabad, after considering the legal provisions and judicial precedents, affirmed the decision of the CIT(A) and dismissed the appeal of the assessee. It was noted that the assessee failed to prove that foreign travel expenses fell within the ambit of section 10(5) of the Act. The ITAT concluded that the assessee was not entitled to exemption under section 10(5) and upheld the order treating the assessee as in default for non-deduction of TDS on LTC reimbursement for foreign travel.

5. The ITAT's decision was based on the interpretation of section 10(5) of the Income Tax Act, emphasizing that the exemption for LTC reimbursement is limited to travel within India and does not extend to foreign travel. The legal findings and precedents supported the position that the assessee was not entitled to exemption under section 10(5) for LTC reimbursement involving foreign travel, leading to the dismissal of the appeal.

6. In conclusion, the ITAT upheld the order of the CIT(A) and dismissed the appeal of the assessee, emphasizing that the assessee failed to establish a legal basis for claiming exemption under section 10(5) of the Income Tax Act for LTC reimbursement related to foreign travel.