2022 (11) TMI 426 - SC - Income Tax

TDS u/s 192 - LTC to an employee - salary - exemption u/s 10(5) - foreign travel - Default for not deducting tax at source while releasing payments to its employees as Leave Travel Concession (LTC) - HELD THAT - The provisions of law discussed prescribe that the air fare between the two points, within India will be given and the LTC which will be given will be of the shortest route between these two places, which have to be within India. A conjoint reading of the provisions discussed herein with the facts of this case cannot sustain the argument of the appellant that the travel of its employees was within India and no payments were made for any foreign leg involved. We do not want to get into the role of the travel agencies and the present dynamics of air fare, but it is difficult for us to accept that a person will avail foreign tour without paying any price for it. We leave it at that. It can be seen from the records that many of the employees of the appellants had undertaken travel to Port Blair via Malaysia, Singapore or Port Blair via Bangkok, Malaysia or Rameswaram via Mauritius or Madurai via Dubai, Thailand and Port Blair via Europe etc. It is very difficult to appreciate as to how the appellant who is the assessee-employer could have failed to take into account this aspect. This was the elephant in the room. The contention of the Appellant that there is no specific bar under Section 10(5) for a foreign travel and therefore a foreign journey can be availed as long as the starting and destination points remain within India is also without merits. LTC is for travel within India, from one place in India to another place in India. There should be no ambiguity on this. Payments made to these employees was of the shortest route of their actual travel cannot be accepted either - As already been clarified above, that in view of the provisions of the Act, the moment employees undertake travel with a foreign leg, it is not a travel within India and hence not covered under the provisions of Section 10(5) of the Act. A foreign travel also frustrates the basic purpose of LTC. The basic objective of the LTC scheme was to familiarise a civil servant or a Government employee to gain some perspective of Indian culture by traveling in this vast country. It is for this reason that the 6th Pay Commission rejected the demand of paying cash compensation in lieu of LTC and also rejected the demand of foreign travel. Order passed by the CIT(A) has rightly held that the obligation of deducting tax is distinct from payment of tax. The appellant cannot claim ignorance about the travel plans of its employees as during settlement of LTC Bills the complete facts are available before the assessee about the details of their employees travels. Therefore, it cannot be a case of bonafide mistake, as all the relevant facts were before the Assessee employer and he was therefore fully in a position to calculate the estimated income of its employees. The contention of Shri K.V. Vishwanathan, senior advocate that there may be a bonafide mistake by the assessee-employer in calculating the estimated income cannot be accepted since all the relevant documents and material were before the assessee- employer at the relevant time and the assessee employer therefore ought to have applied his mind and deducted tax at source as it was his statutory duty, u/s 192(1).

Summary

Issues Involved:
1. Whether the appellant (State Bank of India) was in default for not deducting tax at source while releasing payments to its employees as Leave Travel Concession (LTC).
2. Interpretation of Section 10(5) of the Income Tax Act, 1961, and Rule 2B of the Income Tax Rules, 1962, regarding the exemption of LTC.
3. The obligation of the employer to deduct tax at source under Section 192(1) of the Income Tax Act, 1961.
4. The purpose and intent of the LTC scheme as per the 6th Pay Commission Report.

Detailed Analysis:

1. Default in Tax Deduction at Source for LTC Payments:
The appellant (State Bank of India) challenged the judgment of the Delhi High Court, which upheld the order of the Income Tax Appellate Tribunal (ITAT) declaring the appellant as an assessee in default for the Assessment Year (AY) 2013-14 for not deducting TDS on LTC payments to its employees. The primary question was whether the appellant was in default for not deducting tax at source while releasing LTC payments.

2. Interpretation of Section 10(5) and Rule 2B:
LTC payments are exempted as 'income' under Section 10(5) of the Income Tax Act, provided certain conditions are met. The law stipulates that travel must be from one designated place in India to another within India, and it should be via the shortest route. In this case, SBI employees included foreign travel in their itineraries, which violated these statutory provisions. The Revenue argued that since the travel was not confined to India and not via the shortest route, the exemption could not be claimed, and the Bank should have deducted TDS.

3. Employer's Obligation to Deduct Tax at Source:
Section 192(1) of the Income Tax Act mandates employers to deduct tax at source from the salary of their employees. The appellant argued that although the travel involved a foreign leg, the payments made were for the shortest route within India. However, this argument was not accepted by the Assistant Commissioner of Income Tax, the Commissioner of Income Tax (Appeals), the ITAT, and the Delhi High Court. The courts held that the appellant should have deducted tax at source, as the travel did not comply with the conditions laid out in Section 10(5) and Rule 2B.

4. Purpose and Intent of the LTC Scheme:
The LTC scheme aims to familiarize employees with Indian culture by encouraging domestic travel. The 6th Pay Commission explicitly rejected the inclusion of foreign travel under LTC, emphasizing that the scheme's purpose is to promote tourism within India. The Revenue's objection was that allowing foreign travel under LTC would defeat this purpose. The court noted that many employees traveled to foreign destinations under the guise of LTC, which was against the scheme's intent.

Conclusion:
The Supreme Court found no reason to interfere with the Delhi High Court's order. The appellant's failure to deduct tax at source for LTC payments involving foreign travel was a statutory violation. The court emphasized the employer's duty to deduct tax at source under Section 192(1) and upheld the Revenue's interpretation of Section 10(5) and Rule 2B, dismissing the appeal.