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TMI Blog2021 (2) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in holding the appellant as assessee in default on account of non-deduction of tax at source in respect of leave fare concession [LFC] provided by the appellant to its employees amounting to Rs. 3,09,576/- in cases where LFC was paid by the shortest route for a journey where the designated place was in India but the same also involved some en-route foreign travel being undertaken by the employee. 2.1.2. The learned CIT(A) erred in not appreciating that the benefit of exemption under section 10(5) is available to the appellant's employees' even in cases where the journey undertaken by an employee involves a foreign leg, but where the employee's designated place is in India and he actually visits the place as designated. 2.1.3. The learned CIT(A) erred in relying on the Circular No. 8/2012 [F.No. 275/192/2012- IT(B)] dated 5 October 2012 issued by the Central Board of Direct Taxes for the purpose of tax deduction on salary payments for financial year 2012-13 for the captioned assessment year. 2.1.4. The learned CIT(A) erred in not appreciating that the appellant provided exemption under section 10(5) only when the employee's designated place is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 10(5)", and, to that extent, the assessee was in error in not deducting tax at source in respect of such payment of the LFC facility. The Assessing Officer also noted that "the employees travelled to the Indian destinations not by direct and shortest route but by circuitous route including foreign journey". It was in this backdrop that the Assessing Officer held that the LFC payment should have been included in the income of the employee concerned while deducting tax at source from the salaries, and the Assessing Officer also held that the assessee is required to be treated as an assessee in default for not deducting the related tax at source. Aggrieved, the assessee carried the matter in appeal before the CIT(A). In a very detailed statement of facts filed before the learned CIT(A), the assessee, inter alia, explained as follows: 9. The provisions of LTC are governed by the industry level settlement viz. 'joint Notes', signed by the Indian Banks' Association [ISA] on behalf of the member banks and the representatives of Officers' Organisations after industry level settlement. 10. Administrative and operating guidelines, issued by the Bank, are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961 and the Income-tax Rules, 1962. Benefit granted by Bank only for travel to a place in India Section 10(5) requires that the exemption is available for proceeding on leave to any place in India. In this connection, the Bank has granted the benefit of exemption under section 10(5) to the employees only in cases where the designated place of travel of the employee has been a place in India. In other words, the Bank m no case has granted the benefit of exemption under section 10(5) to employees where the designated place of travel is outside India. Similarly, the benefit is granted only when the employee actually visits the designated place in India. No bar on travel outside India if designated place is in India 19. Section 10(5) does not place a bar on travel to a foreign destination during the course of travel to a place in India. Similarly, detailed guidelines have been framed for the purpose of grant of exemption in terms of rule 2B - these guidelines do not restrict overseas travel while proceeding on leave to a place in India. 20. In other words, if the intention of the legislature or the Central Board of Direct Taxes was to not allow exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vel to various/ places during the course of his travel to his ultimate destination in India. As discussed earlier, there is no requirement that such places travelled should be within India i.e. they can be outside India as well. 24. The annual Circular on TDS from salaries for financial year 2013-14 (CBDT Circular No. 8/2013 dated 10 October 2013) clarifies that where the journey is performed in a circuitous route, the exemption is limited to what is admissible by the shortest route. Likewise, where the journey is performed in a circular form touching different places, the exemption is limited to what is admissible for the journey from the place of origin to the farthest point reached in India, by the shortest route. This also appears to indicate that circuitous travel involving a foreign destination is permissible. All conditions of section 10(5) and rule 2B are satisfied 25. It may be noted that even in cases where the employee travels outside India during the course of his travel to a place in India, the exemption under section 10(5) is restricted for travel within India. In other words, where the designated place in India is Kolkata and the travel itinerary is Mumbai-Kolk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e administrative and operating guidelines issued by the IBA are framed taking into account the provisions of the Income-tax Act, 1961 and the Income-tax Rules, 1962. * The provisions of LTC are governed by the industry level settlement viz. 'joint Notes', signed by the IBA and the representatives of Officers' Organisations after industry level settlement. * This is the normal industry practice that has been followed by all public sector banks for several years and it has not been challenged till date. * It may be noted that in around approximately 20-25% of the cases of LTC, a foreign leg is involved. In other words, in around 75-80% of cases, there is no foreign leg involved. * From a legal perspective as well, as explained above, the Bank is of the view that exemption under section 10(5) cannot be denied to employees of a foreign leg is involved as long as the designated place of journey is in India. 32. Section 192(1) of the Income-tax Act, 1961 provides that any person responsible for paying any income chargeable as salaries shall at the time of payment, deduct income tax at the rates in force on the estimated income of the assessee. 33. The Bank had hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the prevalent law and there was no default on the part of the Bank in deducting tax at source. Accordingly, the Bank cannot be held to be an assessee in default within the j meaning of section 201. Exemption for Indian leg 39. Without prejudice to the above, the branch submits that if at all the LTC payments involving a foreign leg are to be held as taxable, the employee is entitled for exemption under section 10(5) to the extent of expenses incurred for travel in India where the employee's designated place is in India and he actually visits the place as designated. 4. Learned CIT(A) was, however, far from impressed from the facts so set out and the arguments advanced before him. He rejected the submissions made by the assessee and concluded as follows: I have gone through the AO's order and the appellant contention in detail. All these grounds primarily relates to the benefit of leave travel concession granted by the assessee bank to its employees and non-deduction of TDS on the payment of leave travel concession by the assessee to its employees and the corresponding interest thereon. The brief facts of the case are that the AO observed that the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination of his service, subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government: 9. On perusal of this section, we are of the view that this provision was introduced in order to motivate the employees and also to encourage tourism in India and, therefore, the reimbursement of LTC/LFC was exempted, but there was no intention of the Legislature to allow the employees to travel abroad under the garb of benefit of LTC available by virtue of section 10(5) of the Act Undisputedly, in the instant case i the employees of the assessee have travelled outside India in different foreign countries and raised claim of their expenditure incurred therein. No doubt, the assessee may not be aware with the ultimate plan of travel of its employees, but at the time of settlement of the LTC/LFC bills, complete facts are available before the assessee as to where the employees have travelled, for which he has raised the claim; meaning thereby the assessee was aware of the fact that its employees have travelled in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily, then such concession received by the employee Is not taxable in the hands of the employee. Similar exemption is allowed to a,, employee proceeding to any place in India after retirement of service or after the termination of his service. The provisions of the Act are in relation to the travel concession/assistance given for proceeding on leave to any place in India and the said concession is thus exempt only where the employee has utilized the travel concession for travel within India. Further under Rule 2B of the Income Tax Rules the condition for allowing exemption under section 10(5} of the Act are laid down. The conditions are in respect of various modes of transport. However, the basic condition is that the employee is to utilize the travel concession in connection with his proceeding to leave to any place within India, either during the course of employment or even after retirement of service or after termination of service. Reading of section 10(5) of the Act and Rule 2B of the Rules in conjunction lays down the guidelines for ITA No. 145 & 146/JP/17 and S.A. No.04 & 05/JP/2017 State Bank of India, Jaipur Vs. ACIT, TDS, Jaipur claiming exemption in relations to the trav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the result, the appeal of the assessee is dismissed. S.A. No. 04 & 05/JP/2017 In terms of quantum of tax demand raised in both the years under considerations, we direct the AO to give effect to the directions as contained In the Ld CIT(A) order, if its not done already, regarding applying the correct rate of tax for determining the TDS liability as well as the period for which interest is payable on such TDS liability and recompute the tax and interest demand for both the years] under consideration and serve the revised demand ITA No. 145 & 146/JP/17 and S.A. No.04 & 05/JP/2017 State Bank of India, Jaipur Vs. ACIT, TDS, Jaipur notice to the assessee for both the years under consideration. In the interim, no coercive steps shall be undertaken by the Department. With above directions, the stay petitions are disposed off. In the result the appeals filed by the assesses for the both the years are dismissed and the stay petitions are disposed off with above directions." In this decision, the decisions of State Bank of India, Kanpur vs. ACIT in ITA No.138 to 140/LKW/2015 dated 04-03-2016 of ITAT, Lucknow Bench and Shri Om Prakash Mehta Vs. (TO in ITA no. 938/Chandigarh/2011 dt. 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x-parte qua the assessee on the basis of material on record and in the light of the submissions of the learned Departmental Representative. We, accordingly, proceed to take up the appeal for adjudication on merits. We have heard the learned Departmental Representative, perused the material on record, and duly considered facts of the case in the light of the applicable legal position. 7. As we proceed to adjudicate on connection of the impugned demands, it is important to bear in mind while dealing with the demands relating to a tax deduction of at source from payments of salaries that there is a subtle line of demarcation between what is taxable in the hands of the assessee and what is the amount of estimated income in respect of which tax is required to be deducted at source by the employer. Section 192 (1), which imposes tax withholding obligations on the employers in respect of payments for salaries, requires that tax deduction is made by the employer "on the estimated income of the assessee under this head (i.e., income from salaries) for that financial year". Thus, the tax withholding obligation is clearly in respect of "estimated income of the assessee" and not in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to be reasonable or bonafide. Let us, in this backdrop, take a look at the related legal provisions under section 10(5) read with rule 2 B: Section 10(5)- exemption in respect of leave travel concession 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included ...... (5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,- (a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service, subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government; Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel (remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortest route, as is implicit in the restriction that "an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination" will only be eligible for exemption under section 10(5). What is essentially implies, to give a simple example, is that if someone is based in Mumbai and he decides to go to Delhi via, let us say, Lucknow, Kolkata, or Chennai, the amount admissible for exemption under section 10(5) will be restricted to the price of direct flights between Mumbai and Delhi on the national carrier. This proposition is not even disputed by the income tax department. The question, however, arises whether when the same person goes to Delhi, via Dubai, the exempt leave travel concession being restricted to the price of Mumbai Delhi direct flight. Of course, the stand of the income tax department is that even the cost of the direct flight from Mumbai to Delhi, on the national carrier- assuming that it is less than Mumbai-Dubai-Delhi airfare, will not be admissible leave travel assistance exemption in such a case. That is the approach approved by the coordinate benches as well, and, therefore, we need not question that at this stage. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue about bonafides of the stand of the assessee employer. These decisions, therefore, do not come in the way of our present decision. Once we hold, as we do in this case, that estimation of income, in the hands of the employees under the head' income from salaries', by the employer was bonafide and reasonable, the very foundation of impugned demands raised under section 201 r.w.s 192 ceases to hold good in law. We must, therefore, vacate these demands. 9. In view of the above discussions, as also bearing in mind entirety of the case, we cancel the impugned demands under section 201 r.w.s. 192 as unsustainable in law. Ground no 3 is thus allowed, and all the remaining grounds of appeal are dismissed as infractuous. The assessee gets the relief accordingly. 10. As we part with the matter, we have a couple of observations to make. The first observation is this. Mr. Khlasa, learned Departmental Representative, upon being explained the legal position during the course of hearing, did not have much to say and he graciously left the matter to us. His short point, however, was that the fact that whether entire travel costs are borne by the employer or whether only the partial cos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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