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Facts
The assessee, State Bank of India, failed to deduct TDS on Leave Fare Concession (LFC) payments made to employees for travel that included foreign legs, even when the ultimate destination was in India. The Assessing Officer treated the bank as an assessee in default, creating a demand for unpaid TDS and interest.
Held
The Tribunal held that Section 10(5) of the Income Tax Act, 1961, and Rule 2B clearly indicate that exemption for LFC is only for travel within India. The inclusion of a foreign leg in the journey, even if the destination is in India, disqualifies the exemption. The bank's claim of a bona fide belief was not accepted as a reasonable explanation for non-deduction.
Key Issues
Whether Leave Fare Concession (LFC) involving foreign travel is eligible for exemption under Section 10(5) of the Income Tax Act, 1961, and whether the assessee can claim a bona fide belief for non-deduction of TDS.
Sections Cited
10(5), 201, 201(1A), 192, 273B, 253(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW BENCH ‘A’, LUCKNOW
Before: SHRI ANADEE NATH MISSHRA & SHRI SUBHASH MALGURIA
“1. That the Learned CIT (A) erred in not holding that the order under sections 201(1) and 201(1A) of the Income Tax Act, 1961 is barred by limitation and hence, void ab initio.
I.T.A. No.390 & 391/Lkw/2023
2. That the Learned 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.2,11,598/- 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.
3. That the Learned CIT (A) erred in failing to appreciate that the benefit of exemption under section 10(5) of the Income Tax Act, 1961 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.
4. That the Learned CIT (A) erred in relying on the circular issued by the Central Board of Direct Taxes for the purpose of tax deduction on salary payments for the Financial Year- 2012-13.
5. That the Learned CIT (A) erred in failing to appreciate that the appellant provided exemption under section 10(5) of the Income Tax Act, 1961 only when the employee's designated place is in India and he actually visits the place as designated. Further, 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 with in India. Further, all conditions under section 10(5) Of Income Tax Act, 1961 and Rules 2B are satisfied.
6. That the Learned CIT (A) erred in not appreciating that if at all the LFC payments involving a foreign leg are to be held as taxable, the employee is entitled for exemption under section 10(5) Of Income Tax Act, 1961 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 designated.
7. That the Learned CIT (A) erred in failing to appreciate that the appellant was of the bona fide belief that it was not liable to deduct tax at source in respect of LFC provide to employees, and accordingly the appellant cannot be held to be an assessee in default within the meaning of section 201 and 201(1A) of Income Tax Act, 1961. Each one of the above grounds of appeal is without prejudice to the other.
I.T.A. No.390 & 391/Lkw/2023
8. Each one of the above grounds of appeal is without prejudice to the other.”
“1. That the Learned CIT (A) erred in not holding that the order under sections 201(1) and 201(1A) of the Income Tax Act, 1961 is barred by limitation and hence, void ab initio.
2. That the Learned 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.5,63,310/- 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.
3. That the Learned CIT (A) erred in failing to appreciate that the benefit of exemption under section 10(5) of the Income Tax Act, 1961 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.
4. That the Learned CIT (A) erred in relying on the circular issued by the Central Board of Direct Taxes for the purpose of tax deduction on salary payments for the Financial Year- 2012-13.
That the Learned CIT (A) erred in failing to appreciate that the appellant provided exemption under section 10(5) of the Income Tax Act, 1961 only when the employee's designated place is in India and he actually visits the place as designated. Further, 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 with in India. Further, all conditions under section 10(5) Of Income Tax Act, 1961 and Rules 2B are satisfied.
6. That the Learned CIT (A) erred in not appreciating that if at all the LFC payments involving a foreign leg are to be held as taxable, the employee is entitled for exemption under section 10(5) Of Income Tax Act, 1961 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 designated.
I.T.A. No.390 & 391/Lkw/2023
That the Learned CIT (A) erred in failing to appreciate that the appellant was of the bona fide belief that it was not liable to deduct tax at source in respect of LFC provide to employees, and accordingly the appellant cannot be held to be an assessee in default within the meaning of section 201 and 201(1A) of Income Tax Act, 1961. Each one of the above grounds of appeal is without prejudice to the other.
8. Each one of the above grounds of appeal is without prejudice to the other.”
The appeals filed by the assessee are beyond the time limit prescribed u/s 253(3) of the I. T. Act. Applications dated 06/12/2023 were filed by the assessee requesting for condonation of delay in filing of the appeals. Giving detailed description of the facts and circumstances, which caused the delay in filing of the appeals, the assessee has submitted that reasons for late filing of the appeals were really beyond control of the assessee and requested that the delay in filing the appeals may be condoned. The learned D.R. for Revenue expressed no objection to condonation of delay and admitting the appeals for hearing. In view of the foregoing, and being convinced with the reasons given by assessee, the delay in filing of the appeals is condoned and the appeals are admitted for decision on merits.
For the sake convenience, these appeals are hereby disposed of through this consolidated order.
First we take up appeal vide I.T.A. No.390/Lkw/2023. Vide order dated 22/02/2021, a demand amounting to Rs.1,34,035/- was created by Income Tax Officer (TDS)-II on the ground that the assessee is in default for non-deduction of tax at source in respect of payment of Rs.2,11,598/- made to the employees on account of LFC for travelling abroad. As the reimbursements of LTC/LFC in respect of foreign travel of the employee is not exempt u/s 10(5) of the Act, the Assessing & 391/Lkw/2023 Officer (TDS)-II created a demand of Rs.1,34,035/- under section 201(1) & 201(1A) of the Act. The relevant portion of the aforesaid order dated 22/02/2021 is reproduced as under:
Page 5 of 12 & 391/Lkw/2023 Page 6 of 12 I.T.A. No.390 & 391/Lkw/2023
5. The assessee filed appeal against the aforesaid order dated 22/02/2021 in the office of the learned CIT(A). Vide impugned appellate order dated 13/10/2022, the learned CIT(A) confirmed the aforesaid demand created by the Assessing Officer (TDS)-II and dismissed assessee’s appeal. The relevant portion of the impugned order of the learned CIT(A) is reproduced as under:
Page 7 of 12 & 391/Lkw/2023 Page 8 of 12 I.T.A. No.390 & 391/Lkw/2023 Page 9 of 12 I.T.A. No.390 & 391/Lkw/2023
The present appeal vide has been filed before the Income Tax Appellate Tribunal by the assessee against the aforesaid impugned appellate order. In the course of appellate proceedings in Income Tax Appellate Tribunal, no one was present on behalf of the assessee. In the absence of any representation from assessee’s side, we heard the learned D.R. for Revenue and perused the materials on record. Ld. D.R. relied on the aforesaid orders dated 22/02/2021 and 13/10/2022 passed by the Assessing Officer(TDS)-II and the learned CIT(A) respectively.
7. On perusal of records, it is found that there is no dispute that the assessee was required to deduct tax at source in respect of reimbursement of LTC/LFC paid to employees in respect of foreign travel. It is also found that the assessee could not provide any reasonable cause u/s 273B of the Act for the failure to deduct tax at source in respect of the aforesaid reimbursements. The only explanation furnished by the assessee before the learned CIT(A) was that the assessee was under bonafide belief that tax was not deductible at source. The assessee advanced no other pleading to explain how the assessee was prevented by reasonable cause from deducting tax at source. In the course of appellate proceedings in Income Tax Appellate Tribunal also, no reasonable cause has been Page 10 of 12 & 391/Lkw/2023 advanced from the assessee’s side, within the meaning of section 273B of the Act for failure to deduct tax at source in respect of reimbursement of LTC/LFC paid to employees in respect of foreign travel. The assessee, State Bank of India, is a leading corporate entity of India; having no dearth of intellectual resources knowledgeable in the field of Income Tax Act; and the concerned person(s) in the assessee organization could have easily received knowledge inputs either from within the organization or from outside, if required. Failure to observe due diligence in deducting tax at source, despite informed resources easily available to the assessee, pleading that it failed to deduct tax at source due to lack of knowledge or due to bona fide belief that tax was not deductible at source, cannot be accepted as a reasonable explanation. No material has been presented by either side to persuade us to interfere with the impugned appellate order of learned CIT(A), whereby learned CIT(A) confirmed the demand created by the Assessing Officer (TDS). Therefore, we decline to interfere with the impugned appellate order of learned CIT(A), and the appeal filed by the assessee is dismissed.
The facts in respect of appeals in I.T.A. No.390/Lkw/2023. The facts being same in pari materia, the appeal vide is also dismissed as the same reasoning will apply mutatis mutandis in this appeal as in I.T.A. No.390/Lkw/2023.
In the result, both the appeals of the assessee are dismissed.
(Order pronounced in the open court on 28/04/2025)