JIGANI BRANCH,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-18(2) TDS CIRCLE-3(1), BANGALORE

to 1412, 1426 to 1426 & 1456 to 1458/Bang/2017 Page 4 of 13 O R D E R Per BENCH : These are appeals filed by assessee-bank directed against various orders passed by the learned Commissioner of Income-tax (Appeals) [CIT(A)], Bengaluru, for different assessment years. Since common issue is involved, all these appeals were heard together and are disposed of by this consolidated order for the sake of convenience.

3. Briefly the facts of the case are as under: The Asst. Commissioner of Income-tax (TDS), Circle 18(2) [hereinafter called as ‘the TDS officer’] conducted the survey proceedings in the business of the appellant on 26/12/2013. During the course of such survey proceedings, the TDS officer noticed that the appellant had not deducted tax at source on LTC allowance granted by it to its employees, though the amount of allowance is not exempt u/s 10(5) of the IT Act, 1961 read with provisions of rule 2B of the IT Rules. According to the TDS officer, the amount of LTC allowance is not exempt u/s 10B as the place of destination was not within India. The submissions made by the appellant are that the employees who intend to avail LTC submits the claim in the prescribed Form declaring designated place of visit which is within India. However, the employee may undertake the tour to place outside India, for exemple employee may travel from Bangalore to Wagha Border viz., Frankfrut. The reimbursement made by the appellant includes the travel cost towards both Indian and foreign travel. The appellant considered the travel as within India and no tax was deducted at source on such allowance. However, the TDS officer was of the opinion that since the place of destination was not within India the amount of allowance cannot be exempt under the provisions of sub-section (5) of section 10 of the Act. Accordingly, the TDS officer held the appellant as ‘the assessee in default’ for not deducting tax at source on such LTC allowance and passed order to 1412, 1426 to 1426 & 1456 to 1458/Bang/2017 Page 7 of 13 u/s 201(1) of the Act and demanding tax on such allowance along with interest u/s 201(1A) of the Act vide order dated 20/03/2014.

contended that "4.5………..that the appellant bank was under the bona fide belief that the amount was exempt u/s. 10(5) and as such, the appellant bank cannot be treated as 'an assessee in default' u/s. 201 of the Income-tax Act, 1961". On the contrary, on examination of the case on hand, it is explicit that the assessee bank had not applied its mind while applying the provisions of s.10(5) of the Act with letter and spirit and allowed exemption in a mechanical way. As rightly highlighted by the learned DR in his submissions, the provisions of s. 10(5) of the Act are clear and only the reimbursement of expenses which were incurred on travel of employees and his family to any place in India subject to certain conditions are exempt. Since the employees of the assessee-Bank had travelled to foreign countries, the benefit of exemption available u/s. 10(5) of the Act should not have to 1412, 1426 to 1426 & 1456 to 1458/Bang/2017 Page 9 of 13 been granted. We agree that the assessee-Bank may not have been aware of the details of the employees' places or destination of visits at the time of advancement of LTC/LFC amounts. However, at the final settlement of the claims of the employees under LTC/LFC, the assessee-Bank should have obtained all the relevant details such as the places of visits (destinations) etc. When the assessee-Bank was aware of the fact that its employees had visited foreign countries by availing LTC/LFC concession and so he was not entitled for exemption of reimbursement of LTC u/s. 10(5) of the Act, the assessee-Bank was under obligation to deduct tax at source treating such an amount as not exempt. Since the assessee-Bank had failed to enforce its duty to deduct tax at source as envisaged in section 192 of the Act, it is tantamount that the assessee-Bank was an 'assessee in default' u/s. 201(1) of the Act and the A.O.(TDS) was within her domain to hold so. Moreover, the assessee-Bank does not have a case that its employees have included the LTC/LFC in their taxable salary and paid tax on the same. Moreover, the national carrier, i.e., Air India/Indian Airlines had also been offering LTC package to various destinations in India and allowing passengers to visit the foreign countries at the full fare chargeable to the final destination in India and it was clearly mentioned in Air India website that the value of LTC was chargeable to Income Tax. 7.4 The Hon'ble ITAT, Lucknow Bench 'A' in the case of SBI case (supra) on identical facts had decided the issue in favour of Revenue. For appreciation of facts, the relevant portion of the findings of the Hon'ble Bench is as follows: "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, 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 foreign countries, for which, he is not entitled for exemption u/s. 10(5) of the Act. Thus, the payment made to its employees is chargeable to tax and in that situation, the assessee is under obligation to deduct TDS on such payment, but the assessee did not do so for the reasons best known to it." 7.5 On identical facts, the Hon'ble ITAT, Chandigarh 'A' Bench in the case of Om Parkash Gupta (supra), had recorded its findings as under: to 1412, 1426 to 1426 & 1456 to 1458/Bang/2017 Page 10 of 13 "12. The said sub-section provides that where an individual had received travel concession or assistance from his employer for proceeding on leave to any place in India, both for himself and his family, then such concession received by the employee is not taxable in the hands of the employee. Similar exemption is allowed to an 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 conditions for allowing exemption u/s. 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 claiming exemption in relation to the travel concession received by an employee from his employer or former employer, for proceeding on leave to any place in India and thereafter return to the place of employer and is entitled to reimbursement of expenditure on such travel between the place of employment and destination in India. Rule 2B of the Rules further lays down the conditions that the amount to be allowed as concession is not to exceed the air economy fare of the National Carrier by the shortest route to the destination in India. The said condition in no way provides that the assessee is at liberty to claim exemption out of his total ticket package spent on his overseas travel and part of the journey being within India. We find no merit in the claim of the assessee in the present case and we are in conformity with the observation of the CIT(Appeals) in this regard………… In view thereof, we reject the claim of the assessee of exemption u/s. 10(5) of the Act………" 7.6 In the case of HCL Info systems Ltd. (supra) – relied on by the assessee-Bank - the issue was that the A.O. had rejected the claim of the assessee (HCL) of treating LTC allowance as exempt u/s. 10(5) for the reason of not verifying the evidence with regard to incurring of actual expenditure. However, the Tribunal had accepted the argument of the assessee that the CBDT Circulars did not specifically require verification of the evidence and, thus, held that there was sufficient material on record – by way of declarations furnished by the employees concerned – for the assessee to form a bona-fide belief that LTA granted to its employees was exempt u/s. 10(5) of the Act. On an appeal, the Hon'ble Delhi High Court concurred the findings of the Tribunal by holding that 'the bona fides of the assessee was accepted by the first appellate authority and were duly confirmed by the Appellate Tribunal.' 7.7 On a careful perusal of the ruling of the Hon'ble Court (supra), we are of the view that the said ruling of the Hon'ble Court is to 1412, 1426 to 1426 & 1456 to 1458/Bang/2017 Page 11 of 13 distinguishable so far as the issue under dispute is concerned. The present assessee-Bank had not brought any credible material on record to remotely suggest that that the basis [by way of declarations furnished by the employees concerned] for formation of such a bona fide belief and honest opinion on exemption u/s. 10(5) of the Act of such an allowance on a circuitous route when it was evident that the employees had undertaken foreign travel. 7.8 In the case of Nestle India Ltd. (supra) – relied on by the assessee- Bank – the issue, in brief, was that on a perusal of the annual return of the assessee, the ACIT(TDS) noticed that the assessee had made short deduction of TDS while computing the income of its employees chargeable under the head 'salaries', the conveyance allowance (CA)/reimbursement granted to them had not been included in their taxable salaries. In compliance to the A.O.'s query, the assessee, inter alia, explained that the CA was being paid as reimbursement to those employees who had not been provided with vehicles against declaration that they had actually incurred the said amount for the purpose of conveyance etc., and, therefore, such expense was exempt u/s. 10(14) of the Act. The A.O.(TDS) took a divergent view that the assessee was paying salaries to its employees under the garb of CA in order to avoid taxation and, accordingly, held the assessee as an 'assessee in default'. When the issue went in appeal before the Tribunal which held that the assessee was under a bona fide belief that CA was not taxable and, hence, neither order u/s. 201 nor interest u/s. 201(1A) was leviable. The stand of the Tribunal was concurred by the Hon'ble High Court. However, in the present case, the assessee-Bank had failed to cite the pronouncement of any order of the judiciary to demonstrate why and how it formed the belief that such concession on a circuitous route was exempt u/s. 10(5) of the Act. Thus, we are of the view that this case law relied on by the assessee-Bank cannot be of any help to it. 7.9 In the case of ITC Ltd. (supra) – relied on by the assessee- Bank – the issue involved was non-deduction of tax at source from the conveyance allowance (CA) paid to its employees. The Hon'ble Tribunal allowed the assessee's case after accepting the explanation of the assessee to be bona fide, i.e., the assessee had amply demonstrated that belief was based on a meeting with the representatives of the assessee-company, declarations obtained from the employees etc. It was only on the strength of such demonstration that the explanation being honest, fair and having a bona fide belief, the Tribunal accepted the assessee's contention which has been sustained by the Hon'ble High Court. However, in the present case, the assessee-Bank had not made any honest effort to justify how its bona fide belief was formed to exclude such allowance from salary of the employee was exempt u/s. 10(5) of the Act. This case law relied by the assessee-Bank is distinguishable. 7.10 We have with due respects perused the ruling of the Hon'ble Supreme Court in the case of Larsen and Toubro Ltd. (supra) – relied on by the assessee-Bank – wherein the issue before the Hon'ble Court to 1412, 1426 to 1426 & 1456 to 1458/Bang/2017 Page 12 of 13 was that 'the employer is not under any statutory obligation under the Income-tax Act, 1961 or the rules to collect evidence to show that the employee had actually utilized the amount paid towards LTC or conveyance allowance u/s. 10(5).' However, the present issue is: Whether the deductor (assessee-Bank) was right in allowing exemption u/s. 10(5) to its employees for travel outside India and travel by a long circuitous route which was, according to the A.O., not in accordance with the provisions of s.10(5) read with Rule 2B? Thus, the issue before the Hon'ble Court (supra) was on a different footing and has no relevance whatsoever to the matter under consideration. The ruling of the Hon'ble Supreme Court relied on by the assessee- Bank, in our considered view, cannot come to its rescue.

8. As rightly highlighted by the Hon'ble Tribunal, Lucknow Bench (supra) and careful perusal of the provisions of s.10(5) of the Act, we are of the view that the said 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 s.10(5) of the Act. However, in the present case the employees of the assessee-Bank have travelled outside India and raised claims of their expenditure incurred therein. There is no dispute that the assessee- Bank may not be aware with the plan of travel of its employees initially, however, at the time of settlement of LTC/LFC bills, the employees should have placed comprehensive details before the assessee-Bank as to where they have travelled/visited and raised the claims, that means to say, the assessee-Bank was well aware of the fact that its employees have travelled in foreign countries too by availing LTC/LFC for which they were not entitled for exemption u/s. 10(5) of the Act. Such being the scenario, the assessee-Bank cannot now plead that it was under the bona fide belief that the amounts claimed were exempt u/s. 10(5) of the Act. Thus, the Assessing Officer(TDS) was within her domain to term/charge that the assessee- Bank was under obligation to deduct TDS on such payments. Since the assessee-Bank had failed to do so, the A.O.(TDS) had rightly treated the assessee an 'assessee in default' u/s. 201(1) of the Act.

9. The assessee had relied on various case laws for the proposition that its estimate is bona fide and it cannot be held to be an 'assessee in default' u/s. 201(1) of the Act. This contention of the assessee is without legal basis, since the assessee had made no effort to prove how its belief was formed that such foreign travel expenses would come within the ambit of sec. 10(5) of the I.T. Act. Taking into account all the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in conformity with the judicial views (supra), we are of the view that the authorities below were justified in their stand which requires no interference of this Bench. It is ordered accordingly.” to 1412, 1426 to 1426 & 1456 to 1458/Bang/2017 Page 13 of 13 Respectfully following the ratio of the decision in the case of Syndicate Bank (supra), we dismiss the appeals filed by the assessees.