THE REGIONAL MANAGER STATE BANK OF INDIA ,FARRUKHABAD vs. ITO (TDS) , ALIGARH

ORDER Per: Sunil Kumar Singh, Judicial Member: This appeal has been preferred by the assessee against the impugned order dated 13.10.2022 passed in Appeal No. NFAC/2013- 14/10042681 by the Ld. Commissioner of Income-tax (Appeals), NFAC, Delhi [hereinafter referred to as “CIT(Appeals)”] u/s. 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year (A.Y.) 2014-15, wherein the ld. CIT(Appeals) has confirmed the demand raised u/s. 201(1) r.w.s. 201(1A) of the Act vide assessment order dated 23.03.2021 and dismissed assessee’s first appeal.

2,14,777/- as short deduction of TDS u/s. 201(1) and Rs.1,98,025/- as interest on short deduction u/s. 201(1A) of the Act).

3. Assessee preferred an appeal before learned CIT(Appeals), who , after considering the submissions and contentions of the appellant, approved the action of learned Assessing Officer and dismissed assessee’s appeal. 2 | P a g e

4. Assessee has preferred this second appeal against the first appellate impugned order dated 13.10.2022 on the following grounds :

(1) That learned CIT(A) has erred in not holding that the order under section 201(1) and 201(1A) of the Income Tax Act 1961 is barred by limitation and hence, void-ab-Initio (2) That Learned CIT(A) has erred in holding that the provisions of section 201(3) of the Income Tax Act 1961, as amended by Finance Act,2014 are retrospective in nature and applies to the captioned assessment year. (3) That Learned CIT(A) has 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 4,12502/- 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 in-route foreign travel being undertaken by the employee. (4) The Learned CIT (A) has erred in not appreciating that the benefit of exemption under section 10(5) of the Income Tax Act 1961 is available to the appellant 's employees' even in case where the journey under by an employee involves a foreign leg, where the employee's designated place is in India and he actually visits the place as designated. (5) That Learned CIT(A) has erred in not appreciating 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 visit the place as designated. Further, even in case where the employees travel outside India during the course of his travel to place in India, the exemption under section 10(5) of Income Tax Act 1961 is restricted for travel with in India. Further, all conditions under section 10(5) and Rules 2B are satisfied. (6) That the Learned CIT(A) has 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 the IT 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 as designated. (7) That learned CIT(A) has erred in not appreciating 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, sand 3 | P a g e accordingly the appellant cannot be held to be an assesse in default with in meaning of section 201 and 201(1A) of Income Tax Act 1961. (8) Each one of the above grounds of appeal is without prejudice to the other.”

6. The main point for determination on the basis of the aforesaid grounds raised by assessee is, as to whether the appellant State Bank of India was in default for not deducting tax at source while releasing payments to its employees as LTC/LFC thereon ?

7. The issue is squarely covered by judgment dated 04.11.2022 passed by the Hon’ble Supreme Court in State Bank of India v. ACIT, AIR 2022, SC, 5604. Relevant paras 2 to 16 of the judgment read as under :

“2. The question which has fallen for our consideration is whether the appellant was in default for not deducting tax at source while releasing payments to its employees as Leave Travel Concession (LTC).

India to another designated place within India. In other words, LTC is not for a foreign travel. Secondly, LTC is given for the shortest route between these two places. Admittedly, the employees of SBI in the present case, had done their travel not just within India but their journey involved a foreign leg as well. It was also not the shortest route, consequently, according to the Revenue this was not a travel from a designated place within India to another designated place in India and thus it was in violation of the statutory provisions and hence the payment made to its employees by the Bank could not be exempted, and the Bank ought to have deducted Tax at source, while making this payment. To give an example of one of the employees of the appellant who availed LTC taking a circuitous route of Delhi- Madurai- Columbo- Kuala Lampur- Singapore- Columbo- Delhi and his claim was fully reimbursed by the appellant and no tax was deducted under Section 192(1) for the same.

5. The above reasons given by the appellant-bank however, has not found favour either with the Assistant Commissioner of Income Tax or with the Commissioner of Income Tax (Appeals) or even the High Court. After examining the matter our considered opinion is that the view taken by the Delhi High Court and the Tribunal and even by the revenue in its initiation of proceedings cannot be faulted. The appellant whom we shall refer to as the ‘assessee-employer’ ought to have deducted tax at source.

consequences of failure to deduct tax at source when it is due, is given in Section 201, which reads as follows:- “Consequences of failure to deduct or pay.

(a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:

Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee-

(i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. (iv) Section 10(5) which exempts payments received as LTC with which we are presently concerned. It reads as under :-

“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 — XXX XXX XXX (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:

[Explanation 1].—For the purposes of this clause, "family", in relation to an individual, means—

(i) the spouse and children of the individual ; and (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.” The above provision has to be read along with Rule 2B of Income Tax Rules. Rule 2B reads as under :-

“[Conditions for the purpose of section 10(5) . 2B. (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding,—

(a) on leave to any place in India; (b) to any place in India after retirement from service or after the termination of his service, shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely :— [(i) where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination; (ii) where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air- conditioned first class rail fare by the shortest route to the place of destination; and 7 | P a g e

(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be :— (A) where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and (B) where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.]”

8. These proceedings started with a Spot Verification under Section 133A when it was discerned by the Revenue that some of the employees of the assessee- employer had claimed LTC even for their travel to places outside India. These employees, even though, raised a claim of their travel expenses between two points within India but between the two points they had also travelled to a foreign country as well, thus taking a circuitous route for their destination which involved a foreign place. The matter was hence examined by the Assessing Officer who was of the opinion that the amount of money received by an employee as LTC is exempted under Section 10(5) of the Act, however, this exemption cannot be claimed by an employee for travel outside India which has been done in this case and therefore the assessee- employer defaulted in not deducting tax at source from this amount claimed by its employees as LTC. There were two violations of the LTC Rules, pointed out by the Assessing Officer:

A. The employee did not travel only to a domestic destination but to a foreign country as well and B. The employees had admittedly not taken the shortest possible route between the two destinations thus the Applicant was held to be an assessee in default by the Assessing Officer. The travel undertaken by the employees as LTC was hence in violation of Section 10(5) of the Act read with Rule 2B of the Income Tax Rules, 1962, both of which have been reproduced above. The order of the Assessing Officer was challenged before CIT (A), which was dismissed and so was their appeal before the Income Tax Appellate Tribunal.

9. The Delhi High Court vide its order dated 13.01.2020 dismissed the appeal holding that there was no substantial question of law in 8 | P a g e

the Appeal. It was held that the amount received by the employees of the assessee employer towards their LTC claims is not liable for the exemption as these employees had visited foreign countries which is not permissible under the law.

Order pronounced in the open court on 19.05.2025.