2022 (1) TMI 539 - HC - Income Tax

Court affirms tax liability for improper exemption claims on foreign travel.

The court upheld the Tribunal's decision, affirming the appellant's liability for tax and interest under Sections 201(1) and 201(1A) due to improper ... TDS u/s 192 - Exemption u/s 10(5) read with Rule 2B of the Income Tax Rules, 1962 - liability under Sections 201[1] and 201[1A] - appellant - Bank provides benefit of leave travel concession (‘LTC’ for short) to its employees and while deducting TDS from the salary of the employees - reimbursement of leave travel expenses as claimed by the employee of the Appellant - Whether the Tribunal was justified in holding that in the light of the provisions of Section 10(5) of the IT Act, 1961 read with Rule 2B of the IT Rules, 1962 when the employee has undertaken circuitous route which included foreign leg, the exemption is totally denied without considering the expenditure involved by the shortest route from the place of departure to the place of destination when both the places are within India? - HELD THAT:- The liability under Sections 201[1] and 201[1A] would arise only when the assessee has been declared as an assessee-in-default, the object of which is to recover the tax. Tax compliance has to be made strictly in terms of the Act, not on the advise/Circulars of the Association. Tax being compulsorily payable, in default interest is liable to be paid under Section 201[1A] which is compensatory in nature but that is not so in the case of penalty. The Hon'ble Apex Court in Eli Lilly & Co. [2009 (3) TMI 33 - SUPREME COURT], has set aside the penalty order made under Sections 271C read with 273B of the Act directing the Assessing Authority to examine each case to ascertain whether the employee-assessee [recipient] has paid the tax due on, in case tax due on stands paid off, then the Assessing Officer shall not proceed under Section 201[1]. In cases where the tax has not been paid, the Assessing Officer has been directed to proceed under Section 201[1] of the Act. Similarly with respect to Section 201[1A] of the Act, relief has been granted only with respect to penalty proceedings. In the light of this judgment, the shelter taken by the assessee under the bonafide reason cannot be countenanced. We have also perused the e-Circular referred to, by the learned counsel for the assessee dated 03.03.2015, where the interim order of the Hon’ble Madras High Court dated 16.02.2015 has been referred to. But in the present cases, journey was undertaken prior to 16.02.2015. As in the case of Commissioner of Income-tax and Another V/s. Larsen and Toubro Ltd.[2009 (1) TMI 11 - SC ORDER] beneficiary of exemption under Section 10[5] is an individual employee. There is no Circular of the Central Board of Direct Taxes [CBDT] requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee[s]. With great respect, we are of the considered view that this judgment would not come to the aid of the appellant to substantiate the arguments advanced in the present case. Having regard to Section 10[5] and Rule 2B, it is clear that leave travel concession is available for an employee to proceed on leave to any place in India [destination] and thereafter return to the place of origin in the shortest route but not with a foreign leg. Such an amount to be allowed as concession cannot exceed the air economy fair of the National carrier by the shortest route to the destination in India. We are of the considered view that no claim of exemption could be made, out of the total ticket package spent on overseas travel with part of the journey being within India by the employee. The bonafide belief pleaded by the appellant assessee is without any legal basis. Considering these aspects, the authorities have rightly held that the assessee as an ‘assessee in default’ under Section 201[1] of the Act - we answer the substantial questions of law against the assessee. Issues Involved:1. Levy of tax and interest under Sections 201(1) and 201(1A) of the Income Tax Act.2. Denial of exemption under Section 10(5) of the IT Act read with Rule 2B of the IT Rules for reimbursement of leave travel expenses.3. Consideration of the shortest route for exemption under Section 10(5) when the travel includes a foreign leg.Detailed Analysis:1. Levy of Tax and Interest under Sections 201(1) and 201(1A):The appellant, State Bank of India (SBI), challenged the orders of the Income Tax Appellate Tribunal (ITAT) which upheld the levy of tax and interest under Sections 201(1) and 201(1A) of the Income Tax Act. The court noted that the appellant was considered an 'assessee in default' due to short deduction of tax under Section 192. The proceedings were initiated after a survey revealed that SBI had granted exemptions under Section 10(5) for LTC claims involving foreign travel, which was not permissible under the Act. The Tribunal's decision was based on previous judgments, including the Syndicate Bank and State Bank of India cases, which were followed without addressing the specific arguments of the appellant.2. Denial of Exemption under Section 10(5) read with Rule 2B:The appellant argued that the exemption for LTC should be granted as the travel was within India, albeit via a circuitous route including foreign legs. However, the court emphasized that Section 10(5) and Rule 2B clearly stipulate that the exemption is only for travel within India. The intention of the legislature was to provide relaxation to employees and promote tourism within India, not to subsidize foreign travel. The court found that the appellant's reliance on the Indian Banks' Association circular was misplaced as it did not align with the statutory provisions of the Income Tax Act.3. Consideration of the Shortest Route for Exemption:The appellant contended that the cost of the shortest route within India should be considered for exemption even if the travel included a foreign leg. The court rejected this argument, stating that the entire journey, including the foreign leg, was a single itinerary with consolidated charges. Therefore, splitting the journey to claim partial exemption was not permissible. The court held that the exemption under Section 10(5) could not be extended to travel involving foreign destinations, as it would defeat the purpose of the provision.Conclusion:The court upheld the Tribunal's decision, affirming that the appellant was liable for tax and interest under Sections 201(1) and 201(1A) due to the improper exemption claims for LTC involving foreign travel. The court dismissed the appeals, answering the substantial questions of law against the appellant and in favor of the Revenue. The judgment emphasized strict adherence to the statutory provisions of the Income Tax Act, rejecting the appellant's plea of bonafide belief based on non-statutory circulars.