Tax Benefit not available to Foreign Tours provided by SBI to Employees, TDS Applicable: ITAT Jaipur [Read Order]

SBI

In State Bank of India v. ACIT, the Jaipur bench of the Income Tax Appellate Tribunal (ITAT) held that the Leave Travel Concession (LTC) provided to the employees of SBI is not covered under section 10(5) of the Income Tax Act in cases where foreign destination is involved.

The bench held that in such cases, TDS provisions would be applicable on reimbursement of expenditure incurred by the bank.

The assessee provides Leave Travel Concession (LTC) to its employees. The assessing officer found that the assessee had not deducted tax from source for the amount paid to employees for travel outside India and therefore, treated the assessee-bank, an assessee-in-default u/s 201(1) r/w 201(1A). While doing so, the Officer observed that the LTC benefit under section 10(5) is not available as foreign destination is involved i.e, the places of travel are not situated in India, it cannot be termed as the shortest route to the designation in India, and the National carrier is not involved/used for purposes of the air travel.

On appeal, the assessee contended that section 10(5) r/w Rule 2B clearly states that the exemption is not limited to travel only within India and is applicable to a case involving foreign leg in the tour and therefore, there is nothing wrong in granting exemption under section 10(5) to its employees at the time of deduction of tax at source.

The first appellate authority dismissed the appeal and found that the assessee has misinterpreted the said provisions in such a way which goes totally against the intent and spirit of these provisions. “In all the cases involving foreign travel, one designated place in India is just covered for namesake, otherwise almost entire journey is a foreign travel for all practical purposes. In these circumstances, exemption u/s 10(5) would not be available.”, the CIT(A) said.

Before the Appellate Tribunal also,the assessee reiterated that they provide LTC exemption only where the employee’s designated place is in India and he actually visits the place as designated.They claimed that there is no bar under section 10(5) or rule 2B on travel outside India if designated place is in India.According to them, where the employee has designated a place of travel in India and travels to such a place in India, the benefit of exemption under section 10(5) cannot be denied merely on the ground that a foreign leg is also involved.

Aligning with the findings of the first appellate authority, the bench said that Rule 2B is very clear in intent that that the said provisions are applicable in connection with proceeding on leave to any place in India and the appellant has in fact bent the interpretation of the said provisions in such a way which goes totally against the intent and spirit of these provisions.

Rejecting the contentions of the Bank, the bench relied upon the decision of the Co-ordinating bench in SBI vs DCIT, TDS, Kanpur wherein it was held that the assessee-Bank is bound to deduct TDS while making payments/reimbursement to its employees for the foreign tours.

Read the full text of the order below.

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