In Syndicate Bank v. ACIT (TDS), the Income Tax Appellate Tribunal (ITAT), Bengaluru bench held that the Leave Travel Concession (LTC) and Leave Fare Concession provided to the employees of nationalized banks are not covered under section 10(5) of the Income Tax Act in cases where foreign destination is involved and the Bank should deduct TDS on reimbursement of expenditure incurred by the bank.
The assessee, a nationalized Bank provided Leave Travel Concession (LTC) and Leave Fare Concession to its employees. On verification of the TDS compliance by the assessee-bank, 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). the Officer was of the view that the assessee-Bank had erroneously allowed LFC exemption under section 10(5) of the Income Tax Act to its employees since the travels also included a leg outside India and travel by long circuitous route which was not in accordance with the provisions of Section 10(5) of the Income Tax Act read with Rule 2B of Income Tax Rules.
The first appellate authority sustained the impugned order and found that the assessee intentionally not paid TDS on reimbursement incurred on LTC/LFC.
On appeal, the assessee contended that on perusal of section 10(5) r/w Rule 2B, it is clear 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.
Rebutting the above arguments, the Revenue contended that as per section 10(5), reimbursement of travel concession or assistance to an employee was exempt which was incurred for travel of the individual employee or his family members to any place in India. It is the contention of the Department that nowhere in this clause, it has been stated that even if the employee travels to foreign countries, exemption would be limited to the expenditure incurred to the last destination in India.
Rejecting the appeal filed by the assessee-Bank, the division bench said that the AO had rightly treated the assessee-bank as an assessee-in-default.“In the present case, the employees of the assessee-Bank have travelled outside India and raised claims of their expenditure incurred and 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 Income Tax Act.”
Recently, the Jaipur bench of the ITAT, while hearing an appeal filed by the State Bank of India, had delivered a similar view. In that case, the bench said that Rule 2B of the Income Tax Rules 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.
Read the full text of the Order below.
