Supreme Court Stays TDS Demand Notices Against SBI in Foreign LTC Reimbursement Case [Read Judgement]

The Supreme Court has stayed the operation of demand notices issued against State Bank of India (SBI) in a dispute relating to tax deducted at source (TDS) onLeave Travel Concession (LTC) reimbursements involving foreign travel.

The case arises from a judgment passed by the Karnataka High Court where the High Court dismissed SBI’s appeal and upheld the demand raised under Sections 201(1) and 201(1A) of the Income Tax Act, 1961.

The matter began after a survey under Section 133A was conducted at SBI’s premises. During the survey, it was found that SBI had reimbursed Leave Travel Concession to employees who had undertaken travel that included a foreign leg, but had not deducted tax at source on such payments. The Assessing Officer treated this as a failure to deduct TDS under Section 192(1) and raised demand along with interest.

The SBI’s counsel argued before the High Court that the LTC reimbursement was exempt under Section 10(5) of the Act. They also argued that it had issued a circular withdrawing foreign LTC benefits, but the circular was stayed by the Madras High Court and later proceedings reached the Supreme Court.

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The counsel argued that because of the interim orders, it could not withdraw the benefit and hence should not be held liable for TDS.

The revenue counsel argued that exemption under Section 10(5) applies only to travel within India and not to foreign travel. It relied on the Supreme Court’s decision in State Bank of India v. Assistant Commissioner of Income Tax (2023) which held that LTC involving foreign travel is not exempt and that the employer is under a statutory obligation to deduct TDS.

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