TDS on LTC if foreign destination included in travel itinerary

Pradeep Mehrotra, Advocate for the Appellant. Amit Nigam for the Respondent.

ORDER

Sunil Kumar Yadav, Judicial Member – These appeals are preferred by the assessee against the respective orders of the ld. CIT(A). Since common issues are involved in these appeals, these were heard together and are being disposed of through this consolidated order for the sake of convenience. We, however, prefer to reproduce the grounds raised in I.T.A. No. 138/LKW/2015 as under:—

2. The facts borne out on the impugned issue, are that an information was received from the departmental channel to the effect that some of the branches of the State Bank of India have not deducted TDS on the amount of reimbursement of Leave Travel Concession (LTC)/Leave Fare Concession (LFC) given to the employees even in the cases where a foreign destination was included in the itinerary of their journey. Section 10(5) of the Income Tax Act, 1961 (hereinafter called in short “the Act”) clearly stipulates that exemption under section 10(5) of the Act is available only for travel to any place in India and restricted to the amount of expenses actually incurred for the purpose of such travel read with conditions as per rule 2B of the Income Tax Rule, 1962. The Assessing Officer accordingly issued notice under section 201(1)(/201(1A) of the Act to the assessee requiring to explain as to why TDS was not deducted on the amount of reimbursement of LFC. Since the said amount cannot be treated as exempt under section 10(5) of the Act, as a foreign destination was included in the journey, the assessee was asked to explain as to why he may not be treated as assessee in default for not deducting TDS on the said amount of LFC reimbursement. Since no reply was filed by the assessee, the Assessing Officer treated the assessee to be in default in respect of payments mentioned in the assessment orders and was also directed to pay the same. Interest under section 201(1A) of the Act was also charged.

3. Aggrieved, the assessee preferred appeals before the ld. CIT(A) with the submission that the Assessing Officer has not appreciated the bona fide plea of the bank in granting benefit of LTC paid to the bank employees to travel out of India. It was further contended that the employee is entitled for exemption under section 10(5) of the Act to the extent of expenses incurred for travelling in India where the employees’ designated place is not in India. It was further contended that the Assessing Officer has erred in applying a flat rate of 30% for computation of TDS instead of applying the actual income tax rate applicable in case of each employee.

4. The ld. CIT(A) re-examined the case of the assessee but was not convinced with the contentions of the assessee and confirmed the assessment order holding the assessee to be in default for non-deduction of TDS. He, however, accepted the contention of the assessee for calculation of tax at higher rate. He accordingly directed the Assessing Officer to recalculate the liability for TDS @ 10%.

5. Aggrieved, the assessee is in appeal before the Tribunal and reiterated its contentions. The ld. counsel for the assessee has also placed reliance upon the Circular/letter issued by the Dy. Managing Director of State Bank of India in the light of order of the Hon’ble Madras High court dated 16.2.2015 whereby the Hon’ble Madras High Court has directed not to deduct TDS on the amount paid or reimbursed to the employee of the bank in respect of LTC/HTC availed where the employee has visited a foreign city/country irrespective of the fact whether the LFC bills were submitted and paid prior to 16.2.2015. Copy of this Circular is placed on record. The ld. counsel for the assessee has further contended that in the light of the Circular, the assessee should not be held to be in default for non-deduction of TDS on the amount of LFC to its employees.

6. The ld. D.R., on the other hand, has contended that as per provisions of section 10(5) of the Act, only that reimbursement of expenses, which were incurred on travel of employees and his family to any place in India subject to certain limits, are exempt. Since the employee of the assessee has travelled to foreign countries, the benefit of exemption available under section 10(5) of the Act cannot be granted to the employees. No doubt, at the time of advancement of LTC amount, the employer may not be knowing, but at the time of settlement of bills of LTC/LFC complete details must have been obtained by the employer and once it is noted that the employee has visited foreign countries and he is not entitled for exemption of reimbursement of LTC under section 10(5) of the Act, the employer should have deducted TDs while finalizing LTC/LFC bill. Since the assessee has intentionally did not deduct TDS on a payment, to which the employee is not entitled for any exemption, the Assessing Officer has rightly held the assessee to be in default and raised the demand under section 201(1) and 201(1A) of the Act.

7. So far as the Circular issued by the banker is concerned, the ld. D.R. has invited our attention that the interim order was passed by the Hon’ble Madras High Court on 16.2.2015, in which they have stated that after 16.2.2015 no TDS would be deducted on the reimbursement to the employee of the banker in respect of LTC/HTC availed. But in the instant case, the date of journey was in the year 2012, therefore, at the relevant point of time when the reimbursement was made to the employees, there was no interim order of the Hon’ble Madras High Court. Therefore, the assessee cannot take shelter of the aforesaid interim order of the Hon’ble Madras High Court.

8. Having carefully examined the orders of the lower authorities in the light of the rival submissions and the documents placed on record, we find that as per provisions of section 10(5) of the Act, only that reimbursement of travel concession or assistance to an employee is exempted which was incurred for travel of the individual employee or his family members to any place in India. 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. For the sake of reference, we extract the provisions of section 10(5) of the Act 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—

[(5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

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:

9. On perusal of this section, we are of the view that this provision was introduced in order to motivate the employees and also to encourage tourism in India and, therefore, the reimbursement of LTC/LFC was exempted, but there was no intention of the Legislature to allow the employees to travel abroad under the garb of benefit of LTC available by virtue of section 10(5) of the Act. Undisputedly, in the instant case the employees of the assessee have travelled outside India in different foreign countries and raised claim of their expenditure incurred therein. No doubt, the assessee may not be aware with the ultimate plan of travel of its employees, but at the time of settlement of the LTC/LFC bills, complete facts are available before the assessee as to where the employees have travelled, for which he has raised the claim; meaning thereby the assessee was aware of the fact that its employees have travelled in foreign countries, for which he is not entitled for exemption under section 10(5) of the Act. Thus, the payment made to its employees is chargeable to tax and in that situation, the assessee is under obligation to deduct TDS on such payment, but the assessee did not do so for the reasons best known to it. We have also carefully examined the Circular placed by the ld. counsel for the assessee during the course of hearing, in which a reference was made to the interim order of the Hon’ble Madras High Court dated 16.2.2015. Through the interim order, the Hon’ble Madras High Court has permitted the bankers not to deduct TDS on or after 16.2.2015 on the amount paid/reimbursed to the employees of the bank in respect of LTC/HTC availed where the employee has visited a foreign city/country, irrespective of the fact whether the LFC bills were submitted and paid prior to 16.2.2015; meaning thereby this Circular was passed consequent to the interim order of the Hon’ble Madras High Court. But in the present case, the journey was undertaken in the year 2012 and the bills were settled during that year; meaning thereby at the relevant point of time when the bills were settled, there was no order of the Hon’ble Madras High Court and the assessee was under obligation to deduct TDS on the reimbursement of expenditure incurred by the assessee on foreign travel. In the light of these facts, we are of the considered opinion that the Revenue has rightly held the assessee to be in default, as the assessee has not deducted TDS intentionally on the reimbursement of expenditure incurred on LTC/LFC. Moreover, the ld. CIT(A) has directed the Assessing Officer to recalculate the liability of TDS at 10%. We, therefore, find no infirmity in the order of the ld. CIT(A) and we confirm the same.

10. In the result, appeals of the assessee are dismissed.