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State Bank of India vs Assistant Commissioner of Income Tax

Civil Appeal · 2022 INSC 1165Decided 4 Nov 2022
Civil Appeal No. 8181 of 2022
Uday Umesh Lalit · S. Ravindra Bhat · Sudhanshu Dhulia · Dinesh Maheshwari · Bhat

Background

SBI was held by the Income Tax Appellate Tribunal, and then by the Delhi High Court, to be "an assessee in default" for Assessment Year 2013-14 because it failed to deduct TDS on Leave Travel Concession (LTC) payments made to its employees. LTC payments are normally exempt from being treated as taxable income, but only if the travel is between two designated places within India by the shortest route: no foreign leg is allowed. SBI's employees had, in the case examined, travelled partly abroad and by a route that was not the shortest, meaning the LTC exemption did not apply and TDS should have been deducted. SBI appealed the finding that it was in default.

Decision Breakdown

The Supreme Court held that LTC's statutory purpose (under Section 10(5) of the Income Tax Act) is to encourage employees to travel within India, not abroad, and that a travel plan involving a foreign leg or a non-shortest route falls outside the exemption. It rejected SBI's argument that any error was a "bonafide mistake," holding that the obligation to deduct tax at source is distinct from the obligation to actually pay tax, and that since SBI had full details of its employees' travel plans while settling their LTC bills, it was in a position to correctly assess the taxable component and deduct TDS under Section 192(1): its failure to do so could not be excused as inadvertent. The Court found no reason to interfere with the Delhi High Court's order and dismissed SBI's appeal.

Lesson Learnt

Employers must scrutinize the actual travel itinerary before treating LTC reimbursements as tax-exempt. If travel involves any foreign component or is not by the shortest domestic route, the exemption does not apply, and the employer (not just the employee) bears the statutory duty to deduct TDS, with ignorance of the travel details being no defence when the employer had access to that information.

Official source (sci.gov.in)View Judgment (PDF)

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