STATE BANK OF INDIAversusASSISTANT COMMISSIONER OF INCOME TAX

                        [2022] 10 S.C.R. 51                             51


                     STATE BANK OF INDIA                                A
                                 v.
        ASSISTANT COMMISSIONER OF INCOME TAX
                  (Civil Appeal No. 8181 of 2022)
                       NOVEMBER 04, 2022                                B
   [UDAY UMESH LALIT, CJI, S. RAVINDRA BHAT AND
             SUDHANSHU DHULIA, JJ.]
       Income Tax Act, 1961: ss. 10(5), 192(1), 201 – Deduction of
tax at source from salary of employee – Consequences of failure to
                                                                        C
deduct or pay – Employees of assessee bank availed Leave Travel
Concession (LTC) taking a circuitous route, they travelled not just
within india but their journey involved a foreign leg also, and was
also not the shortest route – Assessee bank while releasing payments
to its employees as LTC, did not deduct the tax at source of its
employees – Tribunal as also the High Court held the assessee bank      D
in default for not deducting TDS of its employees – On appeal,
held: Employees travelled to foreign and got full reimbursement
u/s 10 – LTC is for travel within India – Moment employees undertake
travel with a foreign leg, it is not a travel within India, thus, not
covered under the provisions of s. 10(5) – A foreign travel also
                                                                        E
frustrates the basic purpose of LTC, which is to familiarise a civil
servant or a Government employee to gain some perspective of
Indian culture and it was for this reason that reimbursement of LTC
was exempted – There was no intention of legislature to allow the
employees to travel abroad in the garb of LTC available by virtue
of s. 10(5) – Furthermore, the assessee-employer cannot claim           F
ignorance about the travel plans of its employees as during
settlement of LTC Bills the complete facts are available before the
assessee about the details of their employees’ travels – It cannot be
a case of bonafide mistake – Thus, the order passed by the High
Court does not call for interference – Income Tax Rules – r. 2B.
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      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8181
of 2022.
      From the Judgment and Order dated 13.01.2020 of the High Court
of Delhi at New Delhi in I.T.A. No. 5 of 2020.
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                                 51
52             SUPREME COURT REPORTS                         [2022] 10 S.C.R.


A          K. V. Vishwanathan, Sr. Adv., Sanjay Kapur, Ms. Megha Karnwal,
     Arjun Bhatia, Aashish Kumar, Lalit Rajput, Advs. for the Appellant.
          Zoheb Hussain, Digvijay Dam, Bhuvan Mishra, Ms. Swarupama
     Chaturvedi, Raj Bahadur Yadav, Advs. for the Respondent.
           The Order of the Court was passed by
B
           SUDHANSHU DHULIA, J.
            1. Leave granted. The appellant (State Bank of India) has
     challenged the judgement dated 13.01.2020 passed by a Division Bench
     of the Delhi High Court in ITA No. 05/2020 which has dismissed the
C    appeal filed by the appellant and upheld the order passed by the Income
     Tax Appellate Tribunal (ITAT) dated 09.07.2019, holding the appellant
     as an assessee in default for the Assessment Year (AY) 2013-14, for
     not deducting TDS of its employees.
            2. The question which has fallen for our consideration is whether
D    the appellant was in default for not deducting tax at source while releasing
     payments to its employees as Leave Travel Concession (LTC).
             3. LTC is a payment made to an employee which is exempted as
     ‘income’ and hence under normal circumstances, there should be no
     question of TDS on this payment. All the same, LTC has to be availed
     by an employee within certain limitations, prescribed by the law. Firstly,
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     the travel must be done from one designated place in India to another
     designated place within India. In other words, LTC is not for a foreign
     travel. Secondly, LTC is given for the shortest route between these two
     places. Admittedly, the employees of SBI in the present case, had done
     their travel not just within India but their journey involved a foreign leg
F    as well. It was also not the shortest route, consequently, according to the
     Revenue this was not a travel from a designated place within India to
     another designated place in India and thus it was in violation of the
     statutory provisions and hence the payment made to its employees by
     the Bank could not be exempted, and the Bank ought to have deducted
     Tax at source, while making this payment. To give an example of one of
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     the employees of the appellant who availed LTC taking a circuitous
     route of Delhi- Madurai- Columbo- Kuala Lampur- Singapore- Columbo-
     Delhi and his claim was fully reimbursed by the appellant and no tax
     was deducted under Section 192(1) for the same.

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 STATE BANK OF INDIA v. ASSISTANT COMMISSIONER OF                           53
        INCOME TAX [SUDHANSHU DHULIA, J.]

       4. The appellant on the other hand through its counsel senior        A
advocate Shri K.V. Vishwanathan, would argue that though the travel
made by its employees under LTC did involve a foreign leg and admittedly
a circuitous route as opposed to the shortest route was taken, yet two
things go in the favour of the employees. Firstly, the employees of the
appellant did travel from one designated place in India to another place
                                                                            B
within India (though in their travel itinerary a foreign country was also
involved), and secondly the payments which were actually made to these
employees was for the shortest route of their travel between two
designated places within India. In other words, no payment was made
for foreign travel though a foreign leg was a part of the itinerary
undertaken by these employees.                                              C
       5. The above reasons given by the appellant-bank however, has
not found favour either with the Assistant Commissioner of Income Tax
or with the Commissioner of Income Tax (Appeals) or even the High
Court. After examining the matter our considered opinion is that the
view taken by the Delhi High Court and the Tribunal and even by the         D
revenue in its initiation of proceedings cannot be faulted. The appellant
whom we shall refer to as the ‘assessee-employer’ ought to have
deducted tax at source.
       6. Let us first go through some of the relevant provisions of the
Income Tax Act, 1961 (for short ‘the Act’) and the Income Tax Rules,        E
1962 framed therein. Let us first take Section 192(1) of the Act which
casts a statutory duty on the employer to deduct Tax at source from the
salary of its employee
      “192(1) Any person responsible for paying any income chargeable
      under the head “Salaries” shall, at the time of payment, deduct       F
      income-tax on the amount payable at the average rate of income-
      tax computed on the basis of the rates in force for the financial
      year in which the payment is made, on the estimated income of
      the assessee under this head for that financial year.”
       The consequences of failure to deduct tax at source when it is       G
due, is given in Section 201, which reads as follows:-
      “Consequences of failure to deduct or pay.
      201. (1) Where any person, including the principal officer of a
      company,—
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54           SUPREME COURT REPORTS                         [2022] 10 S.C.R.


A            (a) who is required to deduct any sum in accordance with the
             provisions of this Act; or
             (b) referred to in sub-section (1A) of section 192, being an
             employer, does not deduct, or does not pay, or after so deducting
             fails to pay, the whole or any part of the tax, as required by or
B            under this Act, then, such person, shall, without prejudice to
             any other consequences which he may incur, be deemed to be
             an assessee in default in respect of such tax:
          Provided that any person, including the principal officer of a
          company, who fails to deduct the whole or any part of the tax in
C         accordance with the provisions of this Chapter on the sum paid to
          a payee or on the sum credited to the account of a payee shall not
          be deemed to be an assessee in default in respect of such tax if
          such payee-
             (i) has furnished his return of income under section 139;
D            (ii) has taken into account such sum for computing income in
             such return of income; and
             (iii) has paid the tax due on the income declared by him in such
             return of income, and the person furnishes a certificate to this
             effect from an accountant in such form as may be prescribed
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          Provided further that no penalty shall be charged under section
          221 from such person, unless the Assessing Officer is satisfied
          that such person, without good and sufficient reasons, has failed
          to deduct and pay such tax.
          Section 10(5) which exempts payments received as LTC with
F
     which we are presently concerned. It reads 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—
G                          XXX      XXX         XXX
          (5) in the case of an individual, the value of any travel concession
          or assistance received by, or due to him,—
                (a) from his employer for himself and his family, in
                connection with his proceeding on leave to any place in
H               India;
 STATE BANK OF INDIA v. ASSISTANT COMMISSIONER OF                             55
        INCOME TAX [SUDHANSHU DHULIA, J.]

            (b) from his employer or former employer for himself and          A
            his family, in connection with his proceeding to any place in
            India after retirement from service or after the termination
            of his service,
         subject to such conditions as may be prescribed including
         conditions as to number of journeys and the amount which             B
         shall be exempt per head having regard to the travel concession
         or assistance granted to the employees of the Central
         Government :
         Provided that the amount exempt under this clause shall in no
         case exceed the amount of expenses actually incurred for the         C
         purpose of such travel:
         [Explanation 1].—For the purposes of this clause, “family”,
         in relation to an individual, means—
            (i) the spouse and children of the individual ; and
                                                                              D
            (ii) the parents, brothers and sisters of the individual or any
            of them, wholly or mainly dependent on the individual.”
     The above provision has to be read along with Rule 2B of Income
Tax Rules. Rule 2B reads as under :-
      “[Conditions for the purpose of section 10(5) .                         E
      2B. (1) The amount exempted under clause (5) of section 10 in
      respect of the value of travel concession or assistance received
      by or due to the individual from his employer or former employer
      for himself and his family, in connection with his proceeding,—
         (a) on leave to any place in India;                                  F

         (b) to any place in India after retirement from service or after
         the termination of his service, shall be the amount actually
         incurred on the performance of such travel subject to the
         following conditions, namely :—
                                                                              G
            [(i) where the journey is performed on or after the 1st day
            of October, 1997, by air, an amount not exceeding the air
            economy fare of the national carrier by the shortest route
            to the place of destination;

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56             SUPREME COURT REPORTS                          [2022] 10 S.C.R.


A                 (ii) where places of origin of journey and destination are
                  connected by rail and the journey is performed on or after
                  the 1st day of October, 1997, by any mode of transport
                  other than by air, an amount not exceeding the air-
                  conditioned first class rail fare by the shortest route to the
                  place of destination; and
B
                  (iii) where the places of origin of journey and destination or
                  part thereof are not connected by rail and the journey is
                  performed on or after the 1st day of October, 1997, between
                  such places, the amount eligible for exemption shall be :—
C              (A) where a recognised public transport system exists, an
               amount not exceeding the 1st class or deluxe class fare, as the
               case may be, on such transport by the shortest route to the
               place of destination; and
               (B) where no recognised public transport system exists, an
D              amount equivalent to the air-conditioned first class rail fare,
               for the distance of the journey by the shortest route, as if the
               journey had been performed by rail.]”
           7. The appellant before us is a Public Sector Bank, namely, State
     Bank of India (SBI). The Revenue has held the appellant to be an
E    “assessee in default”, for not deducting the tax at source of its employees.
            8. These proceedings started with a Spot Verification under Section
     133A when it was discerned by the Revenue that some of the employees
     of the assessee-employer had claimed LTC even for their travel to places
     outside India. These employees, even though, raised a claim of their
F    travel expenses between two points within India but between the two
     points they had also travelled to a foreign country as well, thus taking a
     circuitous route for their destination which involved a foreign place. The
     matter was hence examined by the Assessing Officer who was of the
     opinion that the amount of money received by an employee as LTC is
     exempted under Section 10(5) of the Act, however, this exemption cannot
G    be claimed by an employee for travel outside India which has been done
     in this case and therefore the assessee-employer defaulted in not
     deducting tax at source from this amount claimed by its employees as
     LTC. There were two violations of the LTC Rules, pointed out by the
     Assessing Officer:
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 STATE BANK OF INDIA v. ASSISTANT COMMISSIONER OF                               57
        INCOME TAX [SUDHANSHU DHULIA, J.]

       A. The employee did not travel only to a domestic destination            A
          but to a foreign country as well and
       B. The employees had admittedly not taken the shortest possible
          route between the two destinations thus the Applicant was
          held to be an assessee in default by the Assessing Officer.
       The travel undertaken by the employees as LTC was hence in               B
       violation of Section 10(5) of the Act read with Rule 2B of the
       Income Tax Rules, 1962, both of which have been reproduced
       above. The order of the Assessing Officer was challenged before
       CIT (A), which was dismissed and so was their appeal before the
       Income Tax Appellate Tribunal.                                           C
      9. The Delhi High Court vide its order dated 13.01.2020 dismissed
the appeal holding that there was no substantial question of law in the
Appeal. It was held that the amount received by the employees of the
assessee employer towards their LTC claims is not liable for the
exemption as these employees had visited foreign countries which is not         D
permissible under the law.
       10. The provisions of law discussed above prescribe that the air
fare between the two points, within India will be given and the LTC
which will be given will be of the shortest route between these two
places, which have to be within India. A conjoint reading of the provisions     E
discussed herein with the facts of this case cannot sustain the argument
of the appellant that the travel of its employees was within India and no
payments were made for any foreign leg involved.
       11. We do not want to get into the role of the travel agencies and
the present dynamics of air fare, but it is difficult for us to accept that a   F
person will avail foreign tour without paying any price for it. We leave it
at that.
       12. It can be seen from the records that many of the employees
of the appellants had undertaken travel to Port Blair via Malaysia,
Singapore or Port Blair via Bangkok, Malaysia or Rameswaram via
                                                                                G
Mauritius or Madurai via Dubai, Thailand and Port Blair via Europe etc.
It is very difficult to appreciate as to how the appellant who is the
assessee-employer could have failed to take into account this aspect.
This was the elephant in the room.

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58            SUPREME COURT REPORTS                          [2022] 10 S.C.R.


A           13. The contention of the Appellant that there is no specific bar
     under Section 10(5) for a foreign travel and therefore a foreign journey
     can be availed as long as the starting and destination points remain within
     India is also without merits. LTC is for travel within India, from one
     place in India to another place in India. There should be no ambiguity on
     this.
B
            14. The second argument urged by the appellant that payments
     made to these employees was of the shortest route of their actual travel
     cannot be accepted either. It has already been clarified above, that in
     view of the provisions of the Act, the moment employees undertake
     travel with a foreign leg, it is not a travel within India and hence not
C    covered under the provisions of Section 10(5) of the Act.
            15. A foreign travel also frustrates the basic purpose of LTC. The
     basic objective of the LTC scheme was to familiarise a civil servant or a
     Government employee to gain some perspective of Indian culture by
     traveling in this vast country. It is for this reason that the 6th Pay
D    Commission rejected the demand of paying cash compensation in lieu of
     LTC and also rejected the demand of foreign travel. In para 4.3.4 of the
     6th Pay Commission Report dated March, 2008 this is what was said :-
           “4.3.4. The demand for allowing travel abroad at least once in the
           entire career under the scheme is not in consonance with the
E          basic objective of the scheme. The Government employee cannot
           gain any perspective of the Indian culture by traveling abroad.
           Besides, the attendant cost in foreign travel would also make the
           expenditure under this scheme much higher. The Commission is,
           therefore, not inclined to concede the demand to allow foreign
F          travel under LTC.”
            This is also an objection of the Revenue which has been raised in
     its counter affidavit filed by respondent no. 1-Assistant Commission of
     Income Tax wherein the Revenue has asserted that the provision for
     LTC was introduced to motivate employees and encourage its employees
G    towards tourism in India and it is for this reason that reimbursement of
     LTC was exempted. There was no intention of legislature to allow the
     employees to travel abroad in the garb of LTC available by virtue of
     Section 10(5) of the Act. Therefore, the Revenue has a valid objection
     (apart from other objections which are clearly violative of the Statute),

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 STATE BANK OF INDIA v. ASSISTANT COMMISSIONER OF                               59
        INCOME TAX [SUDHANSHU DHULIA, J.]

that the intention and purpose of the scheme is also violated in the garb       A
of tour within India, foreign travel is being availed.
       16. The aforementioned order passed by the CIT(A) has rightly
held that the obligation of deducting tax is distinct from payment of tax.
The appellant cannot claim ignorance about the travel plans of its
employees as during settlement of LTC Bills the complete facts are              B
available before the assessee about the details of their employees’ travels.
Therefore, it cannot be a case of bonafide mistake, as all the relevant
facts were before the Assessee employer and he was therefore fully in
a position to calculate the ‘estimated income’ of its employees. The
contention of Shri K.V. Vishwanathan, learned senior advocate that there
may be a bonafide mistake by the assessee-employer in calculating the           C
‘estimated income’ cannot be accepted since all the relevant documents
and material were before the assessee- employer at the relevant time
and the assessee employer therefore ought to have applied his mind and
deducted tax at source as it was his statutory duty, under Section 192(1)
of the Act.                                                                     D
      17. In conclusion we do not find any reason to interfere with the
order passed by the Delhi High Court. The appeal is dismissed.

Nidhi Jain                                                  Appeal dismissed.
(Assisted by : Shashwat Jain, LCRA)                                             E




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