State Bank of India Vs Assistant Commissioner of Income-tax (Supreme Court)
Date- 4th November 2022
Sub-Whether an employer is liable to deduct tax at source on leave travel concession(LTC) paid to its employees and whether when the LTC is claimed by the employee for the shortest route between place of work and home town though it involves travel to a foreign country also, whether the LTC can be claimed as exempt.

A three judges CJI bench of Supreme-court was dealing with this issue when an employee took LTC reimbursement for the shortest route between two points in India though his travel included foreign destination also like the route like the routeDelhi- Madurai- Columbo- Kuala Lampur- Singapore- Columbo- Delhi. The court after referring to Section 192(1), 201(1), 10(5) of Income-tax Act,1961 and Rule 2B of income-tax rules 1962 noted that 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 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. The moment employees undertake travel with a foreign leg, it is not a travel within India and hence not covered under the provisions of Section 10(5) of the Act. On these facts, the court dismissed the SLP of State bank of India.

All those employers who are reimbursing LTC must take into account these aspects while discharging their responsibilities as deductor of TDS

Ramesh Patodia
06-11-2022