Government employees cannot avail Leave Travel Concession for foreign trips: Apex Court
New Delhi: The Supreme Court last week held that government employees cannot claim the Leave Travel Concession (LTC) for their foreign travel or for a long circuitous trip [State Bank of India vs Assistant Commissioner of Income Tax].
A bench of Chief Justice UU Lalit and Justices S Ravindra Bhat and Sudhanshu Dhulia said that the LTC is a payment to an employee which is exempted as 'income' and hence cannot be brought under any tax, however, it should be claimed within the framework of law, the Bar and Bench reported.
"The LTC has to be availed by an employee within certain limitations, prescribed by the law. Firstly, 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, it is given for the shortest route between these two places," the judges observed in the order pronounced on November 4.
The bench, therefore, dismissed an appeal filed by the State Bank of India (SBI) against a ruling that the bank failed to deduct the income of its employees at the source.
The appeal was against an order of the Delhi High Court passed on January 13, 2020, which had upheld the findings of the Income Tax Appellate Tribunal (ITAT).
By way of background, several employees of the SBI had travelled to foreign countries and claimed LTC. But the employees, as argued by SBI, did not claim LTC for their foreign trips but only for their travel within India.
For instance, some of the employees travelled from Delhi-Madurai-Columbo-Kuala Lampur-Singapore-Columbo-Delhi, adopting a circuitous route. And their claims were fully reimbursed by SBI. This, the Income Tax department claimed was in violation of the LTC scheme and also the Income Tax Act and Income Tax Rules. Senior Advocate KV Viswanathan, representing the SBI, argued that no payment was made for foreign travel though a foreign leg was a part of the itinerary undertaken by these employees.
However, the IT department held SBI to be an 'assessee in default' for failing to deduct tax from these employees, who claimed LTC in violation of the law.
The Supreme Court upheld the finding of the Delhi High Court, which had held that the amount received by the employees of SBI towards their LTC claims is not liable for the exemption as these employees had visited foreign countries which is not permissible under the law.
"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 bench observed.
The contention of SBI that there is no specific bar on foreign travel and, therefore, a foreign journey can be availed as long as the starting and destination points remain within India, was also without merits, the Court said.
"LTC is for travel within India, from one place in India to another place in India. There should be no ambiguity on this," the bench underscored.
It further held that 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 Commission rejected the demand of paying cash compensation in lieu of LTC and also rejected the demand of foreign travel," reads the order authored by Justice Dhulia. With these observations, the bench dismissed the appeal.
