The Income Tax Appellate Tribunal (ITAT), Mumbai Bench quashed the demand against State Bank of India (SBI) for non-deduction of TDS in respect of Leave Fare Concession (LFC) provided to employees.
The assessee, SBI is a public sector bank, the branch office was subjected to survey proceedings under section 133A. During the course of this survey, it was found that certain employees have claimed LFC facility, wherein “travel to places outside India was involved”. It was noted that some of the employees, in these LFC claims, have taken a very circuitous route, involving travel abroad to one or more domestic destinations.
It was in this backdrop that the matter was examined further by the Assessing Officer. He noted that the admissible leave travel concession in these cases was treated as tax-exempt under section 10(5), and estimated tax liability was computed without taking into account the admissible leave concession facility in such cases.
The Assessing Officer was, however, of the view that exemption under section 10(5) was not available in such cases as if the employee travels out of India, the LFC amount cannot be claimed as exempt under section 10(5), and, to that extent, the assessee was in error in not deducting tax at source in respect of such payment of the LFC facility. The Assessing Officer also noted that “the employees travelled to the Indian destinations not by direct and shortest route but by circuitous route including foreign journey.
The Assessing Officer held that the LFC payment should have been included in the income of the employee concerned while deducting tax at source from the salaries, and the Assessing Officer also held that the assessee is required to be treated as an assessee in default for not deducting the related tax at source. Aggrieved, the assessee carried the matter in appeal before the CIT(A) which was rejected.
The issue raised before the ITAT was whether the CIT(A) erred in not appreciating that the appellant was of the bona fide belief that it was not liable to deduct tax at source in respect of LFC provide to employees, and accordingly the appellant cannot be held to be an assessee in default within the meaning of section 201 and 201(1A).
The Coram headed by the Vice President, Pramod Kumar in the light of this analysis of the legal position and the factual backdrop, whatever may be the position with respect of taxability of such a leave travel concession in the hands of the employee, held that the assessee employer cannot be faulted for not deducting tax at source from the leave travel concession facility allowed by him to the employees.
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