The Supreme Court has ruled that the basic objective of the leave travel concession (LTC) scheme was to acquaint civil servants and government employees with the Indian culture by facilitating their travel across the country, not to conduct foreign trips or long circuitous trips.
The Bench of Chief Justice U.U. Lalit, Justice S. Ravindra Bhat and Justice Sudhanshu Dhulia passed the order on November 4, while rejecting a petition filed by the State Bank of India (SBI) against the Delhi High Court order of January 13, 2020.
The High Court had upheld the findings of the Income Tax Appellate Tribunal (ITAT), noting that the amount received by the employees of SBI towards their LTC claims was not liable for exemption as these employees had visited foreign countries, which was not permissible under the law.
The Apex Court also upheld the High Court order and said that under the LTC scheme, payment made to an employee was exempted as ‘income’ and hence, it could not be brought under any tax, however, the same should be claimed within the framework of law.
However, it noted that LTC was to be availed by an employee within certain limitations of law.
Under the LTC scheme, an employee was allowed to avail reimbursement for travel from one designated place to another within the country, taking the shortest route possible. LTC could not be availed for either foreign travel or long circuitous trips, it added.
As per the case, several employees of SBI had travelled to foreign countries and claimed LTC.
The Income Tax department had contended that some of the SBI employees travelled from Delhi-Madurai-Columbo-Kuala Lampur-Singapore-Columbo-Delhi, adopting a circuitous route.
Their claims were fully reimbursed by the bank, which was in violation of the LTC scheme, the Income Tax Act and the Income Tax Rules.
Appearing for SBI, Senior Advocate K.V. Viswanathan argued that no payment was made for foreign travel, though a foreign leg was part of the itinerary undertaken by these employees. He added that the employees did not claim LTC for their foreign trips only, but also for their travel within the country.
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 Apex Court then delivered the verdict, upholding the Delhi High Court order and noting that the amount received by the employees of SBI towards their LTC claims was not liable for exemption as these employees had visited foreign countries, which was not permissible under the law.
(Case title: State Bank of India vs Assistant Commissioner of Income Tax)