The Supreme Court ruled that the fundamental purpose of the Leave Travel Concession (LTC) scheme was to acquaint government officials and employees with Indian culture by facilitating their travel across the country, not to perform trips abroad or long circuitous journeys.
The Bench of Chief Justice UU Lalit, Justice S. Ravindra Bhat and Justice Sudhanshu Dhulia passed the order on November 4, while rejecting a motion filed by the State Bank of India (SBI) against the court order. Delhi High Court of January 13, 2020.
The High Court had upheld the findings of the Income Tax Appeals Tribunal (ITAT), noting that the amount received by SBI employees for their LTC claims was not tax exempt as those employees had visited foreign countries, which was not allowed under the law.
The Apex Court also upheld the High Court’s order and said that under the LTC scheme, payment made to an employee was exempt as “income” and therefore could not be subject to any tax, however, the same should be claimed within the law.
However, he noted that LTC must be used by an employee within certain limits of the law.
Under the LTC program, an employee was allowed to be reimbursed for travel from one designated location to another within the country, using the shortest route possible. LTC could not be used for overseas travel or long circuitous trips, he added.
According to the case, several SBI employees had traveled to foreign countries and requested long-term care.
The income tax department had argued that some of the SBI employees traveled from Delhi-Madurai-Columbo-Kuala Lampur-Singapore-Columbo-Delhi, taking a circuitous route.
Their claims were fully reimbursed by the bank, which violated the LTC plan, the Income Tax Act and the Income Tax Rules.
Appearing for the SBI, lead solicitor KV Viswanathan argued that no payment had been made for overseas trips, despite an overseas stopover being part of the itinerary undertaken by these employees . He added that employees were not only claiming LTC for their trips abroad, but also for their trips within the country.
However, the IT department deemed SBI a “defaulted insured” for failing to deduct tax from these employees, who claimed LTC in violation of the law.
The Apex Court then handed down the verdict, upholding the order of the Delhi High Court and noting that the amount received by SBI employees for their SLD claims was not eligible for exemption as these employees had visited foreign countries. , which was not permitted by law.
(Case Title: State Bank of India v Deputy Commissioner of Income Tax)