Whether exemption available to reimbursement under LTC cannot be extended to overseas travel – YES: HC

THE issue is – Whether exemption available to reimbursement under LTC cannot be extended to overseas travel. YES is the verdict.
Facts of the case
The assessee is a Bank. The Revenue received an information, to the effect that some of the branches of the assessee had not deducted TDS on the amount of reimbursement of Leave Travel Concession (LTC)/Leave Fare Concession (LFC) given to the employees even in the cases where a foreign destination was included in the itinerary of their journey. The AO issued notice u/s 201(1) 201(1A) of the Act to the assessee. The assessee filed no reply and AO treated the assessee to be in default in respect of payments mentioned in the assessment orders and was directed to pay the same. Interest was also charged.
Aggrieved, the assessee preferred appeal before the CIT(A), who confirmed the assessment order. He, however, accepted the contention of the assessee for calculation of tax at higher rate. He accordingly directed the Assessing Officer to recalculate the liability for TDS @ 10%. Assessee filed appeal before Tribunal.
After hearing parties, Tribunal held that,
++ we are of the view that this provision was introduced in order to motivate the employees and also to encourage tourism in India and, therefore, the reimbursement of LTC/LFC was exempted, but there was no intention of the Legislature to allow the employees to travel abroad under the garb of benefit of LTC available by virtue of section 10(5) of the Act. Undisputedly, in the instant case the employees of the assessee have travelled outside India in different foreign countries and raised claim of their expenditure incurred therein. No doubt, the assessee may not be aware with the ultimate plan of travel of its employees, but at the time of settlement of the LTC/LFC bills, complete facts are available before the assessee as to where the employees have travelled, for which he has raised the claim; meaning thereby the assessee was aware of the fact that its employees have travelled in foreign countries, for which he is not entitled for exemption under section 10(5) of the Act. Thus, the payment made to its employees is chargeable to tax and in that situation, the assessee is under obligation to deduct TDS on such payment, but the assessee did not do so for the reasons best known to it