This document provides a comprehensive analysis of the Income Tax Appellate Tribunal decision in ITA No. 1297/DEL/2020, involving State Bank of India’s Meerut Cantt Branch and the ACIT TDS, Noida. This case addresses the tax implications under the Leave Fare Concession (LFC) scheme provided by SBI to its employees.
The case arose from the Income Tax Department’s claims that the LFC payments involving foreign travel should not be exempt under Section 10(5) of the Income Tax Act, as they do not strictly pertain to domestic travel. This led to disputes over the tax deductions at source (TDS) on these payments.
The tax authorities argued that since the LFC involves international travel, it does not qualify for exemption under the current interpretations of Section 10(5), which specifically exempts reimbursements for domestic travel only. The Assessing Officer (AO) thus deemed these payments taxable and subject to TDS.
SBI contended that the reimbursement for travel within India, even if part of a circuitous route including international travel, should be exempt. They argued that the interpretation by the tax authorities was overly restrictive and not in line with the intended benefits of the LFC scheme.
The Tribunal, after reviewing the submissions and the legislative intent of the LFC exemption, sided with SBI. It highlighted that the purpose of the LFC is to provide relief for travel related to leaves and should not be narrowly interpreted to exclude circuitous routes involving international segments.
This decision is significant as it clarifies the scope of LFC exemptions under the Income Tax Act. It suggests that exemptions should consider the essence of the benefit, which is to facilitate employees’ leave travel, regardless of the route taken.
The Tribunal’s decision in ITA No. 1297/DEL/2020 marks a critical development in the understanding and application of LFC benefits under tax law, providing essential guidance for both employers and employees regarding the structuring of leave and travel benefits.
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