Supreme Court rules government employees not entitled to LTC for foreign travel

Supreme Court rules government employees not entitled to LTC for foreign travel

Reasons the purpose of the scheme was for people to gain perspective of the Indian culture by traveling within the country

The Supreme Court has recently held that government employees cannot claim the Leave Travel Concession (LTC) for foreign trips or for a long circuitous route.

A bench comprising Former Chief Justice UU Lalit, Justice S Ravindra Bhat, and Justice Sudhanshu Dhulia stated that LTC was a payment exempted as 'income', hence, it could not be brought under any tax. However, it should be claimed within certain limitations prescribed by the law.

In the State Bank of India vs Assistant Commissioner of Income Tax case, the judges held that the travel must be done from one designated place to another within India. This meant the LTC was not for foreign travel. It was given to a government employee for the shortest route between two places.

The bench, thus, dismissed an appeal filed by the State Bank of India (SBI) against the January 2020 Delhi High Court order. The court had upheld the findings of the Income Tax Appellate Tribunal (ITAT) that the bank failed to deduct the income of its employees at the source.

Several employees of SBI had travelled to foreign countries and claimed LTC. But the bank said they claimed the LTC for travel within India and not abroad. The fact was that they travelled from Delhi-Madurai-Columbo-Kuala Lampur-Singapore-Columbo-Delhi, adopting a circuitous route. And SBI fully reimbursed their claims. Still, it maintained no payment was made for foreign travel, though a foreign leg was a part of the itinerary undertaken by the employees.

The IT department argued that SBI was an 'assessee in default' for failing to deduct the tax from the employees claiming LTC in violation of the law. It reiterated this defied the LTC scheme, the Income Tax Act, and the Income Tax Rules.

The apex court upheld the finding of the high court that the amount received by the employees of SBI towards the LTC claim was not liable for exemption as they visited foreign countries, which was not permissible.

The bench observed, "It is difficult to appreciate how the appellant, an assessee-employer, failed to consider this aspect. This was the elephant in the room."

The bench underscored, "LTC is for travel within India. There should be no ambiguity on this."

The court reasoned that the contention of SBI that there was no specific bar on foreign travel and a foreign journey could be availed if the starting and destination points remained within India, was without merit.

The bench further held that foreign travel negated the essential purpose of LTC.

It ruled, "The basic objective of the LTC scheme was to familiarize a civil servant or a government employee to gain some perspective of the Indian culture by traveling in this vast country. It is for this reason that the 6th Pay Commission rejected the demand of paying cash compensation in lieu of LTC. It also rejected the demand for foreign travel."