Facts of the case:
As per provisions of section 10(5) of the Act, only that reimbursement of travel concession or assistance to an employee is exempted which was incurred for travel of the individual employee or his family members to anyplace in India. Nowhere in this clause, it has been stated that even if the employee travels to foreign countries, the exemption would be limited to the expenditure incurred to the last destination in India. Section 10(5) and the relevant rule is reproduced below:
Section 10(5)- exemption in respect of leave travel concession
- In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included
(5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—
|(a)||from his employer for himself and his family, in connection with his proceeding on leave to any place in India;|
|(b)||from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,|
subject to such conditions as may be prescribed (including conditions as to the number of journeys and the amount which shall be the exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government;
Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel
Conditions for the purpose of section 10(5) as prescribed under rule 2 B of the Income-tax Rules, 1962
2B. (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding—
|(a)||on leave to any place in India;|
|(b)||to any place in India after retirement from service or after the termination of his service,|
shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely:—
|(i)||where the journey is performed on or after the 1st day of October 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination;|
|(ii)||where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first-class rail fare by the shortest route to the place of destination; and|
|(iii)||where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October 1997, between such places, the amount eligible for exemption shall be:—|
|(A)||where a recognized public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and|
|(B)||where no recognized public transport system exists, an amount equivalent to the air-conditioned first-class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.|
Liability to deduct TDS:
There is a subtle line of demarcation between what is taxable in the hands of the assessee and what is the amount of estimated income in respect of which tax is required to be deducted at source by the employer.
Section 192 (1), which imposes tax withholding obligations on the employers in respect of payments for salaries, requires that tax deduction is made by the employer “on the estimated income of the assessee under this head (i.e., income from salaries) for that financial year“. Thus, the tax withholding obligation is clear in respect of “estimated income of the assessee” and not in respect of “taxable income of the assessee”.
There can be situations in which the employer genuinely and reasonably estimates income of the employees under the head salaries, and yet actual taxability of income under the head salaries of the related employees may be higher than the employer’s estimation.
Therefore, while examining the question as to whether the employer has properly discharged his duties under section 192, all that is to be seen is whether the employer has reasonably, or bonafide, estimated the income of the employees and deducted tax in respect of such estimated income.
Under section 192 a duty is cast on an employer to form an opinion about the tax liability of his employee in respect of the salary income. While forming this opinion, the employer is undoubtedly expected to act honestly and fairly. But if it is found that the estimate made by the employer is incorrect, this fact alone, without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly. Unless that inference can be reasonably raised against an employer, no fault can be found with him. It cannot be held that he has not deducted tax on the estimated income of the employee.