Addl. Commissioner Of Income Tax v. Bharat V. Patel

[2018] 7 S.C.R. 1067 ADDL. COMMISSIONER OF INCOME TAX BHARAT V. PATEL (Civil Appeal No. 4380 of 2018) APRIL 24, 2018 [R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.] Income Tax Act, 1961 – s.17(2) – ‘Perquisite’ – Amendmentthereto, if retrospective – Respondent, Chairman and MD of Procterand Gamble (P&G), India (subsidiary of (P&G) USA) was issuedStock Appreciation Rights (SARs) by (P&G) USA and received anamount of Rs.6,80,40,724/- on its redemption – Issue as to thetaxability of the amount so received by the Respondent on redemptionof SARs – Held: “Perquisite” is usually a non-cash benefit given byan employer to an employee in addition to entitled salary orremuneration – In order to bring the perquisite transferred by theemployer to the employees within the ambit of tax, legislature broughtan amendment u/s.17 by inserting Clause (iiia) in s.17(2) of the ITAct through the Finance Act, 1999 with effect from 01.04.2000 whichwas later omitted by the Finance Act, 2000 – Since, the transactionin the instant case pertains prior to 01.04.2000, hence, it cannot becovered under the said clause in the absence of an express provisionof retrospective effect – Finance Act, 1999 – Finance Act, 2000 –Interpretation of Statutes. Interpretation of Statutes – Taxing Statutes – Held: Taxingprovisions to be construed strictly so that no person who is otherwisenot liable to pay tax, be made liable to pay tax. Income Tax Act, 1961– s.28(iv) – When not applicable –Respondent, employee of (P&G), India, (subsidiary of (P&G) USA)was issued Stock Appreciation Rights (SARs.) and received anamount of Rs.6,80,40,724/- from (P&G),USA on its redemption –Alternate plea of Revenue that the case of the respondent camewithin the ambit of s.28(iv) – Held: Applicability of s.28(iv) isconfined only to the case where there is any business or professionrelated transaction involved – However, in the instant case there isnothing as such and thus cannot be covered u/s.28(iv) for thepurpose of tax liability. 1067 1067 [2018] 7 S.C.R. ADismissing the appeals, the Court HELD: 1.1 The word “Perquisite” in common parlance maybe defined as any perk or benefit attached to an employee orposition besides salary or remuneration. These are usually non-cash benefits given by an employer to an employee in addition toBentitled salary or remuneration. It may be said that these benefitsare generally provided by the employers in order to retain thetalented employees in the organization. There are variousinstances of perquisite such as concessional rent accommodationprovided by the employer, any sum paid by an employer in respectof an obligation which was actually payable by the employee etc.CSection 17(2) of the Income Tax Act, 1961 was enacted by thelegislature to give the broad view of term perquisite. On the otherhand, the word ‘Capital Gains’ means a profit from the sale ofproperty or an investment. It may be short term or long termdepending upon the facts and circumstances of each case. ThisDgain or profit is charged to tax in the year in which transfer of thecapital assets takes place. [Para 9] [1072-G, H; 1073-A-B] 1.2 In order to bring the perquisite transferred by theemployer to the employees within the ambit of tax, legislaturebrought an amendment under Section 17 of the IT Act by insertingEClause (iiia) in Section 17(2) of the IT Act through the FinanceAct, 1999 (27 of 1999) with effect from 01.04.2000, which waslater on omitted by the Finance Act, 2000. The intention behindthe said amendment brought by the legislature was to bring thebenefits transferred by the employer to the employees as in theinstant case, within the ambit of the Income Tax Act, 1961. It wasFthe first time when the legislature specified the meaning of thecost for acquiring specific securities. Only by this amendment,legislature determined what would constitute the specificsecurities. By this amendment, legislature clearly covered thedirect or indirect transfer of specified securities from the employerGto the employees during or after the employment. On a perusalof the said clause, it is evident that the case of the Respondentfalls under such clause. However, since the transaction in theinstant case pertains to prior to 01.04.2000, hence, suchtransaction cannot be covered under the said clause in the absenceof an express provision of retrospective effect. There is no forceH in the argument of the Revenue that the case of the Respondentwould fall under the ambit of Section 17(2) (iii) of the IT Act insteadof Section 17(2) (iiia) of the IT Act. It is a fundamental principleof law that a receipt under the IT Act must be made taxable beforeit can be treated as income. Courts cannot construe the law insuch a way that brings an individual within the ambit of IncomeTax Act to pay tax who otherwise is not liable to pay. In theabsence of any such specific provision, if an individual is subjectedto pay tax, it would amount to the violation of his ConstitutionalRight. [Paras 12, 13] [1074-B; 1075-A-D] 1.3 On a first look of the Section 28(iv) of the IT Act, it isapparent that such benefit or perquisite shall have arisen fromthe business activities or profession whereas in the instant casethere is nothing as such. The applicability of Section 28(iv) isconfined only to the case where there is any business or professionrelated transaction involved. Hence, the instant case cannot becovered under Section 28(iv) of the IT Act for the purpose of taxliability. [Para 17] [1078-B] 1.4 The Respondent got the Stock Appreciation Rights(SARs) and, eventually received an amount on account of itsredemption prior to 01.04.2000 on which the amendment ofFinance Act, 1999 (27 of 1999) came into force. In the absence ofany express statutory provision regarding the applicability of suchamendment from retrospective effect, there is no force in theargument of the Revenue that such amendment came into forceretrospectively. It is well established rule of interpretation thattaxing provisions shall be construed strictly so that no personwho is otherwise not liable to pay tax, be made liable to pay tax.[Para 18] [1078-C-D] Commissioner of Income Tax v. Infosys TechnologiesLtd. [2008] 297 ITR 167 (SC) – relied on. Sumit Bhattacharya v. ACIT Circle 16(1) Mumbai[2008] 112 ITD 1 (MUM.) (SB) – referred to. Case Law Reference[2008] 112 ITD 1 (MUM.) referred to Para 7[2008] 297 ITR 167 (SC) relied on Para 8 ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 4380of 2018. From the Judgment and Order dated 23.12.2014 of the High Courtof Gujarat at Ahmedabad in Tax Appeal No. 6 of 2004 WITH Civil Appeal No. 4381 of 2018. Arijit Prasad, Subhash Acharya, Mrs. Anil Katiyar, Advs. for theAppellant. Ajay Vohra, Sr. Adv., Ms. Ruby Singh Ahuja, Ms. Deepti Sarin,CShubham Saigal, Ms. Manik Karanjawala, Ms. Aakanksha Munjhal (forM/s. Karanjawala & Co.), Advs. for the Respondent. The Judgment of the Court was delivered by R. K. AGRAWAL, J 1. Leave granted. 2. These appeals have been preferred against the impugnedjudgment and order dated 23.12.2014 passed by the High Court of Gujaratat Ahmedabad in Tax Appeal Nos. 6 and 14 of 2004 whereby the DivisionBench of the High Court dismissed the appeals filed by the Revenuewhile upholding the decision of the Income Tax Appellant Tribunal (forbrevity ‘the Tribunal’) dated 27.06.2003. 3. Brief facts:- (a) On 10.09.1998, the Respondent, who is the Chairman andManaging Director of Procter and Gamble (P&G), India, filed his incometax return for the Assessment Year 1998-99 and declaring the total incomeFat Rs 40,13,820/-. (b) The Assessing Officer, vide order dated 12.02.2001, concludedthe assessment proceeding under Section 143(3) of the Income TaxAct, 1961 (in short ‘the IT Act’) and determined the total income of theRespondent at Rs 7,23,11,013/- against the declared income. (c) Being aggrieved, the Respondent preferred an appeal beforethe Commissioner of Income Tax (Appeals) being No. CAB/I-643/2000-2001. After considering the case, learned CIT (Appeals), vide orderdated 28.03.2002, dismissed the appeal of the Respondent aftercomprehensively discussing the taxability of the alleged amount andupholding the Assessment Order passed by the Assessing Officer. (d) Being dissatisfied, the Respondent carried the matter beforethe Tribunal. The Tribunal, vide order dated 27.06.2003, in ITA No. 2241/Ahd/2002 partly allowed the appeal filed by the Respondent. (e) At this juncture, the Respondent as well as the Revenue bothpreferred cross appeals before the High Court of Gujarat at Ahmedabad. (f) At the same time, consequent to the decision of the Tribunaldated 27.06.2003, the Assessing Officer started the proceeding side byside to give effect to the order dated 27.06.2003. Vide order dated15.09.2003, the Assessing Officer held that the difference being sum ofRs 6,80,40,649/- paid to the Respondent by P&G, USA shall be treatedas capital gains on transfer/redemption of shares, and hence, theRespondent is liable to pay tax on capital gains. Being aggrieved withthe order dated 15.09.2003, the Respondent filed an appeal before theCIT (Appeals) being No. CAB/V-37/04-05 which was upheld by learnedCIT (Appeals) in favour of Assessing Officer while dismissing the appealof the Respondent. (g) Being dissatisfied, the Respondent further preferred an appealbefore the Tribunal. The Tribunal, vide order dated 24.09.2010, dismissedthe appeal. The decision of the Tribunal dated 24.09.2010 was notchallenged further. (h) The Division Bench of the High Court, vide judgment andorder dated 23.12.2004, allowed the appeal filed by the Respondent whiledismissing the appeal of the Revenue. (i) Hence, the present appeals have been filed by the Revenuebefore this Court. 4. We have given our thoughtful consideration to the submissionsof leaned senior counsel for the parties and perused the factual matrixof the case. Point(s) for consideration:- 5. Whether in the present facts and circumstances of the case,any interference by this Court is required with the impugned decision ofthe High Court? Rival contentions:- 6. At the outset, learned counsel for the Revenue contended thatthe High Court erred in law while upholding that the amount received on Aredemption of Stock Appreciation Rights (SARs) is to be treated ascapital gains and not perquisite under section 17(2)(iii) of the IT Act.However, the same is not taxable under the category of capital gainssince no consideration had passed from the Respondent. 7. In support of his argument, learned counsel placed reliance onBSumit Bhattacharya vs. ACIT Circle 16(1), Mumbai - [2008] 112ITD 1 (MUM.) (SB) and contended that the Respondent, having receivedan amount on redemption of Stock Appreciation Rights (SARs) as anemployee of the company and there was an employer-employeerelationship subsisting at the relevant point of time, therefore, the amountreceived on redemption of Share Appreciation Rights must be treated asCtaxable income under the head income from “Salaries”. Learned counselfinally contended that the impugned decision of the High Court deservesto be set aside. 8. Per contra, learned senior counsel appearing for the Respondentsubmitted that the amount received by the Respondent from redemptionDof Stock Appreciation Rights (SARs) can be treated only as capital gainsand cannot be treated as perquisite under Section 17(2) (iii) of the ITAct or under Section 28 (iv) of the IT Act. However, it was pointed outthat the said capital gains cannot be said to arose to the Respondentsince there was no consideration paid as the cost of acquisition by theERespondent. It was also submitted that such amount received on accountof redemption of Stock Appreciation Rights could have been taxed if atall under the provisions of Clause (iiia) of Section 17(2) of the IT Act.Finally, it was also submitted that the question of law sought to be raisedby the Revenue is no more res integra as settled by this Court in thecase of Commissioner of Income Tax vs. Infosys Technologies Ltd.,F[2008] 297 ITR 167 (SC). Hence, these appeals deserve to be dismissedat the threshold. Discussion:- 9. Before examining the case at hand, it is pertinent to have anGunderstanding of the words “Perquisite” and “Capital Gains”. The word“Perquisite” in common parlance may be defined as any perk or benefitattached to an employee or position besides salary or remuneration.Broadly speaking, these are usually non-cash benefits given by anemployer to an employee in addition to entitled salary or remuneration. It may be said that these benefits are generally provided by the employersin order to retain the talented employees in the organization. There arevarious instances of perquisite such as concessional rent accommodationprovided by the employer, any sum paid by an employer in respect of anobligation which was actually payable by the employee etc. Section 17(2)of the IT Act was enacted by the legislature to give the broad view ofterm perquisite. On the other hand, the word ‘Capital Gains’ means aprofit from the sale of property or an investment. It may be short term orlong term depending upon the facts and circumstances of each case.This gain or profit is charged to tax in the year in which transfer of thecapital assets takes place. In the instant case, the fundamental questionwhich arises for consideration before this Court is with regard to thetaxability of the amount received by the Respondent on redemption ofStock Appreciation Rights (SARs.) 10. It is a matter of record that the Respondent was employed asthe Chairman-cum-Managing Director of the (P&G) India Ltd. at therelevant time and the said company is the subsidiary of (P&G) USAthrough Richardson Vicks Inc. USA and that (P&G) USA ownedcontrolling equity. It is an undisputed fact that the Respondent was workingas a salaried employee. The (P&G) USA was the company who hadissued the Stock Appreciation Rights (SARs.) to the Respondent withoutany consideration from 1991 to 1996. The said SARs were redeemedon 15.10.1997 and in lieu of that the Respondent received an amount ofRs 6,80,40,724/- from (P&G) USA. However, when the Respondentfiled his return, he claimed this amount as an exemption from the ambitof Income Tax. The issue involved in this appeal is in respect ofRs. 6,80,40,724/- made on account of amount received on redemption ofStock Appreciation Rights. 11. The Tribunal was of the view that the stock options are