Dr.s.muthian v. Assistant Commissioner Of Income Taxsalary Circle - V, Income Tax Department,Aayakar Bhavan, Mahatma Gandhi Road,Nungambakkam, Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRASCORAM: THE HONOURABLE MR.JUSTICE M.DURAISWAMYAND THE HONOURABLE MRS.JUSTICE T.V.THAMILSELVI Tax Case (Appeal) No.379 of 2017 Judgment reserved onJudgment pronounced on 27.01.202105.02.2021 Dr.S.Muthian .. Appellant Vs. Assistant Commissioner of Income TaxSalary Circle - V, Income Tax Department,Aayakar Bhavan, Mahatma Gandhi Road,Nungambakkam, Chennai - 600 034. .. Respondent PRAYER : Tax Case Appeal filed under Section 260 A of theIncome Tax Act, 1961, against the order of the Income-taxAppellate Tribunal, Chennai Bench "D", dated 16.12.2016 inI.T.A.No.1521/MDs/2015 for assessment year 2010-2011, Appealagainst the order dated 15/04/2015 made in ITA.No.334/13-14 onthe file of the Commissioner of Income Tax (Appeals) -5, Chennaiand Appeal against the order dated 15/03/2012 made inPAN.No.CBSPS6453G on the file of the DCIT/ACIT Salary Circle V,Chennai for the assessment year 2010-11. For Appellant :M/s.M.SivathanuFor Respondent :Mr.T.RavikumarSenior Standing counsel for the Revenue J U D G M E N T This appeal, filed by the appellant/assessee under Section260A of the Income Tax Act, 1961 (''the Act'' for brevity), isdirected against the order passed by the Income Tax AppellateTribunal Chennai, "D" Bench ("the Tribunal" for brevity), dated16.12.2016 in I.T.A.No.1521/MDs/2015 for assessment year2010-2011. 2. Facts of the case are as follows: The assessee was employed in Google India Private Limited. https://hcservices.ecourts.gov.in/hcservices/ The assessee's gross taxable income for the assessment year2010-11 was Rs.76,70,698/- comprising of Rs.76,17,979/- underthe head salary and Rs.52,323/- under perks and other amenities,and other income of Rs.396/- (resulting in a Returned Income ofRs.75,70,698/-) as stated in the assessee's Income Tax Return.In addition, because of the NOR (Not Ordinarily Resident)status of the assessee, for the said Assessment Year (as definedin Section 6(6) (a) of Income Tax Act), there was also anexempt income of Rs.1,19,49,709/- being the income arisingoutside India as stated in Section 5(1) (c) of Income Tax Act,viz., USA income on sale of stock options. The issue involvedin the appeal is how the aforesaid amount of Rs.1,19,49,709/-(viz., the exempt income) has to be treated. There is an errorin Form-16 issued by the assessee's then employer Google IndiaPrivate limited, as it erroneously included the exempt income ofRs.1,19,49,709/- as part of the taxable income. The said errorin Form-16 issued by the then employer must be because of thefact that the employer could not go into the exact residentialstatus of its employee, which involves complicated questions oflaw viz., interpretation of Section 6(6) (a) and 5(1) (c) ofIncome Tax Act and hence, as a measure of abundant caution,erroneously deducted income tax for the said exempt income ofRs.1,19,49,709/-. Thus, an excess income tax of Rs.36,92,460/-was erroneously deducted by Google India Private Limited andpaid to the Indian Government. Hence, the assessee is entitledfor refund of the said excess tax erroneously paid on behalf ofthe assessee. 3. Accordingly, in the assessee's income tax return forthe assessment year 2010-11, the assessee reported the aforesaidincome of Rs.1,19,49,709/- under Exempt income because of hisUSA income and NOR status as per Section 5(1)(c) and Section 6(6)(a) of Income Tax Act and claimed a refund ofRs.36,92,337/-. Along with the assessee's income tax returnfiled on 31.07.2010, the assessee enclosed a letter stating therationale for the said refund claim, and subsequently, on05.05.2011, after not hearing back from the Assessing Officer,the assessee suo motu sent detailed documents more clearlyexplaining the rationale behind the refund claim and proving hiseligibility for the refund of income tax. 3. Accordingly, in the assessee's income tax return forthe assessment year 2010-11, the assessee reported the aforesaidincome of Rs.1,19,49,709/- under Exempt income because of hisUSA income and NOR status as per Section 5(1)(c) and Section 6(6)(a) of Income Tax Act and claimed a refund ofRs.36,92,337/-. Along with the assessee's income tax returnfiled on 31.07.2010, the assessee enclosed a letter stating therationale for the said refund claim, and subsequently, on05.05.2011, after not hearing back from the Assessing Officer,the assessee suo motu sent detailed documents more clearlyexplaining the rationale behind the refund claim and proving hiseligibility for the refund of income tax. 4. It was contended that the return of income for theassessment year 2010-11 filed by the assessee on 30.07.2011declaring a taxable income of Rs.75,70,698/- was processed underSection 143(1) of Income Tax Act, 1961, on 15.03.2012determining the total income at Rs.1,95,20,410/- byignoring/disallowing the exempt income of Rs.1,19,49,709/-claimed by the assessee viz., income arising outside India for aNOR (Not Ordinarily Resident) assessee as per Section 5(1)(c)and Section 6(6)(a) of Income Tax. 5. Aggrieved by the order of Assessing Officer, on08.07.2012, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [CIT(A)]-5, Chennai, inI.T.A.No.941/13-14 raising two vital grounds viz., (a) incomearising outside India as per Section 5(1)(c) of Income Tax Actand (b) NOR status under Section 6(6)(a) of Income Tax Act.The Commissioner of Income Tax (Appeals), vide order dated15.04.2015, dismissed the appeal without answering the twovital grounds under Section 5(1)(c) and 6(6)(a) of Income TaxAct. Aggrieved over the order of the Commissioner of Income Tax(Appeals), the assessee preferred an appeal before the IncomeTax Appellate Tribunal "D" Bench, Chennai and Tribunal by orderdated 16.12.2016, dismissed the appeal and confirmed the orderof CIT(A). Challenging the order passed by the Income TaxAppellate Tribunal, the assessee has filed the above appeal. 6. Heard Mr.M.Sivathanu, learned counsel for theappellant and Mr.T.Ravikumar, learned Senior Standing counselfor the Revenue. 7. The above Tax Case Appeal was admitted on the followingsubstantial Questions of law:(i) Whether the gain on sale of stock optionsin USA that were given to the Indian employee byM/s.Google Inc., USA amounts to perquisites taxableunder the Income Tax Act, 1961 or not?;(ii) Whether the amounts shown in Form-16 as TaxDeducted at Source on such perquisites would be theexclusive gain made by the Assessee on such stockoptions issued by the Holding Company in USA issufficient to hold that it is taxable under the head'salary' as 'perquisites' with reference to theprovisions under Section 5(1) (c) and 6(6) (a) readwith Section 17?; (iii) Whether such tax can be imposed by theRevenue under Section 143(1) of the Act after issuanceof Notice under Section 143(2) of the Act?. 8. The learned counsel appearing for the appellant-assessee submitted that the Appellate Tribunal failed toappreciate the documents submitted by the assessee, in order toprove the tax exemption on income derived from selling stockoptions. Further the learned counsel made reliance on thedocument in page No.19 of the typed set of papers. 9. On a perusal of the documents, it is seen that it is aworksheet submitted by the assessee along with Form-16. In thatworksheet, the assessee claimed that he comes under the NOR (NotOrdinarily Resident) category for the assessment year 2010-11.He also furnished particulars of the days, in which he stayed inIndia from 1.04.2002 to 31.03.2009. Even as per the saiddocument, the assessee had stayed in India only for 401 days,which is well under the 732 days required for classification asa regular resident. 9. On a perusal of the documents, it is seen that it is aworksheet submitted by the assessee along with Form-16. In thatworksheet, the assessee claimed that he comes under the NOR (NotOrdinarily Resident) category for the assessment year 2010-11.He also furnished particulars of the days, in which he stayed inIndia from 1.04.2002 to 31.03.2009. Even as per the saiddocument, the assessee had stayed in India only for 401 days,which is well under the 732 days required for classification asa regular resident. 10. It is also an admitted fact that he was given 5500stock options, when he joined Google Inc, California, USA, inJune 2005. Thereafter, in the year 2008, he left the USA andrelocated in India and he further joined Google India PrivateLimited, an Indian company fully owned by the parent companyGoogle Inc. USA. 11. During the assessment year 2010-11, he sold 900stock options and still he owns 2100 stock options. Hence, theentire 900 options sold in the assessment year 2010-11, clearlycame out of the lot of 4583 options that had already vestedbefore his move to India and all the transactions were initiatedand executed through Smith Barney Inc., based in the USA and theproceeds were wired directly to his old account in the USA bank.Thus, the amount of Rs.1,19,49,709/- under "stock options"mentioned in Form-16 pertains to sale of stock options thatwere granted in the USA while he was working in Google Inc., USAand vested while he was living in the USA. The same were soldthrough a US-based company and the cash proceedings weredirectly sent to his old account in the USA bank. 12. Based upon these facts, the counsel for the appellantsubmitted that as per Section 5(1) of the Income Tax Act, theassessee comes under the category of NOR assessee and is liableto pay tax only on income earned in India. Specifically,Section 5(1) excludes "income which accrues or arises outsideIndia" in the case of Not Ordinarily Resident assessee. 13. From the reading of the above, it is clear that theassessee has to be a "non-resident". The word "non-resident"is defined in Section 115C(e) of the Act. It means anindividual, being a citizen of India or a person of IndianOrigin who is not a "resident". As per the worksheet submittedby the assessee, he was residing in India from 01.04.2002 to31.03.2009 (i.e) 7 years. But preceding to the assessment year2010-11, he had stayed in India only for 401 days. Thus, thelearned counsel for the appellant argued that while purchasingthe stock option in the year 2005, the assessee was a residentof the USA and out of the income realized in the USA, he purchased those stock options and hence, it will not come underthe income earned in India. 14. The Learned Senior Standing counsel for the Revenuesubmitted that while calculating the total income of theassessee for the assessment year 2010-11, his employer GoogleIndia Private Limited mentioned that the amount ofRs.11,949,709/- comes under the head of stock options shownunder part of "perks", thereby, he is liable to pay the part ofperks which amounts to income earned by the assessee. Butaccording to the assessee, he acquired asset viz., 'stock' fromemployer's stock option scheme, when he was serving abroad inparent-company prior to the assessment year 2010-11, when he wasnon-resident. Without considering this fact his employererroneously treated the sale proceeds of stock options as'perquisites' and included that as income in Form-16. 14. The Learned Senior Standing counsel for the Revenuesubmitted that while calculating the total income of theassessee for the assessment year 2010-11, his employer GoogleIndia Private Limited mentioned that the amount ofRs.11,949,709/- comes under the head of stock options shownunder part of "perks", thereby, he is liable to pay the part ofperks which amounts to income earned by the assessee. Butaccording to the assessee, he acquired asset viz., 'stock' fromemployer's stock option scheme, when he was serving abroad inparent-company prior to the assessment year 2010-11, when he wasnon-resident. Without considering this fact his employererroneously treated the sale proceeds of stock options as'perquisites' and included that as income in Form-16. 15. The learned counsel for the appellant submitted thatimmediately the assessee sent a letter dated 05.05.2011 to theDepartment, claiming for refund of Rs.36,92,337/- which waserroneously deducted by his employer. The said letter hasalso been enclosed in the typed set of papers at page No.13.The department also sought particulars from the assessee abouthis NOR status, but instead of appearing before theCommissioner in person, the assessee gave a reply along withparticulars of his stay in India from the year 2003 to 2009.The said letter also forms part of the documents and is found atpage No.19 of the typed set of papers. However, the departmentwas not satisfied with the reply submitted by the assessee. 16. After various communication between the assessee andthe department, though the Commissioner concluded that theexemption claimed by the assessee which was in the form of saleof stock options in the USA, however, Form-16 annexed to thereturn of income issued by the present employee of the assesseeshows that stock option received by the assessee was liable fortax and it was subject to TDS by Google India Private Limited,Bangalore and they have deducted the TDS on the same. Thatbeing so, the Assessing Officer, while processing the returnunder Section 143(1) of the Act included the income from sale ofstock options as income of the assessee. Based upon theavailable record in the form of Form-16, the exemption claimedby the assessee was rejected by the Tribunal. 17. At the time of the arguments, the learned SeniorStanding counsel for the department submitted that inspite ofseveral communications, the assessee has not appeared before theCommissioner with particulars to establish that he comes underthe category of NOR as under Section 5(1)(c). On a readingof the order of the Tribunal reveals that on the basis of the written submission made by the assessee as well as particularsfound in Form-16 issued by his employer, the authoritiesnegatived the claim of the appellant. 18. The learned counsel for the appellant replied thatthe assessee sent particulars of his stay at the USA precedingto the assessment year with a copy of passport to prove hisresidential status, but without appreciating those documents,the Commissioner erroneously concluded that the stock optionpurchased by the assessee comes under the income earned inIndia. 19. However, the learned Senior Standing Counsel forRevenue fairly submitted that the assessee may be given one moreopportunity to establish his claim before the Assessing Officer. written submission made by the assessee as well as particularsfound in Form-16 issued by his employer, the authoritiesnegatived the claim of the appellant. 18. The learned counsel for the appellant replied thatthe assessee sent particulars of his stay at the USA precedingto the assessment year with a copy of passport to prove hisresidential status, but without appreciating those documents,the Commissioner erroneously concluded that the stock optionpurchased by the assessee comes under the income earned inIndia. 19. However, the learned Senior Standing Counsel forRevenue fairly submitted that the assessee may be given one moreopportunity to establish his claim before the Assessing Officer. 20. Since the NOR status and the purchase of stock optionof the assessee is a mixed question of fact and law, as rightlysuggested by the learned Senior Standing Counsel for thedepartment, in the interest of justice, in order to give onemore opportunity to the assessee we are of the considered viewthat the matter can be remitted back to the Assessing Officer.Accordingly, the order passed by the Tribunal is set aside andthe matter is remitted back to the Assessing Officer fordeciding the matter afresh on merits and in accordance with law.The assessee is given liberty to produce all the relevantdocuments before Assessing Officer for establishing his claim. 21. With these observation, the appeal is allowed. Nocost. Sd/-Assistant Registrar (CS.VIII) /True Copy/Sub Assistant Registrar To1.The Income Tax Appellate Tribunal "D" Bench, Chennai. 2.The Commissioner of Income Tax (Appeals)-5, Chennai.3.The Assistant Commissioner of Income Tax, Salary Circle -V, Chennai. +1cc to Mr.T.Ravi Kumar, Advocate SR.NO.6363