Sumit Bhattacharya v. Asst. Commissioner Of Income Tax Circle16(1

R.M. AMBERKAR(Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL NO. 736 OF 2008 Sumit Bhattacharya..Appellant Versus Asst. Commissioner of Income Tax Circle16(1)..Respondent ................... Mr. V.S. Nankani, Sr. Advocate a/w Mr. Balasaheb Yewale andMs. Rupali Vasaikar for the Appellant Mr. V.S. Nankani, Sr. Advocate a/w Mr. Balasaheb Yewale andMs. Rupali Vasaikar for the Appellant Mr. Suresh Kumar for the Respondent Mr. Suresh Kumar for the Respondent ................... CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : FEBRUARY 6, 2020. ORAL ORDER (PER UJJAL BHUYAN, J.): 1.Heard Mr. Nankani, learned senior counsel alongwith Mr. Yewale and Ms. Vasaikar, learned counsel for theappellant and on our request, Mr. Suresh Kumar, learnedstanding counsel, revenue for the respondent. 2.This appeal under Section 260A of the Income Tax Act, 1961 ("the Act" for short) is preferred by the revenueagainst the order dated 3.1.2008 passed by the Income Tax Appellate Tribunal, Mumbai Special Bench 'C', Mumbai("Tribunal" for short) in Income Tax Appeal No. 238/M/2015for the assessment year 1998-99. 3.By order dated 7.10.2008, the appeal was admitted on the following substantial questions of law:- (A) Whether on the facts and in the circumstances of the case andin law, the Tribunal is correct in holding that the SARs andstock options are distinct despite Notification No. 323/2001dated 11.10.2001 and the tax consequences of SARs andstock options are at variance?in law, the Tribunal is correct in holding that the SARs andstock options are distinct despite Notification No. 323/2001dated 11.10.2001 and the tax consequences of SARs andstock options are at variance? (B) Whether on the facts and in the circumstances of the caseand in law, the Tribunal is correct in holding that the impugnedreceipt pertaining to redemption of SARs is assessable underthe head 'salary'?and in law, the Tribunal is correct in holding that the impugnedreceipt pertaining to redemption of SARs is assessable underthe head 'salary'? (C) Whether on the facts and in the circumstances of the case andin law, an amount can be assessed as salary income in thehands of a person when received from a person other than hisemployer?in law, an amount can be assessed as salary income in thehands of a person when received from a person other than hisemployer? (D) Whether on the facts and in the circumstances of the case andin law, the Tribunal misdirected itself in holding that evenassuming that the impugned receipt is not exigible to taxunder the head 'salary' due to the absence of an employer -employee relationship yet the same is liable to be taxed underthe head 'income from other sources' in view of the decision ofin law, the Tribunal misdirected itself in holding that evenassuming that the impugned receipt is not exigible to taxunder the head 'salary' due to the absence of an employer -employee relationship yet the same is liable to be taxed underthe head 'income from other sources' in view of the decision of the Apex Court in EMIL Webber Vs. CIT[1].and contrary toNalinikant Ambalal Mody Vs. CIT[2].? (E) Whether on the facts and in the circumstances of the case andin law, the Tribunal is justified in rejecting the argument of theappellant that if at all, the impugned receipt is correctlyassessible under the head 'capital gains'?in law, the Tribunal is justified in rejecting the argument of theappellant that if at all, the impugned receipt is correctlyassessible under the head 'capital gains'? the Apex Court in EMIL Webber Vs. CIT[1].and contrary toNalinikant Ambalal Mody Vs. CIT[2].? (E) Whether on the facts and in the circumstances of the case andin law, the Tribunal is justified in rejecting the argument of theappellant that if at all, the impugned receipt is correctlyassessible under the head 'capital gains'?in law, the Tribunal is justified in rejecting the argument of theappellant that if at all, the impugned receipt is correctlyassessible under the head 'capital gains'? 4.Though, it appears that the issue raised in thisappeal has been concluded by the Supreme Court in favourof the assessee and against the revenue, by its judgmentand order dated 24.4.2018 passed in Civil Appeal Nos. 4380-4381 of 2018 (Additional Commissioner of Income TaxVs. Bharat V. Patel), to put the controversy in properperspective, it is necessary to have a brief narration of facts. 4.1.For the assessment year 1998-99, the petitioner -an individual assessee having salary and professionalincome, filed return of income disclosing total income of Rs.26,76,900.00. The assessment was reopened on the groundthat assessee had received right of redemption in respect ofstock appreciation rights ("SARs" for short) of M/s. Procter &Gamble (India) Ltd during the relevant previous year.Assessee was an employee of M/s. Procter & Gamble (India) 1200 ITR 483 261 ITR 428 3 of 10 Ltd and by virtue of his employment, he had received theSARs. On redemption, the value of SARs was Rs.4,79,13,852.00 which was construed to be taxable income ofthe assessee by the Assessing OfÏcer and which hadescaped assessment. 5.On notice, petitioner - assessee submitted hisreply contending that the quantum of SARs were in thenature of capital gains and could not be construed asperquisite, not chargeable to tax. Assessing OfÏcer by hisassessment order dated 20.3.2002 passed under Section143(3) read with Section 147 of the Act held that the saidamount was part of the salary income of the petitioner andaccordingly, was added to the income of the petitioner underthe head 'income from salaries'. 6.Aggrieved by the said addition, petitionerpreferred appeal before the Commissioner of Income Tax(Appeals)-XVII, Mumbai (referred to hereinafter "the firstappellate authority"). By the appellate order dated25.11.2002, the first appellate authority declined to interfere 7.Petitioner made further appeal against the saidorder passed by the first appellate authority before theTribunal. It is seen that Tribunal referred the matter to aspecial bench. The reference was made considering theconflicting decisions of the Tribunal in case of Bharat V. PatelVs. Additional Commissioner of Income Tax by theAhmedabad 'A' Bench and in the case of InfosysTechnologies Ltd Vs. DCIT of the Banglore Bench. Thereference reads as under:- "The learned Commissioner of Income Tax (Appeals) erred intreating the sum of Rs. 4,79,13,851.00 being the amount received onredemption of stock appreciation rights (SARs) by the appellantduring the financial year 1997-98, as taxable perquisite under thehead salaries." 8.Thereafter, the appeal was heard by a specialbench of the Tribunal comprising two judicial members andone accountant member. Ultimately, the special bench heldthat the assessee's receipts of whatever nature in connectionwith his employment are to be treated as salary. Therefore,the view taken by the revenue authorities was upheld. 8.1.Hence, this appeal. 9.Submissions made by learned counsel for theparties have been considered. "The learned Commissioner of Income Tax (Appeals) erred intreating the sum of Rs. 4,79,13,851.00 being the amount received onredemption of stock appreciation rights (SARs) by the appellantduring the financial year 1997-98, as taxable perquisite under thehead salaries." 8.Thereafter, the appeal was heard by a specialbench of the Tribunal comprising two judicial members andone accountant member. Ultimately, the special bench heldthat the assessee's receipts of whatever nature in connectionwith his employment are to be treated as salary. Therefore,the view taken by the revenue authorities was upheld. 8.1.Hence, this appeal. 9.Submissions made by learned counsel for theparties have been considered. 10.Chapter IV of the Act deals with computation oftotal income. Section 14 provides for different heads ofincome, such as, salaries, income from house property,profits and gains of business or profession, capital gains andincome from other sources. Income under the head 'salaries'is provided under Section 15. Section 16 provides for thedeductions which are allowable from income from salaries.Section 17 defines 'salary', 'perquisite' and 'profits in lieu ofsalary'. Sub-section (2) thereof defines the word 'perquisite'.Clause (iiia) was inserted in Section 17(2) of the Act by theFinance Act, 1999 w.e.f. 1.4.2000. However, subsequently,this provision was omitted by the Finance Act, 2000.However, since clause (iiia) of Section 17(2) of the Act isrelevant, the same is extracted hereunder:- “(iiia) the value of any specified security allotted or transferred,directly or indirectly, by any person free of cost or at concessionalrate, to an individual who is or has been in employment of that person: Provided that in a case where allotment or transfer of specifiedsecurities is made in pursuance of an option exercised by anindividual, the value of the specified securities shall be taxable in theprevious year in which such option is exercised by such individual.Explanation - For the purposes of this clause,- (a) “cost’ means the amount actually paid for acquiring specifiedsecurities and where no money has been paid, the cost shall betaken as nil; (b) “specified securities” means the securities as defined inclause(h) of section 2 of the Securities Contracts (Regulation) Act,1956 (42 of 1956) and includes employees’ stock option and sweetequity shares; (c) “sweat equity shares” means equity shares issued by acompany to its employees or directors at a discount or forconsideration other than cash for providing know-how or makingavailable rights in the nature of intellectual property rights or valueadditions, by whatever name called; and (d) “value” means the difference between the fair market valueand the cost for acquiring specified securities;” 10.1.Therefore, as per this provision, a perquisite would also include the value of any specified security allottedor transferred, directly or indirectly by any person free ofcost or at concessional rate to an individual who is or hasbeen in employment of that person. 11.It may be mentioned that the Tribunal's findings inthe case of Bharat V. Patel (supra) holding that value of SARs on redemption could not be treated as taxable salaryincome, was challenged by the revenue before the GujaratHigh Court in Tax Appeal Nos. 6 and 14/2014. Gujarat HighCourt by the judgment and order dated 23.12.2014dismissed the appeal of the revenue. It may be pointed outthat since there were two assessment years in question,there were two appeals before the Gujarat High Court. 10.1.Therefore, as per this provision, a perquisite would also include the value of any specified security allottedor transferred, directly or indirectly by any person free ofcost or at concessional rate to an individual who is or hasbeen in employment of that person. 11.It may be mentioned that the Tribunal's findings inthe case of Bharat V. Patel (supra) holding that value of SARs on redemption could not be treated as taxable salaryincome, was challenged by the revenue before the GujaratHigh Court in Tax Appeal Nos. 6 and 14/2014. Gujarat HighCourt by the judgment and order dated 23.12.2014dismissed the appeal of the revenue. It may be pointed outthat since there were two assessment years in question,there were two appeals before the Gujarat High Court. 11.1The decision of the Gujarat High Court wasassailed by the revenue before the Supreme Court in CivilAppeal Nos. 4380 & 4381/2018. Before the Supreme Court,revenue relied upon the full bench decision of the Tribunal incase of the present petitioner to contend that the amountreceived on redemption of SARs as an employee of thecompany, there being an employer-employee relationshipsubsisting at the relevant time, the same should be treatedas taxable income under the head 'income from salaries'. Onthe other hand, on behalf of the respondent, reliance wasplaced in the case of Infosys Technologies Ltd. It may bementioned that in Commissioner of Income Tax Vs.Infosys Technologies Ltd[3] it was held that such benefit3[2008] 297 ITR 167 (SC) could not be construed as income of an employeechargeable to tax under the head 'income from salaries'. 11.2Supreme Court referred to clause (iiia)inserted in Section 17(2) of the Act by the Finance Act 1999w.e.f 1.4.2000 and held that the said provision could not beapplied retrospectively. Ultimately, Supreme Court held thatthe respondent got SARs and eventually, received an amounton account of its redemption prior to 1.4.2000 on which datethe Finance Act, 1999 came into force. In the absence of anyexpress statutory provision regarding applicability of suchamendment with retrospective effect, revenue's contentioncould not be accepted. Accordingly, the appeals filed by therevenue in the case of Bharat V. Patel were dismissed. 12.Reverting to the facts of the present case, it isseen that Assessing OfÏcer himself had recorded in theassessment order that the petitioner had redeemed theSARs during the financial year 1997-98 relating to theassessment year 1998-99 which is prior to insertion of clause(iiia) to Section 17(2) of the Act w.e.f 1.4.2000. Therefore, the said amount could not have been treated as a perquisiteto be included as income under the head 'salaries' and taxedaccordingly. Following the decision of the Supreme Court inthe case of Bharat V. Patel (supra), we answer thesubstantial questions of law framed in favour of the assesseeand against the revenue. 13.Consequently, the appeal is allowed. However,there shall be no order as to cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] Digitally signedby Ravindra M.RavindraAmberkarM.Date:Amberkar2020.03.0311:41:39+0530