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2009 DIGILAW 80 (KAR)

Commissioner of Income Tax v. Wipro Ltd.

2009-01-29

DEEPAK VERMA, K.RAMANNA

body2009
JUDGMENT Deepak Verma, J.— Sri M.V. Seshachala, learned Counsel appeared on behalf of the appellants. Kum. Saina Mary Thomas, learned Counsel appearing on behalf of the respondent. 2. This is an appeal under Section 260A of the Income Tax Act, 1961 against the order dated July 31, 2002, passed by the Income Tax Appellate Tribunal, Bangalore, in Appeal I. T. A. No. 294/Bang/01 for the assessment year 1997-98. 3. Learned Counsel for the appellants submitted that the following substantial questions of law would arise for consideration of this Court: Whether the Tribunal was correct in holding that the assessee-company was not liable to deduct TDS under Section 192 of the Act over the issue of its shares under stock option plan to its employees at a concessional rate as it cannot be treated as a perquisite (salary) and, therefore, the assessee cannot be treated as a defaulter under Section 201(1) of the Act and consequently no interest under Section 201(1A) of the Act can be levied. Whether the Tribunal was correct in holding that the issue of 4,100 shares of the assessee-company by WERT (a trust) in favour of the employees of the assessee-company divested the assessee-company of its obligation to deduct the TDS. Whether the Tribunal was correct in holding that Section 17(2)(iiia) of the Act was not clarificatory in nature and was not applicable to the current assessment year. 4. However, learned Counsel for the parties have not disputed that the questions, which have been projected in the aforesaid appeal, now stand answered by a recent judgment of the Supreme Court reported in Commissioner of Income Tax, Bangalore Vs. Infosys Technologies Ltd., (2008) 297 ITR 167 SC . Our attention has been drawn to paragraphs 16 and 17 hereof, which squarely answer the aforesaid questions in favour of the assessee and against the appellant/Revenue, which is reproduced hereunder (page 175): Be that as it may, proceeding on the basis that there was a 'benefit', the question is whether every benefit received by the person is taxable as income. In our view, it is not so. Unless the benefit is made taxable, it cannot be regarded as income. During the relevant assessment years, there was no provision in law which made such benefit taxable as income. Further, as stated, the benefit was prospective. In our view, it is not so. Unless the benefit is made taxable, it cannot be regarded as income. During the relevant assessment years, there was no provision in law which made such benefit taxable as income. Further, as stated, the benefit was prospective. Unless a benefit is in the nature of income or specifically included by the Legislature as part of income, the same is not taxable. In this case, the shares could not be obtained by the employees till the lock-in- period was over. On the facts, we hold that in the absence of legislative mandate a potential benefit could not be considered as 'income' of the employee(s) chargeable under the head 'Salaries'. The stock was non-transferable and the stock exchange was also accordingly notified. This is where the weightage ought to have been given by the Assessing Officer to an important factor, namely, the lock-in-period. This has not been done. It is important to bear in mind that if the shares allotted to the employee had no realizable sale value on the day when he exercised his option then there was no cash inflow to the employee. It was not possible for the employee to know the future value of the shares allotted to him on the day he exercised his option. Even the cost of acquisition as 'nil' came to be introduced in the 1961 Act by the Finance Act, 1999, only with effect from April 1, 2000. In fact, the later deletion of Sub-clause (iiia) is an indicator of the ineffective charge. For the aforestated reasons, we are of the view that the Department had erred in treating Rs. 165 crores as the perquisite value for the assessment years 1997-98, 1998-99 and 1999-2000. During those years, the fifth anniversary had not taken place and, therefore, it was not possible for the assessee-company to estimate the value of the perquisite during that period, it was not open to the Department to ignore the lock-in-period. Therefore, the Department had erred in treating the respondent herein as an assessee in default for not deducting TDS at 30 per cent. as stated in the order of assessment. This is not a case of tax evasion. Therefore, the Department had erred in treating the respondent herein as an assessee in default for not deducting TDS at 30 per cent. as stated in the order of assessment. This is not a case of tax evasion. The assessee had floated the trust because of the buy-back problems, which were genuine problems in cases where the employees stood dismissed, removed or in the case of resignation in which cases they were required to return the allotment. 5. In this view of the matter, it is no more necessary for us to answer the said questions of law as the same have already been answered in the aforesaid decision of the Supreme Court. 6. The appeal filed by the Revenue is hereby dismissed.