2018 (9) TMI 1028 - HC - Income Tax

Assessment of exercise of the stock option plan by the assessee - assessed as long-term capital gain OR treating the same as perquisite - Held that - What was to be decided by the Tribunal was that whether it was a perquisite, which is in addition to the salary of the assessee or otherwise unless and until that question was decided by the Tribunal, the question of remanding the matter to the Assessing Officer does not arise. This so in the light of the specific plea raised by the Revenue before the Tribunal. Thus, we find that the matter should be first adjudicated on facts and the Tribunal should take a decision on the stand taken by the Revenue before it. This is called for because, the CIT(A) did not deal with the said issue while passing the order dated 30.01.2008. Though the CIT(A) states that he finds considerable force in the claim of the assessee, there is no reason to substantiate as to how the CIT(A) came to the conclusion that the stand of the assessee that the income relating to stock option should be charged as long-term capital gains merits acceptance. We find that there were no reasons assigned by the CIT(A) to come to the conclusion that it was a stock option scheme and chargeable as capital gains - We allow these appeals, set aside the impugned order passed by the Tribunal and restore the appeals to the file of the Tribunal to decide the case afresh on merits

Summary

Issues involved:
1. Appeal against the common order passed by the Income-tax Appellate Tribunal Bench "C" in ITA Nos.1037, 1038, 1040 & 1041/Mds/2008 for the assessment years 2003-04 and 2004-2005.
2. Whether the exercise of the stock option plan by the assessee should be assessed as long-term capital gain instead of treating it as perquisite.
3. Whether the Appellate Tribunal was correct in dismissing the revenue's appeal against the deletion of penalty contrary to its previous decision.

Detailed Analysis:
1. The High Court of Madras heard appeals by the Revenue against the common order passed by the Income-tax Appellate Tribunal Bench "C" in ITA Nos.1037, 1038, 1040 & 1041/Mds/2008 for the assessment years 2003-04 and 2004-2005. The appeals included substantive assessment proceedings and penalty proceedings.
2. The primary issue before the Tribunal was whether the exercise of the stock option plan by the assessee should be treated as long-term capital gain or as a perquisite. The Tribunal's decision was influenced by a previous judgment of the Bangalore Bench, which led to the remittance of the matter back to the Assessing Officer for reconsideration based on the date of allotment for the calculation of the period.
3. The Revenue contended that the assessee did not acquire any shares, and the company in the USA sold shares outside India, remitting the difference to the employees as a special allowance. The Tribunal's failure to consider this aspect and the specific case presented by the Revenue led to the decision being set aside by the High Court.
4. The High Court emphasized that the Tribunal should have first adjudicated on the facts and the stand taken by the Revenue before remanding the matter. The lack of reasoning by the CIT(A) in accepting the claim of the assessee as long-term capital gains raised concerns about the decision-making process.
5. The High Court concluded that the matter should be remanded to the Tribunal for a fresh decision on the merits, giving adequate opportunity to the assessee and addressing the factual issues raised by the Revenue. The appeals were allowed, setting aside the Tribunal's order and restoring the case for reconsideration.

This detailed analysis highlights the key legal arguments, factual considerations, and the High Court's decision regarding the issues raised in the judgment.