2002 (6) TMI 157 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee is liable to be treated as an assessee in default u/s 201 for failure to deduct tax u/s 192 in respect of benefits accruing to its employees under the ESOP.
2. Whether the assessee is liable for payment of interest u/s 201(1A).

Summary:

Issue 1: Liability as Assessee in Default u/s 201 for Failure to Deduct Tax u/s 192

The primary issue is whether the assessee failed to deduct tax at source on benefits arising from the Employees Stock Option Plan (ESOP) and thus should be treated as an assessee in default u/s 201. The Tribunal noted that the ESOP benefits were not taxable as perquisites under the Income-tax Act during the relevant assessment years (1997-98, 1998-99, and 1999-2000). The Tribunal emphasized that the definitions of "income," "salary," and "perquisite" are inclusive but not all-embracing. It was held that unless a benefit is specifically made taxable, it cannot be regarded as income. The Tribunal concluded that the benefits under ESOP were prospective and contingent, and thus not taxable as income during the relevant years. The Tribunal also noted that the legislative amendments to tax ESOP benefits were introduced only by the Finance Act, 1999, effective from 1-4-2000, and were not retrospective. Therefore, the assessee was not liable to deduct tax at source on ESOP benefits during the relevant years.

Issue 2: Liability for Payment of Interest u/s 201(1A)

Since the Tribunal held that the assessee cannot be treated as an assessee in default u/s 201, it consequently ruled that the assessee is not liable for any interest u/s 201(1A). The Tribunal emphasized that the assessee had acted fairly, honestly, and in a bona fide manner in discharging its TDS obligations. The Tribunal also noted that the provisions of section 201(1) are attracted only when there is a failure to deduct the whole of the tax, not merely a shortfall. Therefore, the assessee was not liable for interest under section 201(1A).

Conclusion:

The Tribunal allowed all the appeals of the assessee, holding that no perquisite arises to an employee on the exercise of stock options under the ESOP during the relevant assessment years. Consequently, the assessee was not liable to be treated as an assessee in default u/s 201 and was not liable for any interest u/s 201(1A).