2008 (8) TMI 403 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 18,32,50,000 as perquisite.
2. Determination of the date when the perquisite on account of stock option arose.
3. Taxability of perquisite value in the correct assessment year.

Detailed Analysis:

1. Deletion of Addition of Rs. 18,32,50,000 as Perquisite:
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 18,32,50,000, arguing that the addition was correctly made on account of perquisite in the hands of the assessee. The assessee, a managing director of Zee Telefilms Ltd., was issued 2,00,000 warrants convertible into equity shares at Rs. 212 per share, with the market price on 1st Feb., 1999 being Rs. 386 per share. The AO held that the perquisite value should be based on the market price on 30th April, 1999, when the option was exercised, which was Rs. 1,128.25 per share, resulting in a perquisite value of Rs. 916.25 per share.

2. Determination of the Date When the Perquisite on Account of Stock Option Arose:
The CIT(A) held that the perquisite value should be computed based on the date of acceptance of the offer, i.e., 1st Feb., 1999, as per Circular No. 710. However, the Revenue argued that the right to acquire shares arose only upon exercising the option and making full payment, which occurred on 30th April, 1999. The Tribunal agreed with the Revenue, stating that the warrants issued on 1st Feb., 1999, did not have any value in themselves and were merely a right to acquire shares upon fulfilling certain conditions.

3. Taxability of Perquisite Value in the Correct Assessment Year:
The Tribunal concluded that the perquisite value is taxable in the year when the option to acquire shares is exercised, as per Section 17(2)(iiia) of the IT Act, which was applicable from 1st April, 2000. The Tribunal cited the Supreme Court's decision in CIT vs. Infosys Technologies Ltd., which held that a potential benefit could not be considered as income until the option was exercised. The Tribunal reversed the CIT(A)'s order and restored the AO's assessment, holding that the perquisite arose on 30th April, 1999, and should be taxed in the financial year 1999-2000, relevant to the assessment year 2000-01.

Conclusion:
The Tribunal allowed the Revenue's appeal, determining that the perquisite value should be assessed based on the date when the option to acquire shares was exercised, i.e., 30th April, 1999, and not on the date of the offer. The decision emphasized the importance of assessing income in the correct assessment year as per the IT Act provisions.