2009 (1) TMI 396 - HC - Income Tax

Failure to deduct tax at source - 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 (IA) of the Act can be levied? Held that stock options are not perquisites granted by assessee hence assessee is not liable to deduct tax on value of shares issued to employees

Summary

The Karnataka High Court judgment of 2009 (1) TMI 396 involved an appeal under section 260A of the Income-tax Act, 1961 against an order by the Income-tax Appellate Tribunal, Bangalore, related to the assessment year 1997-98. The key issue was whether the assessee-company was liable to deduct TDS under section 192 of the Act over the issue of shares under a stock option plan to employees at a concessional rate. The Tribunal ruled in favor of the assessee, stating that the shares could not be considered as income until they were obtained by the employees after a lock-in period. The court referenced a recent Supreme Court judgment in CIT v. Infosys Technologies Ltd. [2008] 297 ITR 167, which supported the assessee's position. Consequently, the court dismissed the appeal filed by the Revenue. The judgment highlighted the importance of considering the lock-in period and the absence of cash inflow to employees when assessing potential benefits. The Department was criticized for treating the assessee as a defaulter for not deducting TDS and the trust was formed to address genuine problems related to buy-back issues. Overall, the court found in favor of the assessee based on the Supreme Court's decision and dismissed the appeal.