2009 (1) TMI 398 - HC - Income Tax

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 a 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 section 17(2) (iiia) of the Act was not clarificatory in nature and was not applicable to the current assessment year? - Said questions of law have now been answered by the Supreme Court in a recent judgment reported in CIT v. Infosys Technologies Ltd. 2008 - TMI - 2973 - SUPREME COURT OF INDIA in favour of the assessee and against the Revenue. Hence following the same, appeal by revenue is dismissed

Issues:
Revenue appeal under section 260A of the Income-tax Act, 1961 against the order of the Income-tax Appellate Tribunal regarding the liability to deduct TDS under section 192 for issuing shares under a stock option plan, divestment of TDS obligation due to shares issued by a trust, applicability of section 17(2)(iiia) of the Act.

Analysis:
1. The Revenue appealed under section 260A of the Income-tax Act, 1961 against the order of the Income-tax Appellate Tribunal regarding the liability to deduct TDS under section 192 for issuing shares under a stock option plan to employees at a concessional rate. The substantial questions of law raised include whether the shares issued can be treated as a perquisite, whether the company was liable to deduct TDS, and whether interest under section 201(1A) could be levied. The Supreme Court's judgment in CIT v. Infosys Technologies Ltd. [2008] 297 ITR 167 was cited to support the respondent's contention that the questions have been answered in favor of the assessee.

2. The respondent argued that the Supreme Court's judgment clarified that the value of the option became ascertainable only after the introduction of a new mechanism under the Finance Act, 1999, from April 1, 2000. The court highlighted that the mechanism explaining 'cost' cannot be read retrospectively unless expressly stated by the Legislature. The court also emphasized that the benefit was prospective, and unless made taxable by the Legislature, it cannot be regarded as income. The shares were non-transferable until a lock-in-period was over, and the cost of acquisition was introduced in the 1961 Act only from April 1, 2000.

3. The court further emphasized that the Department erred in treating a certain amount as the perquisite value for assessment years 1997-98, 1998-99, and 1999-2000, as the lock-in-period had not ended, making it impossible to estimate the value of the perquisite. The Department was criticized for not considering the lock-in-period and treating the respondent as a defaulter for not deducting TDS. It was clarified that this was not a case of tax evasion, and the trust was established due to genuine buy-back problems faced by employees in certain situations.

4. In conclusion, the court held that the substantial questions of law raised in the appeal were answered by the Supreme Court in favor of the assessee and against the Revenue. The legal position was not disputed by the appellants, leading to the disposal of the appeal in favor of the assessee.

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