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2009 (8) TMI 531 - HC - Income TaxRefund- The assessee were granted certain number of stock at Re.1 per stock subject to certain conditions under the Employees Stock Option Scheme. The value of shares was not disclosed as taxable income in the original return of income filed by them. The Deputy Commissioner held that the shares are perquisites and tax had to be deducted at source which was upheld by the Commissioner (Appeals). The Tribunal set aside the order. The Assistant Commissioner folloing the order of Tribunal direct the assessee to claim credit for the TDS as not entitled to refund. Assessee file appeal for refund and condone the delay. Chief Commissioner condone the delay but declined admissible interest. Held that- the first and second revised returns along with the application to condone the delay in filing the same were rendered infructuous by the law declared by the Supreme Court confirming the judgment of High Court and the Appellate Tribunal. The order of Chief Commissioner is illegal and without jurisdiction and as a consequence the order of Assistant Commissioner giving effect to the orders of the Chief Commissioner were unsustainable thus liable to be quashed.
Issues:
1. Taxability of shares under Employees Stock Option Scheme. 2. Liability of employer to deduct tax at source. 3. Refund of Tax Deducted at Source (TDS) to employees. 4. Jurisdiction of Chief Commissioner under section 119(2)(b) of the Income-tax Act. 5. Entitlement of interest on refunds under section 244A of the Act. Issue 1: Taxability of shares under Employees Stock Option Scheme The petitioners were granted stock at Re. 1 per stock under the Employees Stock Option Scheme by Infosys. The Deputy Commissioner of Income-tax held that the shares were perquisites and their value should be disclosed as taxable income. However, the Income Tax Appellate Tribunal (ITAT) held that the allotment of shares did not amount to a perquisite attracting TDS under the Income-tax Act. This decision was upheld by the High Court and the Supreme Court, obliging the Revenue to refund the TDS to the employees. Issue 2: Liability of employer to deduct tax at source The employer, Infosys, was initially directed to deduct TDS from the salaries of its employees due to the shares being considered as perquisites. However, upon the ITAT ruling that the shares were not taxable perquisites, the employer was not liable to deduct TDS. The Assistant Commissioner directed the petitioners to claim credit for the TDS and refund the amount, which led to the filing of revised returns by the employees. Issue 3: Refund of Tax Deducted at Source (TDS) to employees Following the ITAT decision, the Revenue was obligated to refund the TDS to the employees. The Chief Commissioner's order condoning the delay in filing revised returns but denying interest was challenged. The court held that the Revenue must refund the TDS without requiring the employees to apply for it and pay interest as per section 244A of the Act. Issue 4: Jurisdiction of Chief Commissioner under section 119(2)(b) of the Income-tax Act The Chief Commissioner's order to condone the delay in filing revised returns was deemed arbitrary and illegal as the law had declared the shares not taxable perquisites. The court found the Chief Commissioner's order unsustainable and quashed it, along with the orders of the Assistant Commissioner giving effect to it. Issue 5: Entitlement of interest on refunds under section 244A of the Act The court acknowledged the petitioners' entitlement to interest on the refunded amount and directed the first respondent to consider and decide on the interest rate within four weeks. The court allowed the writ petitions, quashed the Chief Commissioner's order, and directed the payment of interest to the petitioners. In conclusion, the judgment clarified the taxability of shares under the Employees Stock Option Scheme, the liability of the employer to deduct TDS, the refund of TDS to employees, the jurisdiction of the Chief Commissioner, and the entitlement of interest on refunds under the Income-tax Act.
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