2010 (3) TMI 193 - HC - Income Tax

Refund - perquisites - The assessee s employer paid the demand with interest raised by the Assistant Commissioner for failure to deduct tax at source in respect of perquisite value of stock option allotted to its employee who were covered by the employees stock option scheme of the employer and the employer recovered the tax from the employees concerned. Tribunal set aside the order. High Court and Supreme Court passed order against department. Thus the revised return filed by assessee and forwarded to chief commissioner for reconsideration. Chief Commissioner held that- the amount collected from the employer should be refunded only to the employer and the employee should approach the employer to get their refund along with interest. Held- allowing the petition, that having regard to the fact that the assessability of the perquisite value of allotment of stock option was held not justified and not in accordance with law, the question of retention of tax collected by way of tax deduction at source for and on behalf of the individual assessee by the revenue did not arise. Thus the order passed by the Chief Commissioner was liable to set aside and directed to refund the amount.

Summary

Issues:
1. Quashing of order for refund and interest
2. Assessability of perquisite value of stock options under ESOP Scheme
3. Refund claim timeline and liability for tax payment

Analysis:

Issue 1: Quashing of order for refund and interest
The petitioner sought to quash the order dated January 21, 2010, for refund and interest. The Commissioner of Income-tax had considered the petitioner's claim regarding the assessability of the perquisite value of stock options under the ESOP Scheme of Infosys Technologies Ltd. The company had paid the demand under section 201(1) of the Income-tax Act, 1961, and recovered the tax from employees. The Income-tax Appellate Tribunal held that allotting shares did not attract a liability to deduct tax at source. The petitioner filed a revised return after relevant court decisions. The Commissioner directed the first respondent to consider the refund request, but the first respondent stated that the refund should be claimed by the company and employees from the employer. The petitioner challenged this decision, citing a Karnataka High Court judgment directing a refund under similar circumstances.

Issue 2: Assessability of perquisite value of stock options under ESOP Scheme
The Commissioner noted that the demand of TDS for perquisite value of stocks under the ESOP scheme was held to be bad in law based on court decisions. The petitioner, as an employee, was subjected to TDS by the Revenue, which was paid by the employer. The liability being canceled, the petitioner claimed a refund of the tax deducted. The court found the assessability of the allotment of perquisite value of stock options unjustified and not in accordance with the law. The respondents' contention that the payment by the employer was debatable was dismissed, and the court set aside the first respondent's order, directing a refund with interest as per the Act.

Issue 3: Refund claim timeline and liability for tax payment
The respondents argued that since the petitioner did not file the refund claim on time and the tax was paid by the company, the question of refund to the petitioner did not arise. However, the court emphasized that the liability on the company was set aside, and the petitioner was entitled to a refund of the tax deducted. The court agreed with the Karnataka High Court's decision and directed the first respondent to refund the amount with interest. The writ petition was allowed, and no costs were imposed, closing the related motion.

This detailed analysis covers the issues of quashing the order for refund and interest, the assessability of perquisite value of stock options under the ESOP Scheme, and the refund claim timeline and liability for tax payment as addressed in the judgment by the Madras High Court.