9911796707
TMI Blog2008 (1) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... to find merits in this submission of the assessee. Nature of income or not - The amount received by the assessee on redemption of share appreciation rights, as we have noted earlier in this order, is nothing but a deferred wage contingent upon performance of the company s shares in the market. The very preamble of the scheme, under which share redemption rights have been given to the assessee, also states that it is in the nature of deferred awards related to the increase in the price of the Common Stock of the Company . It is thus clear that the amount received on redemption of stock appreciation rights is in the nature of consideration for services rendered by the assessee. This amount is in the revenue nature because the consideration for the amount so received is the services rendered by the assessee. Therefore, the amount received by the assessee on redemption of stock appreciation rights is in the nature of income. Head of income under which the amount so received by the assessee is to be taxed - It is in consideration of the assessee agreeing not to leave employment of the Procter Gamble and any of its subsidiary company for a period of one year, and not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus, incentives and like, received as a fruit of employment-related activity which is revenue receipt in nature, and it is only the quantification of this amount which is linked to a capital asset that is value of shares. The taxability is not in respect of the stock appreciation right per se but the amount received as a fruit of employment which is measured by way of a formula envisaged in the stock appreciation rights scheme. Thus, we are of the considered view that the assessee was indeed liable to tax in respect of the amount received on redemption of stock appreciation rights. The taxability of this amount is under the head income from salaries but the assessee s plea that the amount in question is received from a person other than the de jure employer, even if it was to be accepted, would not have any material difference to the taxability per se, because, in such an event and following the judgment in the case of Emil Webber s case[ 1993 (2) TMI 1 - SUPREME COURT] , this amount would have been taxed under the head income from other sources . Ground Nos. 1 and 2 are, therefore, dismissed. - K.C. SINGHAL, MS. SUSHMA CHOWLA AND PRAMOD KUMAR, JJ. S.E. Dast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the order of the Hon ble ITAT, Ahmedabad Bench, on the same issue, in the case of another executive of the same company. ( ii )Holding that decision of the Hon ble ITAT, Bangalore Bench, in the case of Infosys Technologies and PSI Data Systems were not applicable to the appellant s case. ( iii )Not granting exemption from capital gains under section 54EA of the Act. 3. The appellant prays that the SARs be considered as a capital receipt not chargeable to tax. GROUND III 1. The CIT(A) erred in confirming the levy of interest under section 234B of the Act. 2. The appellant prays that interest under section 234B be deleted. GROUND IV The appellant craves leave to add, alter and/or amend all or any of the grounds of appeal." 2. When this appeal originally came up for hearing before a Division Bench, the issue in appeal was claimed to be covered by the order dated 27-6-2003 passed by a co-ordinate Bench of this Tribunal in the case of Bharat V. Patel v. Addl. CIT [IT Appeal No. 2241 (Ahd.) of 2002; assessment year 1998-99]. The Division Bench noticed that in the said decision, the co-ordinate bench, in turn, had relied upon a decision of Bangalore Bench in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such. The use of expression assessee employee was also objected to, inter alia , on the ground that the assessee did not receive the stock appreciation rights from the employer. Learned counsel also submitted that the expression "irrespective of the fact that no shares are actually allotted to him and the assessee does not have any right to receive such stocks and shares" is also wholly inappropriate and it vitiates question framed for consideration. It was thus urged that at best what can be considered by the Special Bench is whether or not the CIT(A) was justified in holding that the amount received by the assessee, on redemption of stock appreciation rights, was taxable under the head income from salaries . Learned Departmental Representative, on the other hand, opposed these arguments and submitted that, even at this stage, it is open to the revenue to take the alternate plea that the amount in question are at least taxable under the head income from other sources . This stand was, of course, without prejudice to the main plea of the revenue that the amounts in question are taxable under the head income from salaries . In response to the bench s suggestion that let th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rights were granted with respect to the common stock of the company from time to time on various dates as follows : Date of No. of Grant Expiration grant shares Value date (In US$) 26-2-1991 1,400 1,17,250 26-2-2001 24-2-1992 1,300 1,32,763 24-2-2002 26-2-1993 2,200 1,13,438 26-2-2003 25-2-1994 2,300 1,30,669 25-2-2004 28-2-1995 2,400 1,59,000 28-2-2005 6. The manner in which these stock appreciation rights worked was like this. A grantee was allotted stock appreciation rights in respect of a specified number of shares of the PGU. The agreed price of the shares, which normally reflected the market price, as on the date of granting the rights was taken as grant value. The grantee could exercise the right to redeem the appreciation of these shares after one year from the date of the grant. The assessee had to use this redemption right within ten years from the date of grant of these rights - as evident from the chart given above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo years of SAR grants and it could not therefore be said that PGI, in that period, was even a subsidiary company of the PGU. The assessee submitted that though the rights acquired by the assessee were capital in nature, these assets were without any cost, and, therefore, no capital gains could arise due to failure of machinery provisions under the Act. It was also pointed out that there was no contract for purchase or sale of any shares or stock and hence the transactions do not fall within the purview of section 43(5) of the Act. The Assessing Officer, having considered these submissions, also required the assessee to show cause as to why the payment on redemption of SARs not be treated as Salary within the meaning assigned to that expression under section 17( iv ) of the Act. The assessee reiterated the legal arguments and also submitted that at best the SARs could be taxed at the point of time when the same were granted but then since grant was at market value of shares, no advantage accrued to the assessee. 8. None of these erudite submissions impressed the Assessing Officer. While he agreed that the assessee was indeed not in employment of PGU, he also noted that the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the matter was, therefore, carried in further appeal before a Division Bench of this Tribunal. The Division Bench noted that the CIT(A) did not give any opportunity of hearing to the assessee on the ruling given by the Authority for Advance Ruling, on which the CIT(A) had relied, and that a number of documents, including the scheme under which stock appreciation rights were granted, were filed for the first time before the Tribunal. It was in this background that the matter was remitted to the file of the CIT(A) by observing as follows : "For all these reasons, we are of the view that it will meet the ends of justice if the decision of the CIT(A) is set aside and he be directed to decide the issue recording the head of income under which the grant is taxable after examining the Procter Gamble 1983 Stock Plan Scheme and Regulation of Stock Option Committee which were filed by the assessee before us for the first time." 10. In the remanded proceedings also, the CIT(A) confirmed the action of the Assessing Officer. He concluded that the payment has arisen to the appellant because of his employment with Procter Gamble, and that the payment received by the appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, is chargeable to tax or not. Learned counsel laboriously took us through the various provisions of the Income-tax Act in an attempt to demonstrate that the SAR receipts are not taxable under any of the provisions. He takes us through the provisions of section 15 of the Act to emphasize the only thing which can be taxed under the head income from salaries , though not paid by the employer is ( a ) any salary paid or allowed to the assessee in the previous year by or on behalf of an employer or former employer, though not due or before it becomes due to the assessee [section 15( b )], and ( b ) any arrears of salary paid or allowed to the assessee in the previous year by or on behalf of an employer or former employer, if not charged to income-tax for any earlier previous years [section 15( c )]. Learned counsel then takes us through section 17(1)( iv ) which states that salary includes "any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages". He thus submits that even if the amounts in question are held to be covered by section 17(1)( iv ), these amounts could be taxed as salary only when the conditions of section 15( b ) and 15( c ) are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the employer but an outsider, though admittedly connected agency; ( ii ) it was the case of the revenue that the outside agency was only a conduit of the employer ; and ( iii ) the revenue relied upon the ruling of the Authority Advance Ruling in XYZ, In re ( supra ), but all these contentions were rejected by the Tribunal as also by the Hon ble High Court. It is also pointed out that since the value of the perquisite, even if the stock options be held as perquisite, could not be ascertained for want of a mechanism laid down in the statute, it could not be brought to tax. Learned counsel for the assessee specifically invited our attention to the following observations made by the Tribunal in the case of Infosys Technologies Ltd. ( supra ) : When section 17(2)( iiia ) was introduced by Finance Act, 1999, with effect from 1-4-2000, the Hon ble Finance Minister noted as under : "In some of the sunrise sectors of the economy, the management is adopting a policy of offering stock options and Sweat Equity, to their employees. The tax implications of such transactions are somewhat ambiguous. Therefore, I propose in this budget to make certain amendments in the law, to put it b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) and the company has undertaken the responsibility". Learned counsel contends that once a higher judicial forum has specifically disapproved application of this ruling in the context of stock option plan and unless the employer company provides shares for the purposes of attraction and undertakes the responsibility, it cannot be open to the Tribunal to follow the ruling given by the Authority for Advance Ruling. It is pointed out that the esteemed views of Hon ble High Court, being a part of the hierarchy of judicial authorities, are binding on the Tribunal, whereas the views of the Authority for Advance Ruling are not binding on the Tribunal. Our attention is also invited to Tribunal s decision in the case of Asstt. Director of Income-tax v. Green Emirates Shipping Travels [2006] 100 ITD 203 (Mum.) in support of this proposition. We are thus urged not to be guided by the advance ruling referred to, and heavily relied upon by, the CIT(A) as, besides other reasons, neither is it binding on us nor are the material facts the same as before the Authority for Advance Ruling. 15. Without prejudice to the submission that amount received by the assessee on redemption of stock a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority. It is again emphasized that it is not the case of the any of the authorities below that the amount received by the assessee on redemption of stock appreciation rights is anything other than taxable under the head income from salaries . We are thus urged not to venture into deciding the question whether or not the amount received on redemption of stock appreciation rights is in the nature of income and whether or not such an income can be taxed under any other head of income. This question, according to the learned counsel, does not arise on the facts of this case. 17. The next tier of learned counsel s armoury is that even if we have to decide the broader question of taxability of these stock appreciation rights under any other head of income, the only head under which the redemption value of these rights can be taxed is capital gains . He submits that the expression property , as held by the Hon ble Bombay High Court in the case of CIT v. Tata Services Ltd. [1980] 122 ITR 594 , includes property of all kinds and descriptions. In terms of the provisions of section 2(14), capital asset means property of any kind held by the assessee except certain kind of proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re mutually exclusive and where any item of income falls under one head, it has to be charged under that head and under no other. He submits that in order that an income falls under the residuary head of income, i.e., income from other sources, it must not come under any other head or classification of income. In support of this proposition, our attention is also invited to Hon ble Supreme Court s judgment in the case of Nalinkant Ambalal Mody v. CIT [1966] 61 ITR 428. Learned counsel further submits that principles laid down by the Hon ble Supreme Court were in the context of Income-tax Act, 1922 but, as held by the Hon ble Bombay High Court in the case of CIT v. Smt. T.P. Sidhwa [1982] 133 ITR 840 , these principles are equally applicable in the context of the provisions of the Income-tax Act, 1961. Hon ble Bombay High Court has observed that section 56(1) of the 1961 Act is the same as section 12(1) of the 1922 Act, and, therefore, what is held in the context of the provisions of section 12(1) of 1922 Act by the Hon ble Supreme Court will equally apply in the context of section 56(1) of 1961 Act. Learned counsel contends that the amount received on redemption of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Departmental Representative submits that the amount in question is, therefore, required to be taxed as income from salaries . Our attention is invited to the judgment of Hon ble Madras High Court in the case of J.R. Daniel v. CIT [2001] 248 ITR 174 wherein Their Lordships have held that pension received by the assessee from British Government, in consideration of services rendered in Somali and Aden then under British rule, has to be regarded as salary even though, after independence of these countries, pension was paid by the British Government. The pension was thus received from a person other than, strictly speaking, the direct employer, i.e., Government of Somalia. It was thus submitted that merely because SAR redemption amount is received from parent company of the employer company, it cannot go out of the ambit of the income taxable under the head income from salaries . Learned Departmental Representative further submits that the nature of stock appreciation rights and stock options rights are materially different, and, for this reason, judicial precedents in the cases of stock options cannot be very relevant in the case of stock appreciation rights. It is pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of existing facts on record notwithstanding the fact that such aspect was not considered by the lower authorities. Our attention was also invited to Hon ble Calcutta High Court s judgment in the case of Steel Containers Ltd. v. CIT [1978] 112 ITR 995 which has been followed in the aforesaid Tribunal decision as well. Our attention was also invited to the Hon ble jurisdictional High Court s judgment in the case of CIT v. Gilbert Barkar Mfg. Co. [1978] 111 ITR 529 (Bom.) wherein it is held that the Tribunal was competent to change the head of income from income from other sources to income from business and profession at the instance of the assessee even though the assessee was not in appeal. Our attention was also invited to Hon ble Delhi High Court s judgment in the case of Bishamber Nath Ram Swarup v. ITO [1987] 163 ITR 87 . Learned Departmental Representative then invited our attention to the order dated 10-8-2006 passed by a Division Bench of this Tribunal in the case of Dy. CIT v. Atco Healthcare Ltd. [IT Appeal Nos. 2427 to 2429 (Mum.) of 2003] wherein it is concluded that the revenue can raise any plea to support the addition made by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Act, the following heads of income, profits and gains, shall be chargeable to Income-tax in the manner hereinafter appearing namely ( i ) Salaries, ( ii ) Interest on Securities, ( iii ) income from property, ( iv ) profits and gains of business, profession or vocation, ( v ) income from other sources, and ( vi ) capital gains". The commentary further states that "as the words shall be chargeable in section 6 of the old Act gave rise to some confusion as to this section being charging section, it was considered expedient to redraft the opening words of section 14 to make it clear that section 14 merely classified the different heads for the purpose of computation under the succeeding sections". It is pointed out that section 14 of the present Income-tax Act is unambiguous and it states that "save as otherwise provided by this Act, all incomes shall, for the purposes of charge of Income-tax and computation of total income, be classified under the following heads of income :- (A) Salaries, (B) ... (C) income from house property, (D) profits and gains of business or profession, (E) capital gains and (F) income from other sources". It was thus contended that it is no longer the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions, including Hon ble Supreme Court s decision in the case of CIT v. G.R. Karthikeyan [1993] 201 ITR 866 in support of the proposition that income is to be given a wider meaning and anything which is in the nature of an income must be brought to tax. Learned Departmental Representative thus submits that even if we are to come to the conclusion that the receipt in question is of income nature but is not taxable under the head income from salaries , the same is to be held taxable under the head income from other sources . That does not make any material change to the situation, and, under whichever head, the amount received on redemption of stock appreciation rights is to be taxed as an income. We are thus urged to confirm the addition of Rs. 4,79,13,851 to the income of the assessee, whether under the head income from salaries or under the head income from other sources , and decline to interfere in the matter. 21. In rejoinder, the main points made by the learned counsel are like this. He submits that whatever be the change of wordings in section 14 of 1961 Act vis-a-vis section 6 of the 1922 Act, once Hon ble jurisdictional High Court holds that there is no mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other head of income from clauses ( A ) to ( E ) which is not the case here. Learned counsel for the assessee once again places strong reliance of Division Bench decision in the case of Bharat V. Patel ( supra ) which holds that the amount received on redemption of stock appreciation rights is not taxable. We are thus once again urged to delete the impugned addition. 22. We have carefully considered the rival submissions, perused the material on record and taken note of the legal position in the light of factual matrix before us. 23. It is first of all necessary to understand the nature of stock appreciation rights on the redemption of which the assessee has received the amount of Rs. 4,79,13,851. 24. The Procter Gamble 1983 Stock Plan, under which the assessee was granted the stock appreciation rights, is being reproduced below for ready reference : "The Procter Gamble 1983 Stock Plan (As adjusted for stock split effective 20-10-1989 and amended effective 8-1-1991) Article A. Purpose. The purpose of The Procter Gamble 1983 Stock Plan (hereinafter referred to as the "Plan") is to encourage those key employees of the Procter Gamble Company (herein refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are non-residents of the United States on the date of any grant, the Committee shall have the further authority to : ( a )waive the provisions of Article G, paragraph 1( b ) and ( b )impose conditions in lieu of those set forth in Article J, paragraphs 4 through 7, for non-statutory stock options and stock appreciation rights grants which do not increase or extend the rights of the recipient, to take into consideration the differences, limitations and requirements of local foreign laws or conditions including, but not limited to, tax regulations, exchange controls, investment restrictions, possible unenforceability of any part of this Plan and other similar matters deemed appropriate by it. (4) The Committee may establish from time to time such regulations, provisions and procedures within the terms of this Plan, as in its opinion, may be advisable in the administration of this Plan. (5) The Committee may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration of this Plan and may grant authority to such persons to execute documents on behalf of the Committee. Article C. Participation. The Committee sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one (1) year following the date of granting of the stock option or stock appreciation right, and, ( b )In order to better protect the goodwill of the Company and prevent the disclosure of the Company s trade secrets and other confidential information and thereby help insure the long-term success and development of the business, the recipient will not engage in competitive employment for a period of three (3) years following the date of the granting of a stock option or a stock appreciation right without first obtaining written permission from the Company. "Engage in competitive employment" means rendering services, or becoming associated in any way or in any capacity in the manufacture, development, advertising, promotion or sale of any product which is the same as or similar to or competitive with any products of the Company or one of its subsidiaries (including existing products and products known to the recipient to be in development) with respect to which the recipient s work has been directly concerned at any time during the two (2) years preceding termination of employment with the Company or any of its subsidiaries or with respect to which during that period of time recip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptions and stock appreciation rights shall be made to give effect to any stock splits, stock dividends or other changes in the Common Stock of the Company occurring after 11-10-1983, the date of approval of this Plan by the Company s shareholders. Article J. Exercise of Stock Options and Stock Appreciation Rights. (1) All stock options and stock appreciation rights granted hereunder shall have a maximum life of not more than ten (10) years from the date of grant. (2) No stock options or stock appreciation rights shall be exercisable within one (1) year from their date of grant, except in the case of the death of the recipient. (3) During the lifetime of the recipient, stock options and stock appreciation rights may be exercised only by the recipient personally, stock options and stock appreciation rights are not assignable and are not transferable otherwise than by Will or by the laws of descent and distribution. (4) In case a recipient of stock options or stock appreciation rights ceases to be an employee of the Company or any of its subsidiaries while holding an un-exercised stock option or stock appreciation right : ( a )Any un-exercisable portions thereof are then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be calculated in United States dollars and converted to the appropriate local currency on the exercise date. As determined by the Committee, the redemption differential may be paid in cash, Common Stock of the Company to be valued at its fair market value on the date of exercise, any other mode of payment deemed appropriate by the Committee or any combination thereof. The number of shares with respect to which stock appreciation rights are being exercised shall not be available for granting future stock options or stock appreciation rights under this Plan. (9) The Committee may, in its sole discretion, permit a stock option which is being exercised either ( a ) by an optionee whose retirement is imminent or who has retired or ( b ) after the death of the optionee, to be surrendered, in lieu of exercise, for an amount equal to the difference between the stock option exercise price and the fair market value of shares of the Common Stock of the Company on the day the stock option is surrendered, payment to be made in shares of the Company s Common Stock which are subject to this Plan valued at their fair market value on such date, cash or a combination thereof, in such proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or stock appreciation right is surrendered before exercise or for any reason other than exercise ceases to be exercisable, except as specifically required by the terms of this Plan, the shares reserved therefore shall continue to be set aside for, and be subject to, use under this Plan. (3) Subsidiary means any company in which fifty per cent (50 per cent or more of the total combined voting power of all classes of stock is owned, directly or indirectly, by the Company in addition, the Board may designate for participation in this Plan as a "subsidiary," except for the granting of incentive stock options, those additional companies affiliated with the Company in which the Company s direct or indirect stock ownership is less than fifty per cent (50 per cent) or the total combined voting power of all classes of such company s stock. Article M. Consent. Every recipient of a stock option or stock appreciation right granted under this Plan shall be bound by the terms and provisions of this Plan and of the stock option or stock appreciation right agreement referable, thereto, and the acceptance of any stock option or stock appreciation right agreement shall constitute a bindin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may accrue to the optionee, counsel advises that under existing tax law gain taxable as ordinary income to the optionee is deemed to be realized at the date of exercise of the option, the gain on each share being the difference between the market price on the date of exercise and the option price. This amount is treated as a tax deductible expense to the Company at the time of the exercise of the option. Any appreciation in the value of the stock after the date of exercise is considered a long-term or short-term capital gain to the owner depending on whether or not the stock was held for the appropriate holding period prior to sale. Stock Appreciation Rights. With regard to tax effects which may accrue to the recipient, counsel advises that "United States persons", as defined in the Internal Revenue Code of 1986 (the "R.C."), must recognize ordinary income as of the date of exercise equal to the amount paid to the recipient, i.e., the difference between the grant price and the value of the shares on the date of exercise. For non-United States persons, the time when income is realized, the measurement of such income, and its taxation will depend on the laws of the particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock appreciation rights" are quite distinct, and that these two expressions cannot be used interchangeably. The tax implications of stock options and stock appreciation rights are also, as evident from the Additional Information annexed to and forming part of the document reproduced above, are at variance. The very nature of acquisition of shares under the stock options scheme, i.e., Employees Stock Options Plan (ESOP, in short) that the Hon ble Karnataka High Courts and Bangalore Benches of this Tribunal have dealt with in the cases of Wipro Ltd. ( supra ) and Infosys Technologies Ltd. ( supra ), and the redemption of stock appreciation rights is quite different in scope and application. ESOP refers to a situation in which an employee is able to acquire shares, though subject to the conditions attached, at a price lower than the prevailing market price. The decisions by the Courts in India and the legislative provisions deal with only this situation. On the other hand, Stock Appreciation Rights (SAR) scheme does not envisage any such acquisition of shares of stocks by the beneficiary. All it involves is a payment, by way of cash or by way of such other mode as may be sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory and the same can be allowed to expire at the option of the beneficiary. There can, however, be a loss situation in the acquisition of shares in the stock options scheme, because no matter how much below market price the shares are offered under the scheme, market forces can drive the shares to even lower levels. On a conceptual frame, thus, Stock Appreciation Rights plan can be said to be a method for companies to give their management or employees a bonus if the company performs well financially. It is, however, very distinct from a typical stock options plan which involves allowing the employees to buy the shares of the company on a concessional or nominal price. SARs provide the employee with a cash payment based on the increase in the value of a stated number of shares over a specific period of time. As in the case before us, SARs generally do not have a specific settlement date and the employees have flexibility in when to choose to exercise the SAR - of course within an outer limit on the expiry of which the right would lapse. In effect, therefore, SAR plans are nothing other than a form of deferred cash compensation which is contingent upon financial performance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us. Not only we are dealing with redemption of stock appreciation right, which, as we have noted earlier, result in directly measurable cash benefit to the assessee, and as such, the point of time when benefit accrues is free from doubt, the nature of taxability of stock appreciation right and taxability of benefit of purchase or option to purchase shares at concessional or nominal price are materially different in character. Even if we are to proceed on the basis that grant of a stock appreciation right gives some benefit to the assessee, it is beyond dispute that such a benefit is contingent upon the market behaviour for value of shares in question. It is well settled, based on the principle of conservatism, that an anticipated income cannot be brought to tax until it actually accrues or unless there is a specific provision to that effect. Learned counsel s contention, therefore, that the benefit on account of stock appreciation right can only be taxed in the year of grant or vesting, and not in the year of redemption, is thus devoid of legally sustainable basis. The judicial precedents in the context of stock options, or legislative provisions in respect of the same, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the Company, in which direct or indirect ownership is less than fifty per cent (50 per cent) of the total combined voting powers of all classes of such company s stock." 31. It is thus clear that what is material for the purpose of PGI being is that fifty per cent or more of the shares - whether directly or indirectly - are held by the PGU. It is therefore immaterial whether or not the shares are held directly by the PGU or through another company. We are thus unable to see any relevance of the assessee repeatedly highlighting the fact that PGU s shareholding in the PGI was through another company. As long as the shareholding was controlled by the PGU, as is the undisputed fact of this case, the mode of shareholding is not really relevant. We have also noted that so far as SARs are concerned, even this benchmark of fifty per cent is not really relevant because the aforesaid clause also specifically provides that "the Board may designate for participation in this plan as subsidiary , except for the granting of incentive stock options, those additional companies affiliated with the Company, in which direct or indirect ownership is less than fifty per cent (50 per cent) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the amount received on redemption of stock appreciation rights is in the nature of consideration for services rendered by the assessee. This amount is in the revenue nature because the consideration for the amount so received is the services rendered by the assessee. In our considered view, therefore, the amount received by the assessee on redemption of stock appreciation rights is in the nature of income. 35. The next question then is the head of income under which the amount so received by the assessee is to be taxed. 36. There is no dispute that the amount received by the assessee is in the nature of, what learned counsel for the assessee prefers to term as, fruits of employment . The natural corollary of this undisputed factual position is that the said income should be taxed under the head income from salaries , but one of the basic arguments of the assessee against such a taxability is that since there is no employer employee relationship between PGU and the assessee, the amount received by the assessee from PGU, on redemption of his stock appreciation rights, cannot be taxed under the head income from salaries . This argument rests on the assumption that taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility under the head income from salaries , is thus redundant. 40. As for the connotation of the expression salary , we can do no better than to quote the Stroud s Judicial Dictionary , which defines salary as recompense or consideration given to a person for his pains bestowed upon another man s business . It is not even assessee s case that the stock appreciation right that he has received are not in the nature of recompense or consideration given to him for anything other than his employment. The only defence for its non-taxability under the head income from salaries is that the stock appreciation rights are not received from the employer, and, therefore, the same cannot be taxed under the head income from salaries . This plea, for the reason set out above, is not sustainable in law. 41. We would also like to briefly deal with the judgment of Hon ble Madras High Court in the case of J.R. Daniel ( supra ) which is quite relevant in this context. 42. The undisputed facts set out in the statement of case were like this. The assessee, i.e., J.R. Daniel, was an employee of the Somali Government from 10-4-1926 to 8-4-1950, and of Aden Government from 9-4-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions of stock options and stock appreciation rights is set out in Article G of the aforesaid Plan. This article provides as follows : "1. In addition to such other conditions as may be established by the Committee, in consideration of granting of stock options or stock appreciation rights under the terms of this Plan, the recipient agrees to as follows : ( a )To remain in the employ of the company or one of its subsidiaries for at least one (1) year following the date of granting of the stock option or the stock appreciation right, and ( b )In order to better protect the goodwill of the company and prevent the disclosure of the company s trade secrets and other confidential information and thereby help insure the long term success and development of the business, the recipient will not engage in a competitive employment for a period of three (3) years following the date of granting of stock options or a stock appreciation right without first obtaining written permission of the company. "Engage in competitive employment" means rendering services, or becoming associated in any way or in any capacity in the manufacture, develop-pment, advertising, promotion or sale of any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts of whatever nature, in connection with his employment, are, therefore, to be treated as salaries . 47. Even this aspect of the matter, however, is purely academic in the present context. It is so for the reason that, as held by the Hon ble jurisdictional High Court in the case of Gilbert Barkar Mfg. Co. ( supra ), the Tribunal is competent to change the head of income even at the instance of the respondent when all the relevant facts are already on record and as long as both the parties are heard on that issue. In the case before us, it has been the alternate contention of the learned Departmental Representative that in the event Tribunal comes to the conclusion that the amount in question is not taxable under the head income from salaries, the Tribunal may also adjudicate on the question whether or not the impugned amount be held as income from other sources. Both the parties have been heard on this aspect of the matter as also on the merits of whether or not the amount in question could indeed be taxed under the head income from other sources . 48. In the case of Emil Webber v. CIT [1978] 114 ITR 515, the question before the Hon ble Bombay High Court was "wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive one. There remains for our consideration only one other argument which was rather faintly submitted by the learned counsel for the assessee for our consideration. It was submitted that such a benefit is required to be considered under the head "Salaries". It was further submitted that since the relationship of employer- employee did not exist between Ballarpur and the assessee, it was not permissible for the revenue to claim that this income should be regarded as income from other sources . Reliance was sought to be placed on the decision of the Supreme Court in Nalinikant Ambalal Mody v. SAL Narayan Row, CIT [1996] 61 ITR 428 . The fallacy underlying this argument is the starting point thereof that such a benefit has to be regarded as pertaining to income from the head "salaries". There is no warrant for such an assumption. Unless this is assumed there is no basis in the second argument advanced......." [Emphasis supplied] 49. The stand of the Tribunal was thus confirmed by the Hon ble High Court and it was held that once an employment-related benefit is found to be in the nature of income, it would not be outside the ambit of taxability merely because it was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et the Hon ble Supreme Court arrived at the above conclusion in Emil Webber s case ( supra ). We are thus of the view that even if the amount received by the assessee on redemption of share appreciation rights is held to be not taxable under the head income from salaries , this fact, by itself, would not take the same outside the ambit of taxable income, since, in such an eventuality and following Hon ble Supreme Court s judgment in Emil Webber s case ( supra ), the said amount will be taxable under the head income from other sources . To sum up, we are of the considered view that even if we are to hold that amount in question is received from a person other than the employer of the assessee, and that in order for an income to be taxed under the head income from salaries it is a condition precedent that the salary, benefit or the consideration must flow from employer to the employee, the amount received by the assessee on redemption of stock appreciation rights will still be taxable - though under the head income from other sources . The plea raised by the assessee that the amount in question cannot be taxed as income from salaries is thus irrelevant. 52. In the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from other sources, it cannot be open to us to take any other view of the matter. In the case of Asstt. CCE v. Dunlop India Ltd. [1985] 154 ITR 172 at page 180, Hon ble Supreme Court has, inter alia , observed as follows : "We desire to add and as was said in the Cassell Co. Limited v. Broome [1972] AC 1027 (HL), we hope it will never be necessary to say so again that "in the hierarchical system of courts" which exists in our country, "it is necessary for each lower tier" ..... "to accept loyally the decisions of the higher tiers". "It is inevitable in a hierarchical system of courts that there are decisions of the supreme appellate Tribunal which do not attract unanimous approval of all the members of the judiciary .... But judicial system works only if someone is allowed to have the last word and that last word, once spoken, is loyally accepted" ( See Observations of Lord Hailsham and Lord Diplock in Broome v. Cassell ). The wisdom of the Court below has to yield to the higher wisdom of the Court above." 53. Coming back to the judgment of Hon ble Supreme Court in N.A. Mody s case ( supra ) once again, it is perhaps difficult to miss, even on a plain r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he very preamble of Procter Gamble (1983) Stock Plan itself states, the amount in question is in the nature of a deferred wages, in the genus of bonus, incentives and like, received as a fruit of employment-related activity which is revenue receipt in nature, and it is only the quantification of this amount which is linked to a capital asset that is value of shares. The taxability is not in respect of the stock appreciation right per se but the amount received as a fruit of employment which is measured by way of a formula envisaged in the stock appreciation rights scheme. 55. For the reasons set out above, we are of the considered view that the assessee was indeed liable to tax in respect of the amount of Rs. 4,79,13,851 received on redemption of stock appreciation rights. The taxability of this amount is under the head income from salaries but the assessee s plea that the amount in question is received from a person other than the de jure employer, even if it was to be accepted, would not have any material difference to the taxability per se, because, in such an event and following Hon ble Supreme Court s judgment in the case of Emil Webber s case ( supra ), this a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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