NAVEEN VIRENDRAKUMAR GUPTA, THANE V. ITO (IT) 2(3)(1), MUMBAI

ITA 2476/MUM/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4035 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 05-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Residential status; Salary income; Double taxation relief
• Section: 6; 15; 6(6)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “I” Bench, Mumbai Shri Shamim Yahya (AM) & Ms. Kavitha Rajagopal (JM) I.T.A. No. 2476/Mum/2017 (A.Y. 2012-13) Naveen Virendrakumar Gupta C/o. Ramnathan Easwaran A-1401, Princeton CHS Hiranandani Estate Ghodbunder Road Thane-400 607 PAN : ABIPG3039Q Vs. ITO(IT)-2(3)(1) Mumbai. (Appellant) (Respondent) Assessee by Shri K. Gopal & Ms. Neha Paranjpe Department by Shri Milind S. Chavan Date of Hearing 17.02.2022 Date of Pronouncement 22.04.2022 O R D E R Per Shamim Yahya (AM) :- This appeal by the assessee is directed against the order of learned CIT(A) dated 30.1.2017 pertains to A.Y. 2012-13 2. The grounds of appeal read as under :- “I LEGAL 1. The Ld. Commissioner of Income-tax (Appeals) [hereinafter referred to as "CIT(A)"] erred in treating the appellant as resident in India for the impugned assessment year on basis of interpretation of both cumulative conditions specified u/s. 6(l)(c) of the Act as optional 2. The Ld. CIT(A) erred in taxing the ESOPS received as Perquisite within meaning of Section 15 to 17 of the Act treating the appellant as resident without appreciating the factual position. II MERRITS 3. Without prejudice to Grounds of Appeal at Sr No.l to 2, the Ld. CIT(A) erred in not considering following grounds of appeal raised by the appellant in first appellate proceedings: Naveen Virendrakumar Gupta 2 A) The A.O. has erred in making addition of Rs.3,14,25,500/- to the total income of the non-resident as arrears of salary when me appellant was not employed in India during the previous year relevant to A.Y. 2012-13. Hence, the Id. A.O. is not justified in treating Rs.3,14,25,500/- as salary in arrears. B) The A.O. has erred in ignoring the provisions of section 9(l)(ii) wherein, the non-resident salary income is taxable in India only if the services are rendered in India. The A.O. has accepted the fact that the appellant has not rendered any services in, India during the previous year should have accepted the contention of the appellant that ESOP's is not taxable in India. C) The A.O. has erred in ignoring the article 15 of the India and Indonesia DTAA wherein, the salary income is taxable where the employee resides in the country in which he stays for more than 182 days in the previous year. The A.O. having accepted the fact that the appellant has not stayed in India for more than 182 days in the previous year should have granted the relief as per the DTAA. 3. Brief facts of the case are that Mr. Naveen V. Gupta (Appellant) is a non- resident during the previous year residing in Indonesia. The appellant has filed its return of income on 26.07.2012 declaring total income of Rs.5,91,178/-. The appellant's income consists of ESOP's income, capital gains, house property and income from other sources. The appellant in his return of income claimed exemption of ESOP's income of Rs.3,14,25,500/- and short term capital gain of Rs.21,90,920/-. The AO has made the addition to the total income of the appellant of Rs.3,14 , 25,500/-. 4. The Assessing Officer accepted the assessee is a non-resident. He further noted that the assessee was team leader for M&A initiative for GCPL. He was sent to Indonesia to work in the Indonesian company which was acquired by GCPL. The Assessing Officer further noted that the assessee worked with GCPL. That in the fiscal year 2010 he was moved to Indonesia to work in the company PT Megesari, an Indonesian company taken over by GCPL The assessee was allotted ESOP's by Godrej Consumer Products Ltd vide ESOP allotment letter dated July 6, 2009. The initial paragraph of the allotment letter mentions that the assessee was granted options on 1,50,000 shares of Godrej Consumer Products Ltd effective from June 30, 2009. That the assessee did not offer benefits of ESOP's arose from exercising the options in the F Y. 2011- Naveen Virendrakumar Gupta 3 12 by quoting the reason that it would be taxable in India if services were rendered in India by the assessee as a resident of India. That it was further retreated that under the Income Tax Act, non-resident income is taxed under the deeming provision of Sec 9(1)(11) of the Act, Based on the provision the assessee took a ground that salary income of non-resident, if the services are rendered in India even if salary is received in India or abroad. That going by this analogy assessee further retreated that though the ESOP's income was received in India it was received for services rendered in Indonesia and since the assessee was nonresident the same income is not taxable in India under the Income Tax Act. The Assessing Officer observed that there is no ambiguity that the assessee was non-resident during the previous year relevant to assessment year. Thereafter the Assessing Officer analysed the taxability of ESOP and held as under : “Prior to being non-resident the assessee was in India serving for GCPL and was getting salary/remunerations from GCPL in India. In the year 2009 the assessee was allotted shares of GCPL under ESOP scheme. These equity shares as referred sweet equity shares are allotted to employees or directors by company at a discount or for consideration other than cash or providing no how or making available eights in the nature of intellectual property rights or value additions by whatever name called. Section 1 7(2)(VI) of the Income Tax Act has been amended to the fact that the value of any benefit arising to an employee in the form of allotting any security at a price lower than the fair market value of such security shall be liable to the tax as perquisite in hands of the employee from the date of allotment or transfer of such security. Here the security means the share allotted under an employee stock option plan. In the instant case shares were allotted to the assessee in 2009 when he was in India working for Godrej. The allotment of shares is followed by vesting options on later date. The sweet shares were allotted for the services being rendered by the assessee in Godrej in India. So for the services rendered by the assessee the shares were given to him. As per the Section 1 7(2)(VI), the benefit arising of these sweet shares or ESOP's is perquisites in the hand of the assessee. Further, the definition of Salary perquisite etc is defined in Section 17 which says for the purpose of section 15and 16 and of this section- 1. Salary includes I) II) III) IV) Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; Naveen Virendrakumar Gupta 4 V) The value arising out of sweet shares for ESOP s perquisites and is a part of the salary of the assessee for the period when he was in India and rendered services in India. Though the vesting rights were on a later date the, the basic fact that it was allotted for the services rendered by the assessee in the company. A copy of employee's stock option plan of Godrej consumer products limited has been submitted by the assessee vide letter dated 19 th March. 2015. It is mentioned in the plan that the objective was GCPL's ESOP is to provide an incentive to attract retain and reward employee's performing services for the participating companies, to motivate them and create an ownership attitude among them thus contributing to the growth and profitability of the participating companies. It is observed from the above that ESOP allotted to the employees of the GCPL for services rendered by employees to the company. It transpires that allotment of ESOP to the assessee was because of assessee's services rendered to the company; and as per the submissions of the assessee service period of the assessee is attributable prior to the Fiscal Year 2010. Even for a moment it is presumed that the assessee working in Indonesia under Indonesian Company acquired by Godrej and he didn't have any role to play in the company back home, the perquisite received by him in the form of allotted shares under ESOP are attributable to the services rendered by him prior to Fiscal Year 2010 for which he exercised his option in the previous year relevant to the assessment year 2012-13. Perquisite is the part of the salary and salary includes past, present and future payments Section 15(c) of the Income Tax Act is clear about the arrear salary. Hence ESOP's value is a part of the arrear salary for the services rendered in India paid in the previous year. Therefore, provisions of Section 9(1)(I1) applies in the case of assessee. Further, the contention of the assessee that since the assessee was working with the company PT Megesari, an Indonesian company in Indonesia no services were rendered to GCPL in the previous year. In other meaning the ESOP stock option was exercised by the assessee after separation from Godrej. A perusal of ESOP allotment letter dated July 6, 2009 issued by Godrej Consumer Products Limited reveals that in the event of separation either by resignation or by abandonment of employment or by any other means all options including vested options which were not exercised at the time of separation either should be exercised immediately or stand terminated with the immediate effect. In a nutshell, the entire column 9 of ESOP letter indicates that in the event of no services rendered or termination of employment by any ways would deny the assessee vesting options in the ESOP. Further, the column 11.2 of the said letter under the head covenants of the option grantee confirms that while during employment with the participating company he/she shall engage himself/herself exclusively in the work assigned by the company/such Participating Company and shall not take up any independent or individual assignments, whether the same is part time or full time, (in an advisory capacity or otherwise) and whether directly or indirectly. It is further noticed from the ESOP plan under the column 14 that the option grantee acknowledges and agrees that the vesting Naveen Virendrakumar Gupta 5 of shares pursuant to the GCPL ESOP is earned only by continuing as an employee at the will of participating company. It is clear that vesting of ESOP shares benefit can be availed only by continuing as an employee of the company. Assessee was allotted ESOPs in 2009, the right was vested in February 2011 and options were exercised in the previous year relevant to the assessment year under consideration. From the conditions of allotment of ESOP, the benefit of ESOP is limited to the employees of the company, At this stage the contention of the assessee that ESOP benefit as salary will not be taxed in India in the previous year is not acceptable.” 5. Assessee appealed before learned CIT(A) against the above order. Learned CIT(A) observed that question arising out of appeal are as under : “whether (1) assessee was assessable in the status of 'non-resident' or not, (2) whether the income by way of receipt of ESOPs in lieu of services rendered to Godrej Consumers Products Ltd (GCPL) accrued and arose in INDIA or not and receipts from subsequent the sale of ESOPs accrued and arose in India or not and (3) whether the provisions of DTAA between India and Indonesia were applicable to the income accruing and arising on receipt of ESOP’s from the former employer GCPL and receipt from subsequent sale of ESOP’s in India”. 6. Learned CIT(A) examined the provisions of section 6 of the I.T. Act and number of days spent by the assessee and thereafter he held as under :- Assessee was in India for a period of more than 720 days during seven previous years, that is, F.Y. 2010-1 1, F.Y. 2009-10, F.Y 200-09, FY 2007-08, F.Y. 2006-07, F.Y, 2005-06 and F.Y, 2004-06 since assessee was deputed to Indonesia by the company GCPL, where he was regularly employed in India, only from previous years, that is, financial years from 2004-05 to 2009-10. This fact is not disputed by the assessee/AR in their submissions. Prima facie, assessee's case squarely falls under sub clause 6(6)(a) of I.T. Act 1961 and hence assessee is treated as 'Resident but Not ordinarily Resident" within the meaning of sub section 6(6)(a) of I.T. ACT 1961 and all other provisions of the I.T. Act 1961 will be applied to the facts of the case accordingly. It is also held that disclosing the status of the assessee as a "Non -Resident" was patently erroneous on the part of the assessee in the return of Income and also patently erroneous when the same was accepted by the AO as that of a "Non -Resident" in the assessment order. In nutshell, assessee as well as the AO, both erred while deciding the issue of the "Residential status" of the assessee during A.Y. 2012-13 while discussing various other aspects of the "Income" as per the provisions of the 1. T. Act 1961. 7. Thereafter learned CIT(A) decided upon merits and decided it against the assessee by holding as under :- Naveen Virendrakumar Gupta 6 “Assessee was an employee of an Indian company GCPL where he was regularly employed till 31/5/2010, and he was deputed by GCPL to its Indonesian subsidiary and he left India on 1 st June 2010 for Indonesia and worked there and derived salary income from the Indonesian company and this salary income from the Indonesian company was offered to tax in Indonesia and not in India. Assessee was offered during June 2009 , during its employment with the Indian Company, that is, GCPL, equity shares under the ESOP scheme, that is, Employee Stock Option Plan (ESOP ) and was allotted 150000 options @ Rs.167=90 plus interest at a compound rate of 10% per annum till the employee paid the money as per the agreement dated 30 th June 2009. The options were to vest in the assessee on 31/3/2011 after which the assessee had the opportunity to exercise the Options before 30 th March 2013. Assessee exercised the options on 30 th MAY, 2011 for 50000 shares @ Rs. l99=27 on 2 nd June 2011, 50000 shares @ Rs.199=44 on 9 th June 2011 and for 50000 shares on 9 th June 2011 @ RS199=83 per share thus totaling the exercise price of RS.2,99,27,000/-. The market value of the shares on the date of exercise of the Options worked out to Rs.6,13,52,500/- and the difference between the market value and the options exercise price of RS.3,14,25,000 (6,13,52,500 - 2,99,27,000) was taxed as Perquisite value of the ESOPs in the hands of the assessee as " Salary Income" by the AO, even though the same was not offered as "Salary Income" by the assessee in the return of income. There is no dispute about the fact that the income, of Rs.3 } 14,25,000, if taxable, is to be taxed under the head "Income from salary", however, the only dispute is regarding the issue whether the income of Rs.3,14,25,000 is deemed to accrue and arise in India or not under section 9 of IT Act 1961 and other provisions of the IT. Act 1961 and in view of the provisions of DTAA agreement between India and Indonesia. Moreover, the definition of a 'Resident" given in article 4 of the DTAA, the assessee is to be treated as a "Resident " of India also irrespective of the fact that he has been treated as "Resident" in Indonesia for the income by way of salary accruing and arising to the assessee from the Subsidiary Company Of Indian Company-GCPL and hence the article 4 of DTAA between India and Indonesia also does not help the assessee in this regard. 6.5 The entire scenario has changed with the change in residential status of the assessee being treated as that of "Resident but not ordinarily resident "under sub section 6(6) of the IT. Act 1961 instead of the "Non-Resident" and hence the facts of the case will be re-examined in light of the same. First of all, the stock options were allotted to the assessee by the Indian Company-GCPL, where he was employed, on July, 6, 2009 when he was the employee of GCPL, and even during the previous year relevant to A.Y. 2012-13, he continued to be an employee of GCPL, but with the difference that he was on deputation from GCPL to its Indonesian subsidiary in Indonesia. Even though the right to exercise for options was exercised by the assessee during previous year relevant to A.Y. 2012-13, the right to exercise was vested in him during the previous year relevant to A.Y. 2010-11 when he was the employee of the Indian Company GCPL where he was employed as an employee and continued to be employed even during the year, of course, as an employee on deputation during the previous year relevant to A.Y. 2012-13. Now the status of the assessee is that of an "Individual who is Resident but not ordinarily resident" and hence , the Naveen Virendrakumar Gupta 7 income from the "Exercise of right to subscribe to the options of GCPL during previous year relevant to A.Y. 2012-13" was deemed to accrue and arise in India because it was relatable to the nexus of the Income being that relatable to GCPL, a company with which he was employed in India and on deputation from GCPL to the Indonesian subsidiary company in Indonesia during previous year relevant to A.Y. 2012-13. Therefore, prima facie, the income of Rs.3,14,25,000 from the exercise of stock option the 150000 in the shares of GCPL was taxable as "perquisites" within the meaning of section 15 to 17 of the I.T. ACT 1961 under sections4, 5 and 9 of I.T. ACT 1961. Moreover, when the income by way of "perquisites' within the meaning of section 15 to 17 of I.T. ACT 1961 is deemed to accrue and arise in India in view of the facts of the case, the question of even invoking section 9 of the I.T. Act, 1961 , which is applicable to non- residents , does not apply since the residential status of the assessee was that of a "Resident but not ordinarily resident" and not that of a "non-resident" and hence the income by way of salary of Rs.3,14,25,000 was taxable as "Salary" under section 15 to 17 of the I.T. Act, 1961. In nutshell, it is held that the income of Rs.3,14,25,000 arising from the exercise of the options of shares of GCPL was correctly taxed as income from "Salary" under sections 15 to 17 of the I.T. ACT 1961, In nutshell, assessee's appeal on all the three grounds of appeal is rejected.” 8. Against the above order assessee is in appeal before us. 9. Learned Counsel of the assessee reiterated that the assessee is non- resident and it has been duly accepted by the Assessing Officer and that learned CIT(A) has erred in holding that assessee’s claim of being a non- resident and acceptance by Assessing Officer, both are wrong. Thereafter learned counsel made detailed submission and further submitted that learned CIT(A) has concluded that assessee is not a non-resident without giving the opportunity to the assessee to rebut as Assessing Officer has already accepted that the assessee is a non-resident. 10. Learned Departmental Representative on the other hand submitted that assessee’s claim of being non-resident has been accepted by the Assessing Officer but that learned CIT(A) has held that the Assessing Officer has held it erroneously. He submitted that now assessee’s submission in this regard may be remitted to the file of learned CIT(A) to consider the same afresh in as much as learned CIT(A) had not examined by plank of assessee in claiming that the assessee was non-resident. Hence, he prayed that the entire issue may be remitted to the file of the learned CIT(A). Learned counsel of the assessee on Naveen Virendrakumar Gupta 8 specific query from the Bench submitted that he has no objection for the remittance of the matter to learned CIT(A) to consider the entire issue afresh. Accordingly as accepted by both the parties we remit the matter to the file of learned CIT(A). Learned CIT(A) is directed to examine the issue afresh in light of the submissions now being made by assessee after giving proper opportunity of being heard. 11. In the result, this appeal by the assessee stands allowed for statistical purposes. Order pronounced in the open court on 22.04.2022. Sd/- Sd/- (KAVITHA RAJAGOPAL) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 22/04/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai