PAWAN KUMAR SHARMA, MUMBAI V. JCIT, Alwar

ITA 289/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5319 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH JCIT DHK
• Assessee Lawyers: N S VYAS
• Keywords: Maximum Marginal Rate; Fair market value
• Section: 56(2); 56

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO.289/JP/14 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 SHRI PAWAN KUMAR SHARMA, VILLAGE BIJORAWAS, POST NANGAL KHORIA, BEHROR, ALWAR CUKE VS. THE J T . COMMISSIONER OF INCOME TAX, RNGE-2, ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AYQPS 7615 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI N.S. VYAS (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04 .03.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 31/03/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), ALWAR DATED 11.02.2014 WHEREIN THE ASSESSEE HAS TAKEN TH E FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) ERRED IN LAW IN SUSTAINING INCONCE IVABLE ADDITION OF RS. 57,47,599/- U/S 56(2) OF THE ACT AS INCOME FROM OT HER SOURCES BEING MONEY RECEIVED AS ONE OF THE BENEFICIARIES FROM TRU ST SET UP BY THE EMPLOYER IN TOTAL DISREGARD TO THE MANDATE OF LAW A S WELL AS TO THE FACTS AND CIRCUMSTANCES. ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 2 1. 1 THE LD. CIT(A) FURTHER ERRED IN LAW IN FAILING TO APPRECIATE THE CIRCUMSTANCES THAT THE APPELLANT GAINED ENTITLEMENT TO SHARE IN S URPLUS FROM EMPLOYEE WELFARE TRUST BY VIRTUE OF HIS EMPLOYMENT ALONE AND HENCE AFORESAID RECEIPT OF ALLOCATED SURPLUS CANNOT BE STATED TO BE WITHOUT CONSIDERATION CONTEMPLATED U/S 56(2) OF THE ACT. 1. 2 THE LD. AO AS WELL AS CIT(A) FURTHER ERRED IN LAW IN DISMISSING THE VITAL FACT THAT THE EMPLOYEE WELFARE TRUST SET UP A DISCRETION ARY PRIVATE TRUST FOR WELFARE OF PRESENT AND FUTURE EMPLOYEES HAS ADMITTE DLY PAID TAXES IN ACCORDANCE WITH LAW AND THE ALLOCATION OF SURPLUS T O THE BENEFICIARIES INCLUDING APPELLANT HEREIN IS NET OF TAXES AND THU S OUGHT NOT TO HAVE EMBARKED ON DOUBLE TAXATION IN VIEW OF SCHEME OF AC T IN S.161 AND S.164 OF THE ACT READ WITH CATEGORICAL CBDT CIRCULAR NO. 15 7 DATED 26.12.1974. 1.3 THE CIT(A) ERRED IN SUSTAINING ACTION OF AO BY PLACING RELIANCE ON SINGULARLY IRRELEVANT AND EXTRANEOUS CONSIDERATIONS VIS.(I) DI STORTIONARY AND ABUSIVE ARRANGEMENT TO AVOID PAYMENT OF TAXES IN THE RIGHTF UL MANNER (II) LACK OF CLARITY ON ALLOTMENT OF SHARES ETC. BY GLOSSING OVE R RELEVANT CONSIDERATIONS AND SUBSTRATUM OF THE TRUST VIZ. ENTITLEMENT OF BE NEFICIARIES TO EITHER ENJOY PROPERTY ITSELF OR MONEY EQUIVALENT THEREOF WHICH C AN NEITHER BE ISOLATED NOR JEOPARDIZE THE INTEREST OF BENEFICIARIES PER SE . 1.4 WITHOUT PREJUDICE AND IN THE ALTERNATIVE, THE L D. CIT(A) FURTHER FAILED TO APPRECIATE THE GENERIC POSITION OF LAW THAT ALLOCA TION OF SURPLUS AFTER MEETING TAX OBLIGATIONS BY A PRIVATE DISCRETIONARY TRUST ON BEHALF OF ITS BENEFICIARIES UNDER S. 161 164 OF THE ACT IN REPR ESENTATIVE CAPACITY CANNOT BE SUBJECTED TO TAXATION IN THE HANDS OF BENEFICIAR IES AGAIN, IRRESPECTIVE WHETHER BENEFIT WAS BESTOWED BY VIRTUE OF EMPLOYMEN T OR OTHERWISE. 2. BRIEFLY, THE FACTUAL MATRIX OF THE MATTER UNDER CONSIDERATION IS THAT DURING THE YEAR, THE APPELLANT HAS WORKED WITH IDFC SECURI TIES LTD. AND HAS RECEIVED A SUM OF RS. 57,47,599/- FROM SSKI EMPLOYEES WELFARE TRUST WHERE THE APPELLANT WAS ONE OF THE BENEFICIARIES. M/S S S KANTILAL ISH WARLAL SECURITIES (P) LTD. (NOW KNOWN AS IDFC SECURITIES LTD AND IN SHORT SSKI) HAVE SET UP A TRUST BY NAME OF ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 3 SSKI EMPLOYEES WELFARE TRUST VIDE TRUST DEED DATED 25.09.2006. PURSUANT TO THE SHARE HOLDER AGREEMENT DATED 25.09.2006, THE SETTLE R OF THE TRUST HAS AGREED TO INSTITUTE AN EMPLOYEE STOCK OPTION PLAN TO ENABLE T HE EMPLOYEES AND WORKING DIRECTORS OF SSKI AND OF ITS SUBSIDIARY COMPANIES T O ACQUIRE THE EQUITY SHARES OF SSKI. FOR THIS PURPOSE, THE SETTLER HAS SETTLED A S UM OF RS. 4,01,000/- AND THE PROMOTERS HAVE AGREED TO TRANSFER TO THE TRUST SHA RES REPRESENTING 33.33% OF THE TOTAL ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARE CAPITAL OF SSKI AT AN AGREED CONSIDERATION WHICH SHALL BE HELD AND DISPOSED OF BY THE TRUST EXCLUSIVELY FOR THE BENEFIT OF THE BENEFICIARIES. ONE OF THE OBJECTS OF THE TRUST WAS TO GRANT, AT A DISCRETION OF A COMMITTEE, TO SUCH ELIGIBLE PERSONS AS PER THE CRITERIA LAID DOWN UNDER THE ESOP, OPTION TO ACQUIRE EQUITY SHARES FRO M THE TRUST. IT IS FURTHER PROVIDED THAT THE TRUSTEES WOULD ADMINISTER THE PRO PERTY OF THE TRUST IN AS MUCH AS THEY RELATE TO THE ESOP SHARES AND DIVIDEND THER EON. 2.1 THE TRUST HAS BEEN SET UP TO ADMINISTER THE ESO P SCHEME FRAMED BY THE IDFC SECURITIES WHICH INCLUDES HOLDING THE SHARES ON BEHALF OF THE BENEFICIARIES AND TO DEAL WITH ALL THE MATTERS RELATING TO SUCH S HARES INCLUDING RECEIVING DIVIDEND ON BEHALF OF THE BENEFICIARIES AND DISPOSI TION OF SHARES ON BEHALF OF THE BENEFICIARIES. AS PART OF THE INITIAL SCHEME, IT WA S CONTEMPLATED THAT THE ESOP SHARES SHALL BE TRANSFERRED TO THE ELIGIBLE PERSO NS AND TILL SUCH TIME, THE SHARES HAVE NOT BEEN TRANSFERRED, THEY SHALL BE HELD IN TRUST BY THE TRUSTEES FOR AND ON BEHALF OF BENEFICIARIES OF THE TRUST. SUBSEQUENTLY , A DECISION WAS TAKEN WHEREBY THE SHARES WERE DIRECTLY SOLD ON BEHALF OF THE BENE FICIARIES TO IDFC AT AN AGREED PRICE. 2.2 ON CONSIDERING THE ABOVE FACTUAL MATRIX, IT IS CLEAR THAT THE APPELLANT WHO WAS AN EMPLOYEE OF IDFC SECURITIES LTD. WAS ONE OF THE BENEFICIARIES OF THE TRUST. IN A SCENARIO WHERE THE ORIGINAL SCHEME OF ALLOTTIN G ESOP SHARES WERE TO CONTINUE AND IMPLEMENTED, THE APPELLANT WOULD HAVE BEEN LIAB LE TO TAX U/S 17(2)(VI) IN RESPECT OF FAIR MARKET VALUE OF SUCH SHARES AT THE TIME OF EXERCISE OF THE OPTIONS IN RESPECT OF 25000 NOS. TRANCHE B. SHARES WHICH HA VE BEEN GRANTED BY THE COMPANY OF THE APPELLANT IN THE YEAR 2007. SUBSEQU ENTLY, WHEN SUCH SHARES ARE SOLD IN THE OPEN MARKET, THE APPELLANT WOULD HAVE B EEN LIABLE TO CAPITAL GAINS TAX UNDER THE PROVISIONS OF SECTION 45 READ WITH SECTIO N 48(2AA) OF THE ACT. UNDER ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 4 THE REVISED SCHEME WHICH ACTUALLY GOT IMPLEMENTED, THE APPELLANT HAS NOT EXERCISED HIS OPTIONS TO ACQUIRE THE SHARES OF IDFC SECURITIES. IN THE ABSENCE OF OPTIONS BEEN EXERCISED BY THE APPELLANT AND MERELY BY VIRTUE OF HAVING OPTIONS TO PURCHASE SHARES IN TERMS OF GRANT LETTER DATED O CTOBER 24, 2007, THE APPELLANT CANNOT BE BROUGHT TO TAX UNDER THE SPECIFIC PROVISI ONS OF SECTION 17(2)(VI) WHICH HAVE BEEN BROUGHT ON THE STATUE BY THE FINANCE ACT 2009. AT THE SAME TIME, THE QUESTION THAT ARISES FOR CONSIDERATION IS THAT THE APPELLANT CONTINUED TO HOLD HIS RIGHTS OVER THE OPTIONS TO ACQUIRE TRANCHE B SHARES IN IDFC SECURITIES AND INSTEAD OF ACQUIRING THE SHARES, HE HAS GIVEN HIS UNCONDITI ONAL AND IRREVOCABLE CONSENT FOR THE SALE AND TRANSFER OF SUCH SHARES BY THE EMPLOYE E TRUST TO IDFC AT AN AGREED PRICE. THE EMPLOYEE TRUST HAS SUBSEQUENTLY SOLD TH ESE SHARES TO IDFC AND THE SURPLUS HAS BEEN DISTRIBUTED AND PAID TO THE APPELL ANT TO THE EXTENT OF HIS INTEREST I.E, 25000 NOS. OF TRANCHE B SHARES. IN OTHER WORD S, THE APPELLANT BY VIRTUE OF HIS EMPLOYMENT WITH IDFC SECURITIES HAS GOT FROM HIS EM PLOYER ENTITY THE OPTIONS TO ACQUIRE SHARES, AND INSTEAD OF SHARES AS CONTEMPLAT ED INITIALLY, GOT THE SALE PROCEEDS OF SHARES REALIZED THROUGH THE SSKI EMPLOY EES WELFARE TRUST. SUCH REALIZATION IS CLEARLY IN THE NATURE OF PERQUISITE WHICH HAS ACCRUED IN THE HANDS OF THE APPELLANT BY VIRTUE OF HIS EMPLOYMENT. THUS, T HE PROVISIONS OF SECTION 56 WHICH ARE RESIDUARY IN NATURE CANNOT BE INVOKED IN THE INSTANT CASE. 2.3 THE NEXT QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THE SALES PROCEEDS OF SHARES WOULD BE BROUGHT TO TAX IN THE H ANDS OF THE APPELLANT UNDER THE PROVISIONS OF SECTION 17 OF THE ACT OR THE SSKI EMPLOYEE WELFARE TRUST WHICH HAS ADMINISTERED THE WHOLE SCHEME OF SALE AND DISTR IBUTION OF SALE PROCEEDS OF SHARES AMONG THE BENEFICIARIES OF THE TRUST SHALL B E BROUGHT TO TAX UNDER THE PROVISION OF SECTION 161-164 OF THE ACT. THE RELEV ANT PROVISIONS READ AS UNDER: SECTION 161: LIABILITY OF REPRESENTATIVE ASSESSEE (1) EVERY REPRESENTATIVE ASSESSEE, AS REGARDS THE I NCOME IN RESPECT OF WHICH HE IS A REPRESENTATIVE ASSESSEE, SHALL BE SUBJECT TO THE SAME DUTIES, RESPONSIBILITIES AND LIABILITIES AS IF THE INCOME WERE INCOME RECEIVED B Y OR ACCRUING TO OR IN FAVOUR OF HIM BENEFICIALLY, AND SHALL BE LIABLE TO ASSESSMENT IN HIS OWN NAME IN RESPECT OF ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 5 THAT INCOME; BUT ANY SUCH ASSESSMENT SHALL BE DEEME D TO BE MADE UPON HIM IN HIS REPRESENTATIVE CAPACITY ONLY, AND THE TAX SHALL , SUBJECT TO THE OTHER PROVISIONS CONTAINED IN THIS CHAPTER, BE LEVIED UPON AND RECOV ERED FROM HIM IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON AND RECOVERABLE FROM THE PERSON REPRESENTED BY HIM. (1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), WHERE ANY INCOME IN RESPECT OF WHICH THE PERSON MENTIONED IN CLAUSE (IV ) OF SUB-SECTION (1) OF SECTION 160 IS LIABLE AS REPRESENTATIVE ASSESSEE CONSISTS O F, OR INCLUDES, PROFITS AND GAINS OF BUSINESS, TAX SHALL BE CHARGED ON THE WHOLE OF T HE INCOME IN RESPECT OF WHICH SUCH PERSON IS SO LIABLE AT THE MAXIMUM MARGINAL RA TE : PROVIDED THAT THE PROVISIONS OF THIS SUB-SECTION SH ALL NOT APPLY WHERE SUCH PROFITS AND GAINS ARE RECEIVABLE UNDER A TRUST DECLARED BY ANY PERSON BY WILL EXCLUSIVELY FOR THE BENEFIT OF ANY RELATIVE DEPENDENT ON HIM FO R SUPPORT AND MAINTENANCE, AND SUCH TRUST IS THE ONLY TRUST SO DECLARED BY HIM . (2) WHERE ANY PERSON IS, IN RESPECT OF ANY INCOME, ASSESSABLE UNDER THIS CHAPTER IN THE CAPACITY OF A REPRESENTATIVE ASSESSEE, HE SH ALL NOT, IN RESPECT OF THAT INCOME, BE ASSESSED UNDER ANY OTHER PROVISION OF TH IS ACT. SECTION 164: CHARGE OF TAX WHERE SHARE OF BENEFICIA RIES UNKNOWN (1) SUBJECT TO THE PROVISIONS OF SUB-SECTIONS (2) A ND (3), WHERE ANY INCOME IN RESPECT OF WHICH THE PERSONS MENTIONED IN CLAUSES ( III) AND (IV) OF SUB-SECTION (1) OF SECTION 160 ARE LIABLE AS REPRESENTATIVE ASSESSE ES OR ANY PART THEREOF IS NOT SPECIFICALLY RECEIVABLE ON BEHALF OR FOR THE BENEFI T OF ANY ONE PERSON OR WHERE THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVABLE ARE INDET ERMINATE OR UNKNOWN (SUCH INCOME, SUCH PART OF THE INCOME AND SUCH PERSONS BE ING HEREAFTER IN THIS SECTION REFERRED TO AS 'RELEVANT INCOME', 'PART OF RELEVANT INCOME' AND 'BENEFICIARIES', RESPECTIVELY), TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE : PROVIDED THAT IN A CASE WHERE (I) NONE OF THE BENEFICIARIES HAS ANY OTHER INCOME CHAR GEABLE UNDER THIS ACT EXCEEDING THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX IN THE CASE OF AN ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 6 ASSOCIATION OF PERSONS OR IS A BENEFICIARY UNDER AN Y OTHER TRUST; OR (II) THE RELEVANT INCOME OR PART OF RELEVANT INCOME IS RECEIVABLE UND ER A TRUST DECLARED BY ANY PERSON BY WILL AND SUCH TRUST IS TH E ONLY TRUST SO DECLARED BY HIM; OR (III) THE RELEVANT INCOME OR PART OF RELEVANT INCOME IS R ECEIVABLE UNDER A TRUST CREATED BEFORE THE 1ST DAY OF MARCH, 1970, BY A NON - TESTAMENTARY INSTRUMENT AND THE ASSESSING OFFICER IS SATISFIED, HAVING REGARD TO ALL THE CIRCUMSTANCES EXISTING AT THE RELEVANT TIME, THAT T HE TRUST WAS CREATED BONA FIDE EXCLUSIVELY FOR THE BENEFIT OF THE RELATIVES O F THE SET TLOR, OR WHERE THE SETTLOR IS A HINDU UNDIVIDED FAMILY, EXCLUSIVELY FO R THE BENEFIT OF THE MEMBERS OF SUCH FAMILY, IN CIRCUMSTANCES WHERE SUCH RELATIVES OR MEMBERS WERE MAINLY DEPENDENT ON THE SETTLOR FOR THEIR SUPP ORT AND MAINTENANCE; OR (IV) THE RELEV ANT INCOME IS RECEIVABLE BY THE TRUSTEES ON BEHALF OF A PROVIDENT FUND, SUPERANNUATION FUND, GRATUITY FUND, PENSION F UND OR ANY OTHER FUND CREATED BONA FIDE BY A PERSON CARRYING ON A BUSINES S OR PROFESSION EXCLUSIVELY FOR THE BENEFIT OF PERSONS EMPLOYED IN SUCH BUSINESS OR PROFESSION, TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AS IF IT WERE THE TOTAL INCOME OF AN ASSOCIATION OF PERSONS SECTION 166: DIRECT ASSESSMENT OR RECOVERY NOT BARR ED NOTHING IN THE FOREGOING SECTIONS IN THIS CHAPTER S HALL PREVENT EITHER THE DIRECT ASSESSMENT OF THE PERSON ON WHOSE BEHALF OR FOR WHO SE BENEFIT INCOME THEREIN REFERRED TO IS RECEIVABLE, OR THE RECOVERY FROM SUC H PERSON OF THE TAX PAYABLE IN RESPECT OF SUCH INCOME. 2.4 IN THIS REGARD, THE APPELLANT HAS BROUGHT TO OU R NOTICE CBDT CIRCULAR NO. 157 DATED 26.12.1974 WHICH PROVIDES THAT ACCORDING TO THE SCHEME OF THE IT ACT OF 1961, THE GENERAL PRINCIPAL IS TO CHARGE ALL INC OME ONLY ONCE. THE BOARD DESIRE TO REITERATE THE EARLIER INSTRUCTIONS IN THIS REGAR D. IN ORDER THAT THERE IS NO LOSS OF REVENUE, THE ITO SHOULD KEEP THIS POINT IN VIEW AT THE TIME OF RAISING THE INITIAL ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 7 ASSESSMENT EITHER OF THE TRUST OR THE BENEFICIARIES AND ADOPT A COURSE BENEFICIAL TO THE REVENUE. HAVING EXERCISED HIS OPTION ONCE, IT WILL NOT BE OPEN TO THE ITO TO ASSESS THE SAME INCOME FOR THE ASSESSMENT YEAR I N THE HANDS OF THE OTHER PERSON (I.E. THE BENEFICIARY OR THE TRUSTEE). THE HONBLE SUPREME COURT OF INDIA IN CASE OF C. R. NAGAPPA V. COMMISSIONER OF INCOME-TAX (1969) 73 ITR 626 (SC) HAS LAID DOWN THE FOLLOWING PRINCIPLE OF LAW: IT IS IMPLICIT IN THE TERMS OF SUB-SECTION (1) OF SECTION 161 THAT THE ITO MAY ASSESS A REPRESENTATIVE ASSESSEE AS REGARDS INCOME IN RESP ECT OF WHICH IS A REPRESENTATIVE ASSESSEE, BUT HE IS NOT BOUND TO DO SO. HE MAY ASSESS EITHER THE REPRESENTATIVE ASSESSEE OR THE PERSON REPRESENTED B Y HIM. THAT IS EXPRESSLY SO ENACTED IN SECTION 166. THE ITO MAY, ASSESS THE PERSON REPRESENTED IN RESPE CT OF THE INCOME OF THE TRUST PROPERTY AND THE APPROPRIATE PROVISIONS OF THE ACT RELATING TO THE COMPUTATION OF THE TOTAL INCOME AND THE MANNER IN WHICH THE INCOME IS TO BE COMPUTED WILL APPLY TO THAT ASSESSMENT. THE ITO MAY IN APPROPRIATE CASE S ASSESS THE REPRESENTATIVE ASSESSEE IN RESPECT OF THAT INCOME AND LIMITED TO T HAT EXTENT, AND TAX MAY BE LEVIED AND RECOVERED FROM HIM TO THE SAME EXTENT AS MAY BE LEVIABLE AND RECOVERABLE FROM THE PERSON REPRESENTED BY HIM. SUB-SECTION (2) OF SECTION 161 DOES NOT PURPORT TO DENY THE ITO THE OPTION TO ASSESS THE INCOME IN THE HANDS OF THE PERSON REPRES ENTED BY THE REPRESENTATIVE ASSESSEE: IT MERELY ENACTS THAT WHEN A REPRESENTATI VE ASSESSEE IS ASSESSED TO TAX IN EXERCISE OF THE OPTION OF THE REVENUE, HE SHALL BE ASSESSED UNDER CHAPTER XV AND SHALL NOT IN RESPECT OF THAT INCOME BE ASSESSED UND ER ANY OTHER PROVISIONS OF THE ACT. ON THE PLAIN WORDS USED BY PARLIAMENT THE PLEA RAISED BY THE ASSESSEE THAT THE REPRESENTATIVE ASSESSEE ALONE MIGHT BE ASSESSED AS REGARDS INCOME IN RESPECT OF WHICH HE WAS A REPRESENTATIVE ASSESSEE COULD NOT BE ACCEPTED. ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 8 2.5 IN THE CONTEXT OF RELEVANT PROVISIONS OF IT ACT AND THE ABOVE PROPOSITION OF LAW AS LAID DOWN BY HONBLE SUPREME COURT, IT WOULD BE RELEVANT TO EXAMINE THE RELEVANT PROVISIONS OF THE TRUST DEED. CLAUSE 8: DISPOSITIVE PROVISIONS THE TRUSTEES SHALL HOLD , MANAGE, INVEST AND REINVE ST THE PROPERTY OF THE TRUST AND SHALL COLLECT AND RECEIVE THE INCOME THEREFROM, AND AFTER DEDUCTING ALL THE NECESSARY EXPENSES INCIDENTAL TO THE ADMINISTRATIO N OF THIS TRUST, DISPOSE OF THE CORPUS AND THE INCOME OF THE TRUST IN THE MANNER PR OVIDED HEREUNDER: (A) THE TRUSTEES SHALL HOLD THE ESOP SHARES TILL SUCH T IME AS THEY ARE TRANSFERRED TO THE ELIGIBLE PERSONS ACCORDING TO TH E DECISION OF THE COMMITTEE. THE TRUSTEES SHALL TRANSFER THE ESOP SH ARES TO THE ELIGIBLE PERSONS ACCORDING TO THE PROVISIONS OF THE ESOP. T HE DIVIDEND RECEIVED ON THE ESOP SHARES SHALL BE ACCUMULATED SEPARATELY A ND UTILIZED IN ACCORDANCE WITH THE PROVISIONS OF THE ESOP. (B) ALL OTHER PROPERTY AND INCOME OF THE TRUST SHALL B E UTILIZED FROM TIME TO TIME BY THE TRUSTEES FOR THE BENEFIT AND WELFARE OF THE ELIGIBLE PERSONS. (C) THE DURATION OF THE TRUST SHALL BE 7(SEVEN) YEARS. PROVIDED HOWEVER THAT THE TRUSTEES MAY BE A UNANIMOUS DECISION IN W RITING AND FOR A VALID REASON TERMINATE THE TRUST AT ANY TIME AFTER THE E XPIRY OF 5 (FIVE) YEARS FROM THE DATE HEREOF. THE TRUST SHALL NOT BE TERMI NATED IN A MANNER WHICH WOULD PREJUDICE THE INTEREST OF THE ELIGIBLE PERSO NS UNDER THE ESOP. (D) AT THE TIME OF THE TERMINATION OF THE TRUST, THE T RUSTEES SHALL HAND OVER THE CORPUS OF THE TRUST AND BALANCE PORTION OF THE ACCUMULATED INCOME TO ALL THE BENEFICIARIES MENTIONED IN CLAUSE 5 HEREINA BOVE AS ARE IN EXISTENCE AT THE TIME OF THE TERMINATION OF THE TRUST OR TO S OME OF THEM, IN SUCH PROPORTION AND IN SUCH MANNER, AS THE TRUSTEES THIN K FIT. CLAUSE 9: DISCRETION OF TRUSTEES (A) IT IS EXPRESSLY DECLARED THAT THE WELFARE MEASURES TO BE UNDERTAKEN UNDER THIS TRUST DEED SHALL, SUBJECT TO THE PROVISI ONS OF THIS TRUST DEED, ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 9 BE AT THE ABSOLUTE DISCRETION OF THE TRUSTEES. TH E TRUSTEES WILL HAVE FULL POWER AND ABSOLUTE AUTHORITY TO TAKE ALL DECISIONS AT THEIR OWN DISCRETION AND THEY WILL NOT BE ANSWERABLE OR RES PONSIBLE TO THE ELIGIBLE PERSONS FOR ANY OF THEIR DECISIONS. (B) THE TRUSTEES WILL HAVE THE AUTHORITY TO CONSULT THE COMMITTEE AND ANY OTHER PERSON(S) THEY DEEM FIT. ANY CONSULTATION S HALL NOT AND WILL NOT (AND SHALL OR ACTIONS, DISCRETIONARY POWERS AND AUT HORITIES VESTED WITH THEM UNDER THIS TRUST DEED. (C) THE POWERS AND DUTIES TO BE EXERCISED BY THE TRUSTE E UNDER THIS TRUST DEED WOULD BE SUBJECT TO ALL APPLICABLE LAWS AT PRE SENT AND THOSE WHICH MAY BECOME APPLICABLE IN THE FUTURE. CLAUSE 10: IRREVOCABILITY THE TRUST IS AND SHALL BE IRRECOVERABLE AND NONE O F THE HEIRS OR EXECUTORS OF THE SETTLER AS SUCH HAVE ANY RIGHTS OR POWERS, WHET HER ALONE OR IN CONJUNCTION WITH OTHERS, AND REGARDLESS OF WHEN OR FROM WHAT S OURCE THEY MAY HERETOFORCE OR HEREAFTER HAVE ACQUIRED SUCH RIGHT S OR POWERS , TO ALTER, AMEND OR REVOKE THE TRUST , OR ANY OF THE TERMS OF THIS TRUST DEED IN WHOLE OR IN PART. TO MORE FULLY EXPRESS ITS INTENTIONS, BY THIS INSTRUMENT THE SETTLER AS SUCH RELINQUISHES ABSOLUTELY AND FOREVER ITS RIGHTS AND POWER, WHETHER ALONE OR IN CONJUNCTION WITH OTHERS, TO DESIGNATE THE PER SON WHO SHALL POSSESS OR ENJOY THE PROPERTY OR THE INCOME THERE FROM. 2.6 IT IS FURTHER NOTED THAT AN ESOP PLAN DATED SEP TEMBER 25, 2006 HAS BEEN FORMULATED TO ENABLE THE ELIGIBLE PERSONS AS DEFINE D IN THE TRUST DEED TO ACQUIRE EQUITY SHARE IN THE COMPANY. THE ELIGIBLE PERSONS ARE THE BENEFICIARIES OF THE TRUST WHICH ARE THE PRESENT AND FUTURE PERMANENT EM PLOYEES INCLUDING WORKING DIRECTORS OF SSKI OR ITS SUBSIDIARY COMPANIES. IT IS FURTHER NOTED THAT A GRANT LETTER DATED 22.10.2007 HAS BEEN ISSUED BY THE COMPANY TO THE APPELLANT GRANTING HIM OPTIONS PERTAINING TO 25,000 NUMBER OF TRANCHE B SH ARES OF THE COMPANY. SUBSEQUENTLY, VIDE HIS CONSENT LETTER DATED 25.05.2 009, THE APPELLANT HAS GIVEN HIS CONSENT TO HIS EMPLOYER COMPANY AND SSKI EMPLOY EES WELFARE TRUST WHICH READS AS UNDER: ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 10 (1) PURSUANT TO THE TERMS OF THE ESOP SCHEME AND AS SET OUT IN THE TRANCHE B GRANT LETTER AND TRANCHE C GRANT LETTER, A PART O F THE OPTIONS PERTAINING TO TRANCHE B SHARES AND TRANCHE C SHARE S, AS APPLICABLE, ARE VESTED IN ME AS PER TRANCHE B VESTING PERIOD AND T RANCHE C VESTING PERIOD. HOWEVER, THE SAID OPTIONS ARE YET TO BE EX ERCISED BY ME TILL DATE AND I HEREBY WAIVE MY RIGHT TO EXERCISE THE SA ME. (2) I HEREBY AUTHORIZE THE COMPANY AND/OR THE EMPLOYEES TRUST, AS THE CASE MAY BE TO CANCEL THE GRANT LETTERS AS ALSO GIVE MY CONSENT TO CANCEL/TERMINATE THE ESOP SCHEME WITH IMMEDIATE EF FECT WITHOUT ANY FURTHER REFERENCE OR CONSENT FROM ME AND THUS, HERE BY WAIVE ALL MY RIGHTS, BENEFITS, AND ENTITLEMENTS ACCRUED/TO BE AC CRUED UNDER THE SAID GRANT LETTERS AS ALSO THE ESOP SCHEME, AS APPLICABL E. (3) I HEREBY PROVIDE MY UNCONDITIONAL AND IRREVOCABLE CONSENT FOR THE SALE & TRANSFER OF 25000 NOS. OF SHARES OF THE COMPANY E MANATING FROM THE OPTIONS REFERRED TO IN THE SAID GRANT LETTERS (THE SHARES) BY THE EMPLOYEES TRUST TO IDFC ON THE PRICE(PURCHASE PRICE ) AND OTHER TERMS AND CONDITIONS MUTUALLY AGREED BETWEEN THE EMPLOYEE S TRUST AND IDFC (OTHER TERMS). 2.7 SUBSEQUENTLY, SSKI EMPLOYEES WELFARE TRUST VID E ITS LETTER DATED 13.06.2009 HAS INFORMED THE APPELLANT THAT IN THIS CONNECTION, WE WISH TO INFORM YOU THAT THE SHARES HAVE BEEN SOLD TO IDFC P URSUANT TO THE AGREEMENT FOR SALE OF THE SHARES DATED JUNE 08, 2009 ENTERED INTO BETWEEN THE EMPLOYEES TRUST, THE COMPANY AND IDFC. THE EMPLOYE ES TRUST AND THE COMPANY HAVE FORMULATED THE DISTRIBUTION SCHEME F OR DISTRIBUTION OF THE PROCEEDS OF THE SALE OF SHARES BY EMPLOYEES TRUST A MONGST THE ELIGIBLE EMPLOYEES OF THE COMPANY AND THE SAME HAS BEEN APPR OVED BY THE BOARD OF TRUSTEES OF THE EMPLOYEE TRUST AND THE BOARD OF DIR ECTORS OF THE COMPANY VIDE RESPECTIVE RESOLUTIONS DATED MAY 26,2009. THE PROCEEDS RECEIVED FROM IDFC HAVE BEEN DEPOSITED IN THE EMPLOYEES TRUSTS B ANK ACCOUNT AND THE EMPLOYEE TRUST IS RESPONSIBLE FOR DISTRIBUTION OF T HE SAME AMONGST THE ELIGIBLE EMPLOYEES AS PER THE TERMS OF THE DISTRIBUTION SCHE ME. ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 11 WE ARE PLEASED TO INFORM YOU THAT IN ACCORDANCE WIT H THE TERMS OF THE DISTRIBUTION SCHEME YOU ARE ENTITLED TO RECEIVE A S UM OF RS. 1,78,08,224/- ON THE PAYMENT DATE(S) MENTIONED BELOW FROM THE EMPL OYEES TRUST. PLEASE NOTE THAT THE AMOUNT MENTIONED BELOW IS NET OF TAXE S (I.E. LONG TERM CAPITAL GAINS TAX ON UNLISTED SECURITIES WHICH WILL BE DEDU CTED FROM THE GROSS AMOUNT DUE TO YOU BY THE EMPLOYEES TRUST AND PAID TO THE T AX AUTHORITIES.) SL.NO. E NTITLEMENT/PAYMENT AMOUNT (INRS.) PAYMENT DATE(S) 1. RS. 24,15,552/ - ON THE RECEIPT OF THIS LETTER BY YOU 2. RS. 31,41,276/ - SEPTEMBER 30,2009 3. RS. 53,15,802/ - SEPTEMBER 30, 2010 4. RS. 29,00,250/ - SEPTEMBER 30, 2011 PLEASE NOTE THAT YOU ARE ELIGIBLE TO RECEIVE THE A FORESAID AMOUNT ON THE SAID PAYMENT DATE(S) SUBJECT TO THE FOLLOWING CONDITIONS IN THE DISTRIBUTION SCHEME AS OUTLINED BELOW: A) IN THE EVENT OF YOUR RESIGNATION AND/OR TERMINATION OF SERVICE ON ACCOUNT OF MISCONDUCT ON YOUR PART WITH RESPECT TO ANY OF T HE UNPAID ACCOUNTS AS AFORESAID MISCONDUCT WITH RESPECT TO ANY EMPLOYEE B EING DEFINED IN THE DISTRIBUTION SCHEMES AS (I) ENGAGING ANY ACT OR OM ISSION WHICH WOULD CONSTITUTE FRAUD, GROSS NEGLIGENCE OR WILFUL MISCON DUCT (II) ANY CONVICTION OF ANY CRIME CONSTITUTING A FELONY. B) IN THE EVENT OF RETIREMENT OF PERMANENT DISABILITY WHILE IN THE EMPLOYMENT OF THE COMPANY, THE EMPLOYEES TRUST SHAL L TRANSFER THE AMOUNT DUE TO YOU ON THE DATE OF RETIREMENT OR ON T HE HAPPENING OF AN EVENT THAT WOULD CONSTITUTE PERMANENT DISABILITY, AS THE CASE MAY BE, IRRESPECTIVE OF THE PAYMENT DATE(S) MENTIONED HEREI NABOVE. FURTHER, IN THE EVENT OF YOUR DEATH WHILE IN THE EMPLOYMENT OF THE COMPANY, NOTWITHSTANDING THE PAYMENT DATE(S) DESCRIBED ABOVE , THE EMPLOYEES TRUST SHALL TRANSFER THE AMOUNT DUE TO YOU TO YOUR NOMINEE/LEGAL HEIR(S)/SUCCESSOR(S). ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 12 2.8 FURTHER, IN RESPONSE TO NOTICE ISSUED UNDER SEC TION 133(6), THE SSKI TRUST VIDE ITS LETTER DATED 01.01.2013 HAS CONFIRME D TO THE APPELLANTS ASSESSING OFFICER THAT IT HAS PAID LONG TERM CAPITA L GAIN @ 20% ON SALE OF SHARES TO IDFC AND NET SURPLUS WAS DISTRIBUTED TO E LIGIBLE EMPLOYEES WHICH INCLUDES MR. PAWAN KUMAR SHARMA, THE APPELLANT. IT WAS FURTHER SUBMITTED BY THE TRUST THAT IT IS A PRIVATE DISCRETIONARY TRU ST WHERE THE SHARE OF BENEFICIARIES IS UNKNOWN, ACCORDINGLY PROVISIONS OF SECTION 164 OF THE ACT ARE APPLICABLE TO IT AND THE TRUST HAS COMPUTED THE TAX LIABILITY ON THE CAPITAL GAINS EARNED BY IT AT THE MAXIMUM RATE AND HAS PAID APPROPRIATE TAXES AND FILED ITS RETURN OF INCOME WHICH HAS SUBS EQUENTLY BEEN PROCESSED U/S 143(1) OF THE ACT. 2.9 IN LIGHT OF ABOVE, IT IS CLEAR THAT THE WHOLE S CHEME HAS BEEN ADMINISTERED BY THE EMPLOYER ENTITY THROUGH THE EMP LOYER WELFARE TRUST RIGHT FROM INCEPTION TILL DISPOSITION OF SHARES, PA YMENT OF TAXES AND FINAL DISTRIBUTION OF SALE PROCEEDS TO THE BENEFICIARIES OF THE TRUST. FURTHER, IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE TRUST HAS PAID LONG TERM CAPITAL GAINS @ 20% AND HAS BEEN REGULAR IN FILING ITS RETURN OF IN COME UNDER THE SCHEME AND PROVISIONS OF SECTION 161-164 OF THE ACT. THE DEPOSITION OF TAXES AND FILING OF TAX RETURN HAS THUS HAPPENED IN THE STATU S OF REPRESENTATIVE ASSESSEE BY THE TRUST ON BEHALF OF ALL THE BENEFICI ARIES INCLUDING THE APPELLANT. 2.10 THE QUESTION THAT ARISE FOR CONSIDERATION IS W HETHER THE AO HAS EXERCISED HIS OPTION WHEREBY THE TRUST HAS BEEN ASS ESSED TO TAX IN RESPECT OF SUCH SALE AND DISPOSITION OF SHARES ON BEHALF OF THE BENEFICIARIES AS THERE IS A FUNDAMENTAL DIFFERENCE BETWEEN MERE FILING OF RETURN OF INCOME AND THE RETURN OF INCOME BEING ASSESSED TO TAX. THE CH OICE IS WITH THE ASSESSING OFFICER. HE MAY ASSESS THE PERSON REPRES ENTED AND IF HE DOES SO THE APPROPRIATE PROVISIONS OF THE ACT RELATING TO T HE COMPUTATION OF TOTAL INCOME AND THE MANNER IN WHICH THE INCOME IS TO BE COMPUTED WILL APPLY TO THAT ASSESSMENT. IF, HOWEVER, THE ASSESSING OFF ICER CHOOSES TO ASSESS THE REPRESENTATIVE ASSESSEE IN RESPECT OF THAT INCOME A ND LIMITED TO THAT ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 13 EXTENT, TAX MAY BE LEVIED AND RECOVERED FROM HIM TO THE SAME EXTENT AS MAY BE LEVIABLE AND RECOVERABLE FROM THE PERSON REP RESENTED BY HIM. THE INCOME WHICH IS ONCE BROUGHT TO TAX EITHER IN THE H ANDS OF THE REPRESENTATIVE ASSESSEE OR THE REPRESENTED PERSON C ANNOT BE AGAIN BROUGHT TO TAX IN HANDS OF THE OTHER. 2.11 IN THE INSTANT CASE, IT IS A FACT THAT THE TRU ST HAS FILED THE RETURN IN THE CAPACITY OF REPRESENTATIVE ASSESSEE AND HAS PAID TA XES ON LONG TERM CAPITAL GAINS. AT THE SAME TIME, THERE IS NOTHING ON RECOR D TO SUGGEST THAT AO HAS EXERCISED HIS OPTION WHEREBY THE TRUST HAS BEEN AS SESSED TO TAX IN THE CAPACITY OF THE REPRESENTATIVE ASSESSEE UNDER THE P ROVISIONS OF SECTION 161- 164 OF THE ACT. FURTHER, THE MATTER RELATING TO AP PLICATION OF SECTION 161 OR SECTION 164 IS ALSO NOT ON RECORD AS TO DETERMINE E XACT TAXABILITY OF THE TRUST. WHERE IT IS FOUND ON EXAMINATION BY THE AO THAT THE TRUST HAS BEEN RIGHTLY ASSESSED TO TAX IN THE CAPACITY OF REPRESEN TATIVE ASSESSEE, THE APPELLANT WILL NOT BE CALLED UPON TO PAY ANY FURTHE R TAXES. IN A SCENARIO, WHERE THE TRUST HAS NOT BEEN ASSESSED TO TAX, THE A O WOULD BE AT LIBERTY TO PROCEED AND ASSESS THE INCOME IN THE HANDS OF THE A PPELLANT IN ACCORDANCE WITH LAW AND DUE CREDIT SHALL BE GIVEN FOR CAPITAL GAINS TAX PAID BY THE TRUST RELATING TO SHARE OF APPELLANT IN SALE PROCEEDS OF SHARES AND RESULTANT DISTRIBUTION OF SURPLUS TO HIM. THE MATTER THEREFO RE REQUIRE FURTHER EXAMINATION AND IS BEING ASIDE TO THE FILE OF THE A O WITH ABOVE DIRECTIONS. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31/03 /2016. SD/- SD/- ( R.P. TOLANI) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 31/ 03 /2016 ITA NO. 289/JP/14 SHRI PAWAN KUMAR SHARMA, ALWAR VS. JCIT,R-2, ALWAR 14 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI PAWAN KUMAR SHARMA, ALWAR 2. THE RESPONDENT- THE JCIT RANGE-2, ALWAR 3. THE CIT(A) ALWAR 4. THE CIT- ALWAR 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO.289 /JP/14) VKNS'KKUQLKJ@ BY ORDER, LGK;DATHDKJ@ ASSISTANT. REGISTRAR.