Shri.Krishnakumar Kadathur Ganapathy, Bangalore V. Income Tax Officer, Bangalore

ITA 357/BANG/2017

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8446 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 17-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Salary income; Double taxation relief; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC - B BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 357/BANG/2017 ASSESSMENT YEAR : 2012-13 SHRI. KRISHNAKUMAR KADATHUR GANAPATHY, #74, 2 ND MAIN, 6 TH BLOCK, BEL LAYOUT, VIDYARANYAPURA, BANGALORE 560 097. PAN: ANUPG 6258K VS. THE INCOME TAX OFFICER, WARD 5 (3)(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT (DR) DATE OF HEARING : 22.03.2017 DATE OF PRONOUNCEMENT : 31.03.2017 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 30.11.2016 OF CIT(A) FOR THE ASSESSMENT YEAR 2012-13. THE ASS ESSEE HAS RAISED THE FOLLOWING GROUNDS: ITA NO. 357/BANG/2017 PAGE 2 OF 9 ITA NO. 357/BANG/2017 PAGE 3 OF 9 2. GROUND NOS. 1 TO 6 IS REGARDING THE ADDITION MADE B Y THE AO ON ACCOUNT OF PERQUISITES OF EMPLOYEES STOCK OPTION (ESO). TH E ASSESSEE WAS EMPLOYED WITH INTEL TECHNOLOGY INDIA PVT. LTD DURIN G THE FINANCIAL YEAR 2011-12 FOR A PERIOD FROM 01.04.2011 TO 31.05.2011. THEREAFTER THE ASSESSEE LEFT FOR USA TO WORK WITH INTEL CORPORATIO N. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 13,6 9,689/-. THE AO FOUND THAT THE ASSESSEE HAS EARNED STOCK OPTION VAL UE OF RS. 32,99,286/- DURING THE YEAR. THE AO WAS OF THE VIEW THAT THIS VALUE WAS VESTED TO THE ASSESSEE BY THE INDIAN EMPLOYER DURING THE YEAR . THE AO FURTHER FOUND THAT IN THE FORM 16 FURNISHED BY THE EMPLOYER THE STOCK OPTION VALUE HAS BEEN SHOWN AT RS. 6,71,829/- THUS THE AO HAS ADDED THE DIFFERENTIAL AMOUNT OF RS. 26,27,457/- AS PERQUISIT ES AND SALARY INCOME OF ASSESSEE. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) AND CONTENTED THAT THE STOCK OPTION WAS GRAN TED ON VARIOUS DATES WITH THE CONDITION THAT THE ASSESSEE CAN EXERCISE T HE OPTION RIGHTS ONLY ON COMPLETION OF ONE YEARS EMPLOYMENT FROM THE DATE O F GRANT OF STOCK OPTION. SINCE IT IS CONSIDERED AS PERQUISITE BY TH E AO AND BEING PART OF THE SALARY THEREFORE, THE OPTIONS WAS EXERCISED BY THE ASSESSEE WHEN HE WAS THE EMPLOYEE OF USA COMPANY INTEL CORPORATION A ND THIS RIGHT WAS NOT VESTED DURING HIS STAY IN INDIA BUT IT WAS VEST ED AND EXERCISED DURING HIS EMPLOYMENT IN USA. THE ASSESSEE CONTENTED THAT IN ANY CASE ONLY ITA NO. 357/BANG/2017 PAGE 4 OF 9 THE PROPORTIONATE AMOUNT OF STOCK OPTION VALUE IN T HE RATIO OF THE TENURE OF EMPLOYMENT WITH INDIAN COMPANY AND WITH USA COMP ANY DURING THE YEAR UNDER CONSIDERATION. THUS THE ASSESSEE HAS CO NTENTED THAT SO FAR AS THE PERQUISITES WHICH RELATES TO THE EMPLOYMENT WIT H THE USA COMPANY THE SAME IS TAXABLE ONLY IN USA AS PER THE PROVISIO NS OF ARTICLE 16(1) OF INDO-USA DTAA. THE CIT(A) THOUGH IN PRINCIPLE ACCE PTED THE CONTENTION OF THE ASSESSEE THAT AS PER THE PROVISIO NS OF DTAA THE MORE BENEFICIAL PROVISIONS ARE APPLICABLE TO THE ASSESSE E HOWEVER, WITHOUT GIVING A CONCLUDING FINDING THE APPEAL OF THE ASSES SEE WAS DISMISSED. 3. BEFORE THE TRIBUNAL THE LD. AR OF THE ASSESSEE HAS REITERATED HIS CONTENTION AS RAISED BEFORE THE CIT(A) AND SUBMITTE D THAT THE RIGHT TO EXERCISE THE STOCK OPTION ACCRUED TO THE ASSESSEE O NLY WHEN HE WAS IN EMPLOYMENT WITH INTEL CORPORATION, USA AND THEREFOR E THE STOCK OPTION VALUE CANNOT BE ASSESSED TO TAX IN INDIA AS PER THE PROVISIONS OF ARTICLE 16(1) OF INDO-USA DTAA. HE HAS FURTHER CONTENTED T HAT THE ASSESSEE WAS IN INDIA ONLY UPTO 31.05.2011, WHICH IS TWO MON THS DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDE R CONSIDERATION AND FOR REMAINING PERIOD THE ASSESSEE WAS IN THE EMPLOY MENT WITH INTEL CORPORATION, USA. THE STOCK OPTION WAS GRANTED DUR ING THE PERIOD WHEN THE ASSESSEE WAS IN INDIA ON VARIOUS DATES HOW EVER THE RIGHT TO ITA NO. 357/BANG/2017 PAGE 5 OF 9 EXERCISE THIS OPTION ACCRUED TO THE ASSESSEE ONLY A FTER COMPLETION OF ONE YEAR EMPLOYMENT. HE HAS FURTHER CONTENTED THAT THE STOCK OPTION WAS NOT GRANTED IN ONE LOT AND AT ONE TIME BUT IT WAS GRANT ED ON VARIOUS DATES IN DIFFERENT LOTS AND THE PURCHASE DATES ALSO VARIES F OR DIFFERENT LOTS OF SHARES. SIMILARLY, THE RIGHT TO EXERCISE THE OPTIO N WAS ALSO ACCRUED ON DIFFERENT DATES ON COMPLETION OF ONE YEAR FROM THE DATE OF GRANT OF OPTION. THEREFORE THE LD. AR HAS PLEADED THAT EVEN IF SOME PART OF THE VALUE OF STOCK OPTION IS ASSESSABLE TO TAX IN INDIA THE SAME HAS TO BE COMPUTED IN THE RATIO OF DURATION OF EMPLOYMENT IN INDIA AND EMPLOYMENT IN USA DURING THE YEAR UNDER CONSIDERATI ON. HE HAS FURNISHED THE DETAILS OF WORKING FOR COMPUTATION OF THE PROPORTIONATE VALUE OF STOCK OPTIONS TO BE TAXED IN INDIA AND USA . THE LD. AR HAS FURTHER CONTENTED THAT THE ASSESSEE HAS ALREADY OFF ERED THIS INCOME IN USA AND THEREFORE IT HAS SUFFERED TAX IN USA. 4. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE STOCK OPTION WAS GRANTED IN INDIA THEN THE BENEFITS RECEIVED BY THE ASSESSEE IS ACCRUED FROM THE DATE WHEN THE STOCK OPTION WAS GRANTED. ITA NO. 357/BANG/2017 PAGE 6 OF 9 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE ASSESSEE REMAINED IN EM PLOYMENT WITH INTEL TECHNOLOGY INDIA PVT. LTD , INDIA ONLY FOR TWO MONT HS UPTO 31.05.2011 DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR UNDER CONSIDERATION. IT IS CLAIMED BY THE ASSESSEE THAT THE EMPLOYEE STOCK OPTION IN QUESTION WERE GRANTED DURING HIS EMPLOYME NT IN INDIA. HOWEVER THE RIGHT TO EXERCISE THE STOCK OPTION ACCR UED TO THE ASSESSEE ONLY AFTER THE COMPLETION OF ONE YEAR EMPLOYMENT FR OM THE DATE OF GRANT OF STOCK OPTION. THUS IT WAS CONTENTED THAT THE VA LUE OF STOCK OPTION IS NOT AN INCOME TAXABLE IN INDIA AS IT ACCRUED TO THE ASSESSEE DURING HIS EMPLOYMENT WITH USA COMPANY AND THEREFORE AS PER TH E PROVISIONS OF ARTICLE 16(1) OF INDO-USA DTAA THE SAID INCOME IS A SSESSABLE TO TAX IN USA. IT IS PERTINENT TO NOTE THAT THE AO HAS CONSI DERED THE VALUE OF STOCK OPTION AS PERQUISITES AND THEREFORE IT WILL B E PART OF SALARY INCOME OF ASSESSEE AS PER THE PROVISIONS OF IT ACT. IN TH E ABSENCE OF ANY DEFINITION PROVIDED UNDER ARTICLE 16(1) OR OTHER PR OVISIONS OF INDO-USA DTAA THE PERQUISITES HAS TO BE CONSIDERED AS PART O F SALARY FOR THE PURPOSE OF THE PROVISIONS OF INDO-USA DTAA ARTICLE 16(1) OF INDO- USA DTAA READS AS UNDER: ITA NO. 357/BANG/2017 PAGE 7 OF 9 ARTICLE 16(1) SALARIES, WAGES AND OTHER SIMILAR REMUNERATION DERI VED BY A RESIDENT OF A CONTRACTING STATE IN RESPECT OF AN EM PLOYMENT SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE UNL ESS THE EMPLOYMENT IS EXERCISED IN THE OTHER CONTRACTING ST ATE. IF THE EMPLOYMENT IS SO EXERCISED, SUCH REMUNERATION AS IS DERIVED THERE FROM MAY BE TAXED IN THAT OTHER CONTRACTING S TATE ARTICLE 16 OF THE INDO-US DTAA DEALS WITH DEPENDEN T PERSONAL SERVICES. ARTICLE 16(1) OF THE INDO-US D TAA STATES THAT THE SALARY WOULD BE TAXABLE ONLY IN THE COUNTRY OF RESIDENCE UNLESS EMPLOYMENT IS EXERCISED IN THE OTHER COUNTRY. 6. IT IS CLEAR THAT THE SALARY DERIVED BY A RESIDENT O F INDIA IN RESPECT OF EMPLOYMENT EXERCISED IN THE OTHER CONTRACTING STATE IS TAXABLE ONLY IN THAT CONTRACTING STATE. THEREFORE THE SALARY INCOM E OF THE ASSESSEE FROM THE EMPLOYMENT IN USA IS TAXABLE IN USA AS PER THE PROVISIONS OF ARTICLE 16(1) OF INDO-USA DTAA. IT IS ALSO PERTINE NT TO NOTE THAT THE GRANT OF EMPLOYEES STOCK OPTION ITSELF DOES NOT GIV E RIGHT TO EXERCISE THE STOCK OPTION UNTIL AND UNLESS THE CONDITIONS AT TACHED TO THE GRANT OF EMPLOYEE STOCK OPTION ARE COMPLIED WITH. IN THIS C ASE IT IS CONTENTED THAT THE STOCK OPTIONS WERE GRANTED WITH THE CONDIT ION THAT THE ASSESSEE SHOULD CONTINUE IN EMPLOYMENT FOR ATLEAST ONE YEAR FROM THE DATE OF GRANT OF OPTION AND ONLY AFTER COMPLETION OF SERVIC E OF ATLEAST ONE YEAR THE ASSESSEE COULD EXERCISE THE STOCK OPTIONS. THE REFORE IF THE GRANT OF STOCK OPTION WAS SUBJECTED TO SUCH CONDITIONS THEN THE RIGHT TO EXERCISE THE OPTION ARISES ONLY ON COMPLETION OF THE CONDITI ONS ATTACHED TO THE ITA NO. 357/BANG/2017 PAGE 8 OF 9 GRANT OF STOCK OPTION. THE AO HAS NOT EXAMINED ALL THESE ASPECTS OF THE MATTER. EVEN THE CIT(A) HAS ALSO NOT EXAMINED ALL THE RELEVANT ASPECTS THOUGH THE PROVISIONS OF ARTICLE 16(1) OF INDO-USA DTAA WERE CONSIDERED BY THE CIT(A) AS APPLICABLE IN THE CASE OF THE ASSESSEE. THEREFORE IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THIS ISSUE IS SET ASIDE TO THE RECORD OF THE AO FOR DECIDING THE SAME AFRESH AFTER CONSIDERING THE RELEVANT DETAILS AND FACTS AS FILED BY THE ASSESSEE. NEEDLESS TO SAY THE ASSESSEE BE GIVEN AN OPPORTUNIT Y OF HEARING. 7. GROUND NOS. 7 TO 9 REGARDING NON-GRANT OF FOREIGN T AX CREDIT IN RESPECT OF SHORT TERM CAPITAL GAIN. I HAVE HEARD THE LD. AR A S WELL AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD . AR HAS SUBMITTED THAT THE CAPITAL GAIN AROSE ON SALE OF THE SHARES W AS OFFERED TO TAX IN USA AS WELL AS IN INDIA HOWEVER, THE AO HAS NOT GRANTED THE CREDIT FOR THE TAXES PAID IN USA ON THE CAPITAL GAIN. THE LD. DR HAS SUBMITTED THAT THIS ISSUE IS REQUIRED TO BE VERIFIED. 8. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND BY CONSIDERING THE RIVAL SUBMISSIONS OF THE PARTIES, T HE AO IS DIRECTED TO VERIFY AND CONSIDER THE FOREIGN TAX CREDIT AS CLAIM ED BY THE ASSESSEE. ITA NO. 357/BANG/2017 PAGE 9 OF 9 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH, 2017 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE, DATED, THE 31 ST MARCH, 2017. / MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.