Swaminathan Sridhar, CHENNAI V. DCIT, CHENNAI

ITA 535/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4411 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 08-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: N V BALAJI
• Keywords: Capital asset; Services rendered outside India; Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO. 535/MDS/2016 / ASSESSMENT YEAR : 2011-12 SHRI SWAMINATHAN SRIDHAR, FF3, SRI SAI HARMONY, #63/61, ALAMELUMANGAPURAM, MYLAPORE, CHENNAI 600 004. PAN: ADWPS4145D V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI 600 034 ( ! /APPELLANT) ( '# ! /RESPONDENT) ! $ /APPELLANT BY : SHRI N.V. BALAJI, ADVOCATE '# ! $ /RESPONDENT BY : DR. B. NISCHAL, JCIT $ /DATE OF HEARING : 24.04.2017 $ /DATE OF PRONOUNCEMENT : 31.05.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNA I DATED 18.12.2015 AND PERTAINS TO THE ASSESSMENT YEAR 2011 -12. 2 I.T.A. NO. 535/MDS/2016 2. SHRI N.V. BALAJI, THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ASSESSEE IS AN EMPLOYEE OF M/S. COGNIZANT TECHNOLOGIES INDIA PVT. LTD. DURING THE ASSESSMENT YEAR UNDER C ONSIDERATION, AN INCENTIVE PLAN WAS ANNOUNCED BY M/S. COGNIZANT TECHN OLOGY SOLUTIONS CORPORATION, A DELAWARE CORPORATION, USA. AS PER THE PLAN, AN OPTION WAS GIVEN TO THE EMPLOYEES OF COGNIZANT T ECHNOLOGY SOLUTIONS CORPORATION TO PARTICIPATE IN THE INCENTI VE COMPENSATION PLAN 1999. THE ASSESSEE WAS ELIGIBLE UNDER THE SCHEME FO R STOCK APPRECIATION RIGHTS. ACCORDING TO THE LD. COUNSEL, THE STOCK APPRECIATION RIGHT IS NOTHING BUT A RIGHT GIVEN TO THE ASSESSEE FOR THE BENEFIT OF APPRECIATION IN A SPECIFIC NUMBER OF STO CKS THAT MAY BE GRANTED TO THE ASSESSEE OR OTHER EMPLOYEES. UNDER THE SCHEME, THE ASSESSEE WAS NOT OFFERED ANY SECURITY. WHAT WAS GI VEN TO THE ASSESSEE IS A RIGHT TO GET THE BENEFIT OF APPRECIAT ION IN THE VALUE OF THE QUANTITY OF SECURITY ALLOTTED TO THE ASSESSEE. ACC ORDING TO THE LD. COUNSEL, THE ASSESSEE TREATED STOCK APPRECIATION RI GHT OFFERED TO THE ASSESSEE AS CAPITAL ASSET AND THE BENEFIT ACCRUED T O THE ASSESSEE IS LIABLE FOR CAPITAL GAIN. HOWEVER, THE ASSESSING OF FICER TREATED THE SAME AS INCOME OF THE ASSESSEE. THE CIT(APPEALS) ALS O CONFIRMED THE SAME. 3 I.T.A. NO. 535/MDS/2016 3. REFERRING TO THE ORDER OF THIS TRIBUNAL IN SOUNDA RRAJAN PARTHASARATHY VS. DCIT [2016] 70 TAXMANN.COM 27, THE LD. COUNSEL SUBMITTED THAT ON AN IDENTICAL SET OF FACTS, THIS T RIBUNAL FOUND THAT RIGHT TO RECEIVE APPRECIATION VALUE WAS CONFERRED ON THE ASSESSEE. THIS HAS TO BE TREATED AS INCOME OF THE ASSESSEE AND NOT AS CAPITAL ASSET. THEREFORE IT IS TAXABLE AS A REVENUE RECEIPT. 4. ON THE CONTRARY, DR. B. NISCHAL, THE LD. DEPARTM ENTAL REPRESENTATIVE SUBMITTED THAT THE VERY SAME INCENTI VE PLAN OF COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, USA WAS CONSIDERED BY THIS TRIBUNAL IN SOUNDARRAJAN PARTHASARATHY ( SUPRA) AND THIS TRIBUNAL FOUND THAT THE STOCK APPRECIATION RIGHT WAS VESTED IRRESPECTIVE OF THE RESIDENCY OF THE ASSESSEE. THEREFORE THE SAME IS TA XABLE IN INDIA AS REVENUE RECEIPT. IN VIEW OF THE ABOVE, THE LD. CIT (APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE VERY S AME INCENTIVE PLAN WAS SUBJECT MATTER OF DISCUSSION BY THIS TRIBUN AL IN SOUNDARRAJAN PARTHASARATHY ( SUPRA). THIS TRIBUNAL HAS OBSERVED AS FOLLOWS IN THE CASE OF SOUNDARRAJAN PARTHASARATHY SUPRA:- 4 I.T.A. NO. 535/MDS/2016 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEES ARE EMPLOYEES OF M/S COGNIZANT TECHNOLOGI ES INDIA PVT. LTD., WHICH IS A SUBSIDIARY COMPANY OF M/S COGNIZAN T TECHNOLOGY SOLUTIONS CORPORATION, A DELAWARE CORPORATION, USA. IT IS NOT IN DISPUTE THAT THE ASSESSEES WERE GIVEN STOCK APPRECIA TION RIGHTS. AS PER THE SCHEME PROMOTED BY M/S COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, A DELAWARE CORPORATION, USA, STOCK APPR ECIATION RIGHTS IS NOTHING BUT PAYMENT IN CASH TO THE EXCESS OF FAIR MARKET VALUE OF COMMON STOCK OR OTHER SPECIFIED VALUATION OF SPECIFIED NUMBER OF SHARES OF COMMON STOCK ON THE DATE THE ST OCK APPRECIATION RIGHTS WAS EXERCISED OVER THE FAIR MARKET VALUE OF T HE COMMON STOCK OR OTHER SPECIFIED VALUATION. THE ELIGIBILITY COND ITION FOR PARTICIPATION IN THE SCHEME IS THAT THE RECIPIENTS SHOULD BE EMPL OYEES OF THE COMPANY OR NON-EMPLOYEE DIRECTORS AND INDEPENDENT C ONTRACTORS. THE ASSESSEES NOW CLAIM THAT THEY ARE EMPLOYEES OF M/S COGNIZANT TECHNOLOGIES INDIA PVT. LTD. AND NOT OF M/S COGNIZA NT TECHNOLOGY SOLUTIONS CORPORATION, A DELAWARE CORPORATION, USA. THEREFORE, THE VALUE OF THE STOCK APPRECIATION RIGHTS CANNOT BE TREA TED AS PERQUISITE IN THE HANDS OF THE ASSESSEES. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IF THE ASSESSEES WERE NOT EMPLOYEES OF THE M/S COGNIZANT TECHNOLOGIES INDIA PVT. LTD., A SUBSIDIARY COMPANY OF M/S COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, A DELAWARE CORPOR ATION, USA, THEY WOULD NOT HAVE BEEN GIVEN OPTION OF AVAILING S TOCK APPRECIATION RIGHTS UNDER THE SCHEME. IT IS THE CASE OF THE ASSE SSEES THAT THE STOCK APPRECIATION RIGHTS WAS GIVEN TO ALL THE PERSONS WHO ARE NOT CONNECTED WITH M/S COGNIZANT TECHNOLOGY SOLUTIONS C ORPORATION, A DELAWARE CORPORATION, USA. THE OPTION WAS GIVEN TO THE EMPLOYEES WHO ARE IN ASSOCIATION OR CONNECTED WITH USA COMPANY , EITHER DIRECTLY OR INDIRECTLY, SO AS TO MOTIVATE THE EMPLO YEES TO PERFORM THEIR BEST IN THEIR WORK. THEREFORE, DIRECTLY THE M/S CO GNIZANT TECHNOLOGIES INDIA PVT. LTD. WOULD BE BENEFITED AND INDIRECTLY M/S COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, A DELAW ARE CORPORATION, USA IS ALSO BENEFITED. THEREFORE, THE CONTENTION OF THE ASSESSEES THE INCENTIVE WAS NOT PROVIDED BY THE EMP LOYER OF THE ASSESSEES IS NOT CORRECT. THE PARENT COMPANY, WHO IS INTERESTED IN THE BUSINESS OF THE M/S COGNIZANT TECHNOLOGIES INDIA PVT . LTD., IN ORDER 5 I.T.A. NO. 535/MDS/2016 TO PROMOTE THEIR BUSINESS AND FOR COMMERCIAL EXPEDI ENCY, THE SCHEME WAS PROMOTED AND OFFERED TO THE ASSESSEES AN OPTION . THE ASSESSEES BEING EMPLOYEES OF M/S COGNIZANT TECHNOLOGIES INDIA PVT. LTD., ACCEPTED THE OFFER AND BENEFITED AND ENRICHED THEMS ELVES. THIS PAYMENT IS IN ADDITION TO SALARY FOR THE SERVICE RE NDERED TO M/S COGNIZANT TECHNOLOGIES INDIA PVT. LTD. THEREFORE, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHAT WAS RECEIVED BY TH E ASSESSEE IS A PERQUISITE IN THE HANDS OF THE ASSESSEE-COMPANY OR BENEFIT IN LIEU OF SALARY FOR THE SERVICES RENDERED. HENCE, THE SAME HAS TO BE CONSTRUED AS INCOME IN THE HANDS OF THE ASSESSEES. 8. AS FOR THE CONTENTION OF THE LD.COUNSEL FOR THE A SSESSEES THAT WHAT WAS GIVEN TO THE ASSESSEES IN THE FORM OF STOCK APPR ECIATION RIGHTS IS A CAPITAL ASSET IN THE HANDS OF THE ASSESSEES, THER EFORE, THE SAME CANNOT BE TREATED AS INCOME OF THE ASSESSEES, THIS TRIBUNAL DO NOT FIND ANY MERIT IN THIS CONTENTION OF THE LD.COUNSEL. TH E INCENTIVE WAS GIVEN TO THE ASSESSEES AS A COMPENSATION FOR THE SE RVICES RENDERED TO M/S COGNIZANT TECHNOLOGIES INDIA PVT. LTD. IT WAS N OT GIVEN FOR TRANSFER OF CAPITAL ASSET OR TERMINATION OF ANY SOU RCE OF INCOME. THEREFORE, THE RIGHT CONFERRED ON THE ASSESSEES, NA MELY, STOCK APPRECIATION RIGHTS UNDER THE SCHEME CANNOT BE CONSTR UED AS CAPITAL ASSET. WHAT WAS CONFERRED ON THE ASSESSEES IS ONLY VALUATION OF APPRECIATION FOR A SPECIFIED NUMBER OF STOCKS. THE STOCK ITSELF WAS NOT CONFERRED ON THE ASSESSEES. THE STOCK WAS RETAINED IN THE COMMON KIT AND THE APPRECIATION VALUE WAS GIVEN TO THE ASSESSE ES. THIS WAS GIVEN BECAUSE THE ASSESSEES WERE EMPLOYEES OF SUBSIDIARY COMPANY OF M/S COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION, A DELAW ARE CORPORATION, USA. SINCE THE RIGHT TO RECEIVE THE AP PRECIATION VALUE ALONE WAS CONFERRED ON THE ASSESSEES AND NOT RIGHT ON THE STOCK ITSELF, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHA T WAS RECEIVED BY THE ASSESSEES IS NOT CAPITAL ASSET. HENCE, THE SAM E IS LIABLE FOR TAXATION AS REVENUE RECEIPT. 9. COMING TO THE NEXT CONTENTION OF THE ASSESSEES T HAT DURING THE VESTING PERIOD, THE ASSESSEES WERE NON-RESIDENTS AN D RENDERED SERVICE OUTSIDE INDIA, THEREFORE, NOT TAXABLE IN INDIA, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE BENEFIT WAS CONFERRED O N THE ASSESSEES IN 6 I.T.A. NO. 535/MDS/2016 THE FORM OF STOCK APPRECIATION RIGHTS FOR THE SERVIC ES RENDERED TO THE SUBSIDIARY COMPANY, M/S COGNIZANT TECHNOLOGIES INDI A PVT. LTD. THEREFORE, MERELY BECAUSE THE ASSESSEES WERE NONRES IDENTS AND RENDERED SERVICE OUTSIDE INDIA DURING THE VESTING P ERIOD THAT CANNOT BE A REASON FOR CLAIMING THAT THE SAME WAS NOT TAXA BLE IN INDIA. ADMITTEDLY, WHEN THE ASSESSEES EXERCISED OPTION FOR STOCK APPRECIATION RIGHTS, THEY WERE RESIDENTS IN INDIA. T HEREFORE, WHEN THE STOCK APPRECIATION RIGHTS WAS VESTED IRRESPECTIV E OF THE RESIDENCY, THE SAME IS LIABLE FOR TAXATION IN INDIA. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY THE SAME IS CONFIRMED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED ON 31 ST MAY, 2017 AT CHENNAI. SD/- SD/- ( . . ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESA N) /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, /DATED, THE 31 ST MAY, 2017. JR. /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. !' /DR 6. #$ /GF