SHRI UNNI KRISHNAN VADAKKEDATH SUGATHAN, MUMBAI V. INCOME TAX OFFICER (IT)-4(3)(1), MUMBAI

MA 116/MUM/2021

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9884 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 28-07-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 10-05-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Residential status; Rectification of order
• Section: 208; 254(2); 43; 13

Judgement Text

MA No 116 Mum/2021 ITA Nos. 1200/Mum/2018 Assessment years: 2013-14 Page 1 of 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI 'I' BENCH, MUMBAI [Coram: Pramod Kumar (Vice President), and Sandeep S Karhail (Judicial Member)] MA No. 116/Mum/2021 ITA No. 1200/Mum/2018 Assessment years: 2013-14 Unnikrishnan V S ............................Applicant C/o G P Kapadia & Co 61 A, Mittal Tower, Nariman Point Mumbai 400 021 [PAN: AAPPU3300G] Vs. Income Tax Officer International Taxation 4(3)(1), Mumbai ........................Respondent Appearances by Kirit Mehta for the applicant Samuel Pitta for the respondent Date of concluding the hearing : 29/07/2022 Date of pronouncement : 21/10/2022 O R D ER Per Pramod Kumar, VP: 1. By way of this application, the assessee applicant points out certain mistakes in our order dated 13 th January 2021. 2. The first mistake pointed out in this order is that the Tribunal erred in observing that “the Assessing Officer noted that the options were granted to the assessee to the assessee in consideration to the services rendered in India, way back in 2007, when the assessee was resident of India”, whereas the Assessing Officer had noted that “ it is clear that the ESOP were granted by the Indian Employer prior to deputing the UAE on contractual basis, i.e. on 10/09/2007”. Learned counsel points out that there is vital distinction between ESOP being granted prior to being deputed out of India and in consideration of services MA No 116 Mum/2021 ITA Nos. 1200/Mum/2018 Assessment years: 2013-14 Page 2 of 7 rendered prior to such deputation. The next mistake pointed out to us is that the Tribunal further erred in “Coming to the facts of the present case, in this light, we find that so far as the ESOP benefit is concerned, while the income has arisen to the assessee in the current year, admittedly the related rights were granted to the assessee in 2007 and in consideration for the services which were rendered by the assessee prior to the rights being granted- which were rendered in India all along....... On these facts, in our considered view, the income, even if it was inchoate at the point of time when the options were granted, has accrued and has arisen in India”. Learned counsel submits that it was never admitted by him that the ESOP are granted in consideration of services rendered by him and that Tribunal completely ignored the facts on record, such as a letter dated 27 th June 2007 on page 43 of the paper-book, factual information of ESOP granted to the appellant at page 40 of the paper-book, ESOP Scheme issued by the HDFC Bank at pages 51- 56 of the paper-book and written submissions filed by the assessee on non-taxability of ESOP perquisites at pages 109 to 112 of the paper book. It is thus pointed out that the conclusions arrived at by the Tribunal on these points were completely incorrect and constitute a mistake apparent on the record. Learned Departmental Representative, on the other hand, submits that these observations constitute the understanding of the Tribunal about the consideration for which the ESOP was granted, but, in any case, such a conclusion, even if wrong, cannot be a mistake apparent on record inasmuch as it is an inherently subjective opinion on which two views are possible. 3. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 4. Let us, first of all, understand the inherent limitations on the scope of our powers under section 254(2) to rectify a “mistake apparent on record”. As to what is the scope of a mistake 'apparent from the record' covers, we can do no better than to reproduce the words of the landmark judgment of the Hon'ble Supreme Court, in the case of ITO vs. Volkart Brothers & Ors. (1971) 82 ITR 50 (SC), to the effect that "..A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions..... this Court while spelling out the scope of the power of a High Court under Art. 226 of the Constitution ruled that an error which has to be established by a long-drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record.". While on this issue, one may also usefully take note of the Hon'ble jurisdictional High Court's judgment in the case of CIT vs. Ramesh Electric & Trading Co. (1993) 203 ITR 497 (Bom) wherein Their Lordships have, inter alia, observed that the power of rectification of mistake apparent from the record "can be exercised only when the mistake which is sought to be rectified is an obvious and patent mistake which is apparent from MA No 116 Mum/2021 ITA Nos. 1200/Mum/2018 Assessment years: 2013-14 Page 3 of 7 the record, and not a mistake which requires to be established by arguments and a long drawn process of reasoning on points on which there may conceivably be two opinions, as has been shown in the present case. Failure by the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may be an error of judgment". The errors of judgment were thus held to be outside the scope of mistakes apparent from records. In a rather recent judgment, in the case of CIT vs. Reliance Telecom Ltd. (2021) 323 CTR (SC) 873 : (2021) 208 DTR (SC) 113 : (2021) 133 taxmann.com 41 (SC), Hon'ble Supreme Court has observed that the powers for rectification of "mistakes apparent on record" "are only to correct and/or rectify the mistake apparent from the record and not beyond that". We must also bear in mind that the date on which the hearing was concluded was 12 January 2021, and that the very next day, i.e. on 13 January 2021, the reasoned order was pronounced by us. Thus, it is possible that the order may not have been extensively reviewed and edited and that the choice of words may leave scope for improvement, but then the purpose of the rectification proceedings is to rectify the mistakes apparent on the record. It is not open to us to review or revisit our order unless there is a mistake apparent on the record, and as to what constitutes a mistake apparent on the record, we have discussed the legal position in this regard as above. In this backdrop, let us deal with the issues raised by the learned counsel. 5. The Tribunal had held that the assessee was granted ESOP in 2007 when the assessee was still in India, and before his deputation to the UAE and that the ESOP grant was in consideration for the services rendered in India. When the assessee was rendering services only in India, and the grant of ESOP is like a benefit to the assessee, it is certainly a possible way of looking at the situation that the proximate and immediate reason for the grant of ESOP is services rendered in India. That is precisely what the Tribunal has held. Even if that is wrong, that is certainly a reasonably possible view of the matter, and, therefore, it cannot be said to be a mistake apparent on the record that the Tribunal held that the consideration for the grant of ESOP was services rendered till the grant of ESOP- and the entire such service was rendered in India. When the services were rendered only in India till 2007, the core consideration for the grant of ESOP cannot be anything but the services so rendered in India by the assessee. There may be several other peripheral or incidental considerations for such a grant of ESOP but, as we saw it, the core consideration was only services rendered in India. An action of the employer, in granting a benefit to the employee, as ESOP inherently was, may have several facets or considerations, but what is the core, critical or proximate consideration is essentially services rendered in past. It may have been an error of judgment, an error if it was, that the Tribunal reached the conclusion that the ESOP was granted in consideration of services rendered in India, but that is certainly not a mistake apparent on the record, and what can be rectified in the limited scope of section 254(2) is an error apparent on record, and not an error of judgment- even if it was so. We thus reject assessee’s plea so far as the first two mistakes are concerned. As regards the error in the choice of words, i.e. MA No 116 Mum/2021 ITA Nos. 1200/Mum/2018 Assessment years: 2013-14 Page 4 of 7 “admittedly” when the assessee did not specifically admit that, such an error is also not covered by the scope of a mistake on record. 6. The next set of mistakes pointed out in the present application is the reference to certain publications of the OECD and the UN, that conclusion reached by the Tribunal is based on inapplicable and irrelevant factual and legal material, the fact that some important parts of these publications were missed out, that no opportunity was given to the assessee to rebut the contents of these publications as reproduced in the order. Learned counsel for the assessee has painstakingly taken us through a very elaborate application on this aspect, and emphasized the contents of the application. Learned Departmental Representative, on the other hand, relies upon what has been held in the Tribunal, justifies the same on merits and submits that firstly there is no mistake in the impugned order, and that, even if there is a mistake, such a mistake is inherently outside the limited scope of our powers of rectification under section 254(2). 7. We find that the main issue in the appeal before us, as the first ground of appeal, was whether “on the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (A) has erred in upholding the action of the learned Assessing Officer to tax Employee Stock Option as perquisite u/s 17”. While addressing this aspect of the matter, referring to Hon’ble Supreme Court’s judgment in the case of E D Sassoon & Co Ltd Vs CIT [(1954) 26 ITR 27 (SC)], we concluded that, “These observations, with which we are in the most respectful agreement, very well highlight the relevant legal position in respect to accrual and arising of an income. Quite clearly, therefore, accrual or arising of an income cannot be equated with receipt of an income. The common thread in the connotations of these expressions is that both of these expressions, i.e., accrual or arising of an income, to borrow the words quoted with approval in E D Sassoon's case (supra), represent a state anterior to the point of time when the income becomes receivable and connote a character of income which is more or less inchoate. Coming to the facts of the present case, in this light, we find that so far as the ESOP benefit is concerned, while the income has arisen to the assessee in the current year, admittedly the related rights were granted to the assessee in 2007 and in consideration for the services which were rendered by the assessee prior to the rights being granted- which were rendered in India all along. The character of income may be inchoate at that stage but certainly what is being sought to be taxed now, on account of the specific provision under section 17(2)(vi), is a fruit of services rendered much earlier and the benefit, which has now become a taxable income, accrued to the assessee in 2007. All that section 17(2)(vi) decides is the timing of an income, but it does not dilute or negate the fact that the benefit, in which is being sought to be taxed, had arisen much earlier i.e. at the point of time when the ESOP rights were granted. On these facts, in our considered view, the income, even if it was inchoate at the point of time when the options were granted, has accrued and has arisen in India. The assessee is a non-resident in the current MA No 116 Mum/2021 ITA Nos. 1200/Mum/2018 Assessment years: 2013-14 Page 5 of 7 assessment year, but quite clearly, the benefit, in respect of which the income is bring sought to be taxed now, had arisen at an earlier point of time in India. Viewed thus, the income in respect of ESOP grant benefit accrued and had arisen at the point of time when the ESOP rights were granted, even though the taxability in respect of the same, on account of the specific legal provisions under section 17(2)(vi), has arisen in the present in this year”. That was our conclusion on the question falling for our adjudication, but in the very next sentence started by saying that “As we hold so, we may mention that the use of ESOP benefits as a part of a compensation package to the employees is a global practice, and multilateral bodies like the United Nations and OECD have had occasions to examine these aspects in great detail- though in the context of tax treaty law which we will deal in a short while”. We then extensively reproduced from these publications, but that was certainly not the material on which the core decision was given. Hon'ble Supreme Court, in the case of CIT v. PVAL Kulandagan Chettiar [(2004) 267 ITR 654 (SC)], has observed that, "Taxation policy is within the power of the Government and s. 90 of the IT Act enables the Government to formulate its policy through treaties entered into by it and even such Treaty treats the fiscal domicile in one State or the other and thus prevails over the other provisions of the IT Act, it would be unnecessary to refer to the terms addressed in OECD or in any of the decisions of a foreign jurisdiction or in any other agreements". In effect thus, when OECD Commentary is the same as the judicial interpretation, one can refer to same with approval, but when a fair and judicious interpretation takes you to some other conclusion, the OECD Commentary cannot come in the way. The very approach adopted by the applicant in this rectification petition is thus incorrect. In other words, the settled legal position in India is that the judicial forums are not fettered by the OECD Commentaries. These observations per se can never be the basis of conclusions arrived at by us, and that precisely was the situation here. These were the observations after the core decision was given, and in a way to further support the conclusion arrived at. Nothing, therefore, turns on confronting or not confronting the said material as it had no critical bearing on the outcome of the appeal. Therefore, not confronting the material referred to as such, cannot be reason enough to recall the order. We reject the plea of the assessee on this count as well. 8. Finally, the mistake apparent from record, as pointed out by the learned counsel is that, according to the learned counsel, “the Tribunal has arrived at its conclusions without considering every fact for and against the assessee available on record with due care and the Tribunal has failed to give its due finding in a manner which were questions which arose for its consideration, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence before it”. 9. The core finding in this case was that “so far as the ESOP benefit is concerned, while the income has arisen to the assessee in the current year, admittedly the related rights were granted to the assessee in 2007 and in consideration for the services which MA No 116 Mum/2021 ITA Nos. 1200/Mum/2018 Assessment years: 2013-14 Page 6 of 7 were rendered by the assessee prior to the rights being granted- which were rendered in India all along. The character of income may be inchoate at that stage but certainly what is being sought to be taxed now, on account of the specific provision under section 17(2)(vi), is a fruit of services rendered much earlier and the benefit, which has now become a taxable income, accrued to the assessee in 2007”. Once the Tribunal reaches the conclusion that the ESOP rights were granted to the assessee in 2007 and in consideration for the services which were rendered by the assessee prior to the rights being granted- which were rendered in India all along, all other aspects of the matter were rendered academic. As we have said before the ESOP rights are granted in consideration of past services, as those past services are the minimum eligibility point for the consideration of ESOP benefit, the actual exercise of these ESOP rights may essentially depend on an employee’s subsequent conduct as well. That future or subsequent conduct, in the course of our decision-making, was not considered to be a factor critical enough to be held to be considered for grant of ESOP, and therefore it was not considered relevant to be examine it in great detail. We cannot elaborate upon the reasoning adopted by the Tribunal as it cannot be open to us to supplement or rationalize the conclusions arrived at by the Tribunal, in the course of these proceedings. Suffice to say, right or wrong, Tribunal reached a conclusion on the basis of its understanding about what was the consideration for the grant of ESOP in 2007. That subjective conclusion cannot be revisited in the garb of rectification of mistakes now. Given the path that the Tribunal followed, dealing with what the assessee considered to be relevant evidence was wholly academic. Even if that be an error, that is again an error of judgment, even if that is to be termed as an error. Once again, such an error, as held by Hon’ble jurisdictional High Court, is beyond the scope of errors apparent on record, which can be rectified under section 254(2). Examining each and every piece of paper on record is certainly an ideal situation but then given the constraints that the system works is, many a times our performance does not come up to that standard. We cannot revisit our order to improve our work and to meet such high benchmarks. We, therefore, reject the plea with respect to these alleged mistakes apparent on record as well. 10. In view of the above discussions, as also bearing in mind the entirety of the case, we reject the rectification petition filed by the assessee- predominantly on the ground of limited jurisdiction of the Tribunal under section 254(2) of the Act, as also, for the detailed reasons set out earlier, on merits as well. 11. In the result, the miscellaneous application is dismissed. Pronounced in the open court today on the 21 st day of October, 2022 Sd/- Sd/- Sandeep S Karhail Pramod Kumar (Judicial Member) (Vice President) Mumbai, dated the 21 st day of October, 2022 MA No 116 Mum/2021 ITA Nos. 1200/Mum/2018 Assessment years: 2013-14 Page 7 of 7 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File By order etc. True Copy Assistant Registrar Income Tax Appellate Tribunal Mumbai benches, Mumbai