Taxability of stock option transfer proceeds remitted for fresh verification of foreign-service allocation and related additions.
Residential status as "resident but not ordinarily resident" limited taxable income to amounts accruing or arising in India, so the Tribunal remitted the stock option transfer proceeds issue to the AO for verification of the claimed apportionment between US and Indian services and exclusion of any substantiated foreign-service portion. The additional amounts linked to the final SOTP instalment and the alleged unexplained income were also sent back for fresh adjudication after considering the assessee's evidence and granting an opportunity of hearing. Interest under sections 234A and 234B was treated as consequential, requiring no separate adjudication at that stage.
Issues: (i) Whether the stock awards and stock option transfer proceeds received by an assessee having the status of not ordinarily resident were taxable in India in full or only to the extent attributable to services rendered in India; (ii) Whether the addition representing the difference between bank credits and the perquisite amount reflected in Form 16/Form 12BA could be sustained without proper verification of the nature of the remittances.
Issue (i): Whether the stock awards and stock option transfer proceeds received by an assessee having the status of not ordinarily resident were taxable in India in full or only to the extent attributable to services rendered in India.
Analysis: The residential status of the assessee was accepted as not ordinarily resident under section 6(6). On that basis, the proviso to section 5(1)(c) excludes income accruing or arising outside India unless it is derived from a business controlled in or a profession set up in India. Salary income is deemed to accrue in India only to the extent earned for services rendered in India under section 9(1)(ii). The material showed that the stock awards vested over a period spanning employment in both the United States and India, and the assessee had furnished a working to apportion the benefit between services rendered in each jurisdiction. The factual basis for the apportionment and the claim that the foreign portion was offered to tax abroad had not been properly examined by the authorities below.
Conclusion: Only the portion of the stock awards and stock option transfer proceeds attributable to services rendered in India could be brought to tax in India. The issue was remitted to the Assessing Officer for fresh examination, and the assessee succeeded to that extent.
Issue (ii): Whether the addition representing the difference between bank credits and the perquisite amount reflected in Form 16/Form 12BA could be sustained without proper verification of the nature of the remittances.
Analysis: The assessee explained that the credits in the bank account were remittances from post-tax savings in the United States and not taxable income in India. The authorities below did not examine the bank evidence and related material to determine whether the credits represented income or mere transfers of funds. In the absence of such factual verification, the addition could not be finally sustained on the existing record.
Conclusion: The addition was set aside and the matter was remitted to the Assessing Officer for fresh adjudication after verification of the evidence. The assessee succeeded for statistical purposes.
Final Conclusion: The appeal was allowed for statistical purposes, with both disputed additions sent back for reconsideration on the basis of proper factual inquiry.
Ratio Decidendi: For a not ordinarily resident assessee, foreign-sourced employment-related income is taxable in India only to the extent it is attributable to services rendered in India, and additions based on bank credits cannot stand without verifying whether the credits are income or mere remittances.
TaxTMI 
AI Drafter ✕
TaxTMI 
