2021 (2) TMI 908 - HC - Income Tax

High Court remits tax exemption case for reevaluation, emphasizes comprehensive review of facts

The High Court remitted the case back to the Assessing Officer for reevaluation of the tax exemption claim and non-resident status. The appellant's ... Status of assessee - period of stay in India - Not Ordinarily Resident in India - adjustments u/s. 143(1) - error in Form-16 - stock options income accrued and received outside India - perquisites taxable under the Income-tax Act - Whether the gain on sale of stock options in USA that were given to the Indian employee by M/s.Google Inc., USA amounts to perquisites taxable under the Income-tax Act, 1961 or not? - Whether the gain on sale of stock options in USA that were given to the Indian employee by M/s.Google Inc., USA amounts to perquisites taxable under the Income-tax Act, 1961 - Whether the amounts shown in Form-16 as Tax Deducted at Source on such perquisites would be the exclusive gain made by the Assessee on such stock options issued by the Holding Company in USA is sufficient to hold that it is taxable under the head 'salary' as 'perquisites' with reference to the provisions under section 5(1) (c) and 6(6) (a) read with Section 17? - tax imposed by the Revenue under section 143(1) of the Act after issuance of Notice under section 143(2) HELD THAT:- On a reading of the order of the Tribunal reveals that on the basis of the written submission made by the assessee as well as particulars found in Form-16 issued by his employer, the authorities negatived the claim of the appellant. Assessee has to be a 'non-resident'. The word 'non-resident' is defined in Section 115C(e) of the Act. It means an individual, being a citizen of India or a person of Indian Origin who is not a 'resident'. As per the worksheet submitted by the assessee, he was residing in India from 1-4-2002 to 31-3-2009 (i.e.) 7 years. But preceding to the assessment year 2010-11, he had stayed in India only for 401 days. Thus, the learned counsel for the appellant argued that while purchasing the stock option in the year 2005, the assessee was a resident of the USA and out of the income realized in the USA, he purchased those stock options and hence, it will not come under the income earned in India. Appellant replied that the assessee sent particulars of his stay at the USA preceding to the assessment year with a copy of passport to prove his residential status, but without appreciating those documents, the Commissioner erroneously concluded that the stock option purchased by the assessee comes under the income earned in India. Senior Standing Counsel for Revenue fairly submitted that the assessee may be given one more opportunity to establish his claim before the Assessing Officer. Since the NOR status and the purchase of stock option of the assessee is a mixed question of fact and law, as rightly suggested by the learned Senior Standing Counsel for the department, in the interest of justice, in order to give one more opportunity to the assessee we are of the considered view that the matter can be remitted back to the Assessing Officer. Accordingly, the order passed by the Tribunal is set aside and the matter is remitted back to the Assessing Officer for deciding the matter afresh on merits and in accordance with law. The assessee is given liberty to produce all the relevant documents before Assessing Officer for establishing his claim. Issues:1. Treatment of exempt income in income tax return.2. Disallowance of tax exemption claim by Assessing Officer.3. Appeal against Commissioner of Income-tax (Appeals) order.4. Dismissal of appeal by Income-tax Appellate Tribunal.5. Questions of law admitted for appeal.6. Failure to appreciate documents by Appellate Tribunal.7. Claim of tax exemption on income from selling stock options.8. Determination of non-resident status and tax liability.9. Discrepancy in treatment of stock options by employer.10. Request for refund of erroneously deducted tax.11. Consideration of documents to establish non-resident status.12. Remittal of matter back to Assessing Officer for fresh decision.Analysis:1. The appeal was filed against the order of the Income-tax Appellate Tribunal regarding the treatment of exempt income of the assessee for the assessment year 2010-2011. The issue revolved around the inclusion of exempt income of Rs. 1,19,49,709 in the taxable income due to an error in Form-16 issued by the employer, Google India Private Limited. The appellant sought a refund of the excess tax erroneously deducted by the employer.2. The Assessing Officer disallowed the tax exemption claim of the assessee, leading to an appeal before the Commissioner of Income-tax (Appeals), who dismissed the appeal without addressing the crucial grounds under sections 5(1)(c) and 6(6)(a) of the Income-tax Act. Subsequently, the Income-tax Appellate Tribunal also upheld the decision, prompting the appellant to file the present appeal challenging the Tribunal's order.3. The substantial questions of law admitted for the appeal included the tax treatment of stock options income, classification of income under salary perquisites, and the imposition of tax under section 143(1) of the Act after a notice under section 143(2) had been issued.4. The Appellate Tribunal was criticized for failing to appreciate the documents submitted by the assessee to prove the tax exemption on income from selling stock options. The appellant argued that the stock options were acquired while he was a non-resident and the income did not accrue in India, thus not subject to tax.5. The appellant's counsel contended that the stock options were granted while the assessee was working in the USA and were sold through a US-based company with proceeds wired to a US bank account. Therefore, the income derived from these stock options should not be considered as earned in India, aligning with the provisions of section 5(1) of the Income-tax Act.6. The Revenue's stance was that the employer erroneously treated the sale proceeds of stock options as perquisites in Form-16, leading to the inclusion of this income in the total taxable income of the assessee. The department was not satisfied with the explanations provided by the assessee regarding his non-resident status and tax liability.7. Ultimately, the High Court remitted the matter back to the Assessing Officer to reevaluate the claim of tax exemption and non-resident status of the assessee. The appellant was granted the opportunity to present all relevant documents to establish his claim, emphasizing the need for a thorough review of facts and legal provisions in determining the tax liability.This detailed analysis of the judgment highlights the key issues, arguments presented, and the final decision of the High Court in remitting the matter back to the Assessing Officer for fresh consideration.