Employee stock option perquisite not taxable for that period, so no TDS default or interest liability arose.

Employee stock option benefits under a concessional share issue were treated as not taxable salary income for the relevant assessment year because there was then no legislative mandate to tax the benefit as a perquisite. The lock-in period and the absence of realizable value on the date of exercise meant the benefit was only potential and could not be valued for TDS purposes under section 192. On that basis, the employer could not be treated as an assessee in default under section 201(1) or made liable for interest under section 201(1A), and section 17(2)(iiia) did not fasten the disputed liability for that period.

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Issues: Whether the assessee-company was liable to deduct tax at source under section 192 on the issue of shares under a stock option plan to its employees at a concessional rate, whether it could be treated as an assessee in default under section 201(1) and made liable for interest under section 201(1A), and whether section 17(2)(iiia) applied to the assessment year in question.

Analysis: The questions raised stood answered by the Supreme Court decision in Infosys Technologies Ltd., which held that during the relevant assessment years there was no legislative mandate treating the benefit under the stock option scheme as taxable salary income. The lock-in period and the absence of realizable value on the date of exercise of option showed that the benefit was only a potential one and could not be valued as a perquisite for the purpose of TDS. On that footing, the employer could not be regarded as having defaulted in deduction of tax at source, and section 17(2)(iiia) was not applied to fasten the disputed liability for that period.

Conclusion: The questions were answered in favour of the assessee and against the Revenue.

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