TaxTMI 
TaxTMI 
2008 (1) TMI 655
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....997-98 as taxable perquisites under the head 'Salaries'. 2. He further erred in holding that :- (i)Since the SARs were granted to the appellant by Procter & Gamble Inc. USA ('parent company - grantor of SARs') on behalf of and by virtue of his being incumbent of Procter & Gamble India ('employer'), the same were taxable as perquisites, even though there was no employer-employee relationship between the appellant and the grantor of the SARs. (ii)The grant of SARs and its redemption is clearly linked with the appellant and arise because of his employment and to keep him employed with the Procter & Gamble group. (iii)The payment received by the appellant is intimately connected with his being in employment with Procter & Gamble group. (iv)Instead of paying profit in lieu of salary, Procter & Gamble has chosen to compensate the appellant through the arrangement of SARs, and this is just a mode of computation of profits to be paid to the appellant. (v)Actual benefit to the appellant arises on the redemption of, and not on the grant of, the SARs. 3. He failed to appreciate that, if at all amount could be taxed, the same could have been done at the time of grant of SA....
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.... the Division Bench recommended constitution of a larger bench, of three or more members, to decide the following question : "Whether or not the amount received by the assessee employee on redemption of stock appreciation rights constitutes income liable to tax in his hands, irrespective of the fact that no shares or stock are actually allotted to him and that the assessee does not have any rights to receive such shares and stock ?" 3. The recommendation so made by the Division Bench was accepted by the Hon'ble President, and, that is how this Special Bench, constituted by the Hon'ble President under section 255(3) of the Income-tax Act, came to be in seisin of the matter to decide the aforesaid question. When the matter came up for hearing before us, learned counsel for the assessee submitted that the above question, as framed by the Division Bench, and, as, therefore, referred by the Hon'ble President to the Special Bench, does not arise in this case. It was pointed out that the amount received by the assessee on redemption of stock appreciation rights has been taxed by the Assessing Officer under the head 'income from salaries', and, therefore, the short point before the T....
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....edemption of stock appreciation rights is not taxable under the head 'income from salaries', and that is a hypothetical situation as at this stage. Hon'ble President, in these circumstances, was pleased to refer the whole of the appeal for disposal by this Special Bench in accordance with the law. That is how we have come to be in seisin of this appeal. 5. Let us set out the relevant material facts first. The appellant taxpayer was, at the material point of time, i.e., in the previous year ending 31-3-1998, employed as Managing Director of the Procter & Gamble India Limited (hereinafter referred to as 'PGI') which is a part of the group of companies headed by Procter & Gamble Co., Inc., USA (hereinafter referred to as 'PGU'). There is no dispute about the fact that in January 1998, the assessee received a sum of US$ 12,38,084.02, which was equivalent to Rs. 4,79,13,851.58, from PGU on account of redemption of certain stock appreciation rights granted in October 1997. The assessee's explanation was that these Stock Appreciation Rights were granted to the assessee by the PSU in recognition of his continuing contributions to the long-term success and development of the business of ....
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....the right to receive stock appreciation was in the nature of a capital asset, and since this asset is without any ascertainable cost of acquisition, the amount on sale of these rights would not be considered to be liable to taxation as per judicial pronouncement in the case of CIT v. B.C. Srinivasa Shetty [1981] 128 ITR 294^1 (SC). The assessee also submitted that in the light of the contents of the CBDT Circular No. 710, which was binding on the Assessing Officer under section 119 of the Act, the grant of stock option was not liable to tax. The assessee also submitted that he was in employment with PGI, which was an ultimate subsidiary of the PGU. It was in recognition of assessee's long-term association with the Procter & Gamble Group, and his continuing contribution to the development and success of the Group that PGU had granted him the SARs from time to time. The object of the SAR plan, as stated by the assessee in his submission before the Assessing Officer, was to enable the grantee of the SAR to benefit from future appreciation in market price of the shares, without requiring grantee to make any investments. It was again emphasized that money so received by the assessee fro....
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....1958] 1 WLR 832, the Assessing Officer observed that true test of any income in such cases is to see whether the amount has been received by the virtue of his (employee's) office. These payments were, according to the Assessing Officer, profits of the assessee's employment. It was thus held that the grant to the assessee was due to employer-employee relationship and so the same would form part of income from salaries. The Assessing Officer also observed that there was no gain to the assessee when SARs were granted and since the gain crystallises only in the year in which SARs are redeemed, the same can only be taxed in the year in which SARs are redeemed. The Assessing Officer also observed that that payment received by the assessee may be gratuitous but still the same is taxable under section 17(1) of the Act. It was in this backdrop that the amount of Rs. 4,79,13,851 was taxed by the Assessing Officer under the head 'income from salaries'. 9. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the CIT(A) but without any success. Relying upon the ruling given by the Authority for Advance Ruling in the case of XYZ, In re [19....
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....ng upon Division Bench decision of this Tribunal in the case of Bharat V. Patel (supra), learned counsel's first submission is that since there is no employer-employee relationship between the assessee and the PGU, grantor of the SARs, the amount on redemption of these SARs cannot be taxed as 'income from salaries' as has been held by the authorities below. He further submits that neither the grant of SARs are part of terms and conditions of assessee's employment, nor these grants can be said to be have been made for and on behalf of the employer. Learned counsel laboriously took us through the provisions of the Procter & Gamble 1983 Stock Plan Scheme, and pointed out that the assessee's employer had nothing to do with this scheme and these are independent direct receipts by the assessee from the Procter & Gamble Co., USA. It was also pointed out that the PGU did not have more than 50 per cent shares in the PGI in the first two years of SAR grants and it could not therefore be said that PGI, in that period, was even a subsidiary company of the PGU. It is submitted that PGI and PGU are two legally distinct companies which are assessed separately and, therefore, these are required to....
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.... invited to Tribunal's decision in the case of Wipro Ltd. v. Dy. CIT [2003] 80 TTJ (Bang.) 106. It is pointed out that it was only by the Finance Act, 1999, that provisions to tax benefit arising under an employee stock option plan was introduced for the first time with effect from 1-4-2000. Even these provisions were deleted by the Finance Act, 2000 with effect from 1-4-2001. The benefit to an employee from participating in ESOP plan is now taxable only under the head 'capital gains', provided the ESOP fulfils the guidelines laid down by the Central Government. The amendment brought about by the Finance Act, 1999, according to the learned counsel, was not retrospective. Therefore, until the amendment bringing to tax the stock option benefit was put into force, i.e., 1-4-2000, the benefit of stock option was not taxable at all. A reference was made to the observations made by the Hon'ble Supreme Court in the case of V.M. Salgaonkar & Bros. (P.) Ltd. v. CIT [2000] 243 ITR 383 to the effect that subsequent omission of particular clause from the statute could also be relied upon to interpret a law for an earlier charge would suggest that the law did not specifically desire the taxabil....
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....cified security', 'sweat equity shares' and 'value' used in that sub-clause. This amendment will take effect from 1st April, 2000, and will, accordingly, apply in relation to the assessment year 2000-01 and subsequent assessment years." It is, therefore, clear that but for the specific definition of perquisite under section 17(2) which included the benefit under ESOP, prior to insertion to such clause (iiia) to section 17(2), there was either no specific provision or there were all sorts of ambiguity and uncertainty in taxing the benefit under ESOP as 'perquisite'.... 13. It is submitted that the views so expressed by the Tribunal have since been approved by the Hon'ble Karnataka High Court, in the case of Infosys Technologies Ltd. (supra) and, therefore, we have to proceed on the basis that until the assessment year 2000-01, stock options plan could not be taxed as a perquisite. 14. Learned counsel further submits that the advance ruling given in the case of XYZ, In re (supra), which has been heavily relied upon by the CIT(A), has been considered by the Hon'ble Karnataka High Court in the case of Infosys Technologies Ltd. (supra) and, in the esteemed opinion of Their L....
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....on. 16. Learned counsel also submits that what is to be examined by us is legality of the impugned tax demand raised which is sustained by the CIT(A). The impugned tax demand is on account of redemption value of stock appreciation rights being treated as 'income from salaries' and all that we can, therefore, deal with is whether or not the amount received on redemption of stock appreciation rights can be taxed under the head 'income from salaries'. It is not, according to the learned counsel, open for us to go into the broader question of its taxability as income or its taxability under any other head of income. Learned counsel submits that such an action would amount to making a new case for the Assessing Officer at this stage. The proceedings before the Tribunal are not the stage at which the Assessing Officer can be allowed to improve his case or at which a new taxability issue can be taken up. He submits that, unlike in the proceedings before the first appellate authority, the powers of the Tribunal are confined to the issue in appeal before the Tribunal. A reference is made to the Hon'ble Supreme Court's judgment in the case of Mattulal v. Radhelal [1974] 2 SCC 365 in suppo....
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....counsel, the income on redemption of stock appreciation rights is in the nature of a capital gains which is not chargeable to tax under section 45. He contends that, as specifically provided in section 2(24)(vii) only such capital gains are includible in definition of income, as are taxable under section 45. He thus contends that the receipt in question is a capital gain outside the ambit of taxability under the Income-tax Act. 18. Learned counsel also submits that, in any event, the amount received by the assessee cannot be taxed under the head 'income from other sources'. He submits that under the scheme of section 14 of the Act, all income, for the purpose of charge of income-tax and computation of total income, are to be classified under the specified heads of income, i.e., income from salaries, income from house property, income from business and profession, income from capital gains and income from other sources. He submits that after determination or classification of the head of income, it is to be seen whether such an income can be taxed under that head. Our attention is invited to the observations made by the Hon'ble Supreme Court in the case of CIT v. D.P. Sandhu Bros....
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.... learned counsel, and submits that the impugned addition is fully justified on the facts of the present case. It is submitted that the facts and circumstances of the case warrant a wider definition of the expression 'employer' which must not only include the assessee's direct employer in India, i.e., PGI, but also the parent company of the assessee's employer, i.e., PGU. It is contended that in today's complex world of multinational businesses, which operate through large number of subsidiaries at different geogra- phical locations, the meaning of the expression 'employer' cannot be confined to the PGI, i.e., the company with which the assessee has entered into the employment contract. It is submitted that the amount received on redemption of stock appreciation rights is received by the employee are directly as a result of his employment and are received through a group concern. Learned Departmental Representative also took us through the Procter & Gamble 1983 Stock Options Scheme and submitted that the assessee, the company which directly employs him and the PGU are important parties to the entire arrangement. According to the learned Departmental Representative , the amount recei....
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....d scope. It is submitted that what is referred to as 'stock options scheme' in the judicial precedents cited by the learned counsel for the assessee and in the amendments made in the Income-tax Act, does not include 'stock appreciation rights' because all the situations envisaged in these judicial precedents as also the legislative provisions in the Income-tax Act refer to actual allotment of the shares to the employees at the rates less than the prevailing market prices. Learned Departmental Representative thus argues that the judicial precedents in the cases dealing with stock options scheme, involving actual allotment of shares, and the legislative developments dealing with these situations have no bearing on the facts of the present case. Learned Departmental Representative then submits that the ratio of the judgment in the case of Abbot (supra ) has no application in the present case since in this case also actual allotment of shares was made, and, in any case, it is not a binding judicial precedent. Our attention was then invited to a Third Member decision of Tribunal in the case of Asstt. CIT v. Tea Agency Trading Centre [2004] 88 ITD 96 (Gauhati) (TM) wherein it is held tha....
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....and T.P. Sidhwa (supra), it must be held that when an employment related income cannot be taxed under the head 'income from salaries', it cannot be taxed as an income at all. Our attention is then invited to Hon'ble Patna High Court's judgment in the case of CIT v. Gaya Sugar Mills Ltd. [1986] 160 ITR 933 wherein Their Lordships have distinguished the scheme of section 6 of 1922 Act with the scheme of section 14 of the 1961 Act, and held that Hon'ble Supreme Court's judgment in the case of Nalinikant Ambalal Mody (supra) is no longer good law in the light of a paradigm shift in the scheme of Income-tax Act, 1961, so far as classification of income is concerned. It is pointed out that under section 6 of the 1922 Act, which was subject-matter of consideration by the Hon'ble Supreme Court in the case of Nalinikant Ambalal Mody (supra), it was stated that incomes mentioned therein are taxable, but section 14 of the 1961 Act says that all incomes are taxable and then it classifies these incomes. Our attention is then invited to comments on legislative history of section 14, as given in Chaturvedi & Pithisaria's commentary on the Income-tax Act, which states that section 6 of 1922 Act pr....
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....ular question and a particular situation before them cannot be taken out of that context and given an interpretation as one would give to a legislative provision. It is thus submitted that the role of section 14 is now only to allocate a classification to an income, and any income which cannot be allocated to any other head is treated as 'income from other sources'. What is to be decided is whether a particular receipt is income or not on the merits of the receipt. Once a receipt is held to be of income nature, the next thing to be seen is the head under which it can be assessed. If an income does not fit the description of the natures of income in 14(A), (C), (D) or (E), it is to be classified under the residuary head (F) i.e., 'income from other sources'. Our attention is invited to the judgment of Hon'ble Calcutta High Court in the case of Mrs. Roma Bose v. CIT [1974] 95 ITR 299 in support of the proposition that if an income can not be charged under any of the heads mentioned in clauses A to E of section 14 of the 1961 Act, the same shall be chargeable to Income-tax under the head 'income from other sources' mentioned in clause F of the said section 14. Our attention is also in....
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....il Webber (supra), learned counsel submits that the said judgment is clearly per incurium inasmuch as it does not follow the Larger Bench of three judges in N.A. Mody's case (supra). It is submitted that in N.A. Mody's case (supra), judgment was given by a three judge bench whereas in Emil Webber's case (supra), the judgment is rendered by a two judge bench. Our attention is then invited to the judgment of Hon'ble Madras High Court in the case of CIT v. Sunderam Industries Ltd. [2002] 253 ITR 396 wherein it is held that when there are two apparently contradictory decisions of the Supreme Court, the decision of the Larger Bench is to be followed. Learned counsel also submits that Emil Webber decision (supra) is on its own facts and it does not, expressly or impliedly, overrule decisions in the cases of N.A. Mody (supra) or T.P. Sidhwa (supra). According to the learned counsel, Hon'ble Supreme Court's judgment in the case of Emil Webber (supra ) has no bearing on the issue before us. We are again taken through section 56 to highlight the contention that in order that an income can fall under the residuary head, it must not come under any other head of income from clauses (A) to....
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....of said stock options or stock appreciation rights. (2) It shall be the duty of the Committee to administer this Plan in accordance with its provisions, to report thereon not less than once each year to the Board and to make such recommendations of amendments or otherwise as it may deem necessary or appropriate. A decision by a majority of the Committee shall govern all actions of the Committee. (3) Subject to the express provisions of this Plan, the Committee shall have authority to grant non-statutory and incentive stock options; to grant to recipients who are non-residents of the United States on the date of grant stock appreciation rights either free standing, in tandem with simultaneously granted stock options or in parallel with simultaneously granted stock options; to determine all the terms and provisions of the respective stock option and stock appreciation right agreements including setting the dates when each stock option or stock appreciation right or part thereof may be exercised; and to make all other determinations it deems necessary or advisable for administering this Plan; provided, however, for recipients who are non-residents of the United States on the dat....
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....ghts or stock options, as the case may be. Article E. Shares Subject to Use Under the Plan.-The shares to be delivered by the Company upon exercise of stock options or stock appreciation rights shall be either authorized but unissued shares or treasury shares, as determined by the Board. In the case of redemption of stock appreciation rights by one of the Company's subsidiaries, such shares shall be shares acquired by that subsidiary. Article F. Price.-The exercise price for all stock options appreciation rights shall be established by the Committee at the time of their grant and shall be not less than one hundred per cent (100 per cent) of the fair market value of the Common Stock of the Company on the date of grant. Article G. Agreement of Optionee and Conditions of Stock Options and Stock Appreciation Rights.-(1) In addition to such other conditions as may be established by the Committee, in considera- tion of the granting of stock options or stock appreciation rights under the terms of this Plan, the recipient agrees as follows : (a )To remain in the employ of the Company or one of its subsidiaries for at least one (1) year following the date of granting of the stoc....
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....tomatically change to reflect the limits imposed by section 422A(b)(8) of the Internal Revenue Code of 1954 as it may be amended from time to time.] (3) If the Committee grants incentive stock options, all such stock options shall contain such provisions as permit them to quality as "preventive stock options" within the meaning of section 422A of the Internal Revenue Code of 1954, as amended by the Economic Recovery Tax Act of 1981, and as the same may from time to time be amended. (4) Resale by Directors and principal officers of the Company of securities offered under this Plan must be pursuant to a valid registration statement on other than Form S-8 or pursuant to an exemption from registration provided under the Securities Act of 1933, as amended. Other employees of the Company or its subsidiaries are free to make resales of the securities offered hereunder, without further registration. Article I. Adjustments.-Appropriate adjustments in the number of shares of stock options and stock appreciation rights which can be granted under this Plan and in the numbers and exercise prices covered by outstanding stock options and stock appreciation rights shall be made to give ef....
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....) When an employee retires in accordance with the provisions of any appropriate profit sharing or retirement plan of the Company or any of its subsidiaries, any exercisable portions of stock options or stock appreciation rights then held by the employee shall continue to be exercisable until the expiration date of the stock option or stock appreciation right. Termination of employment under the permanent disability settlement provision of such plan shall be deemed the same as retirement. The death of an employee subsequent to retirement shall not render exercisable options or rights which were unexercisable at time of retirement. (8) Upon the exercise of stock appreciation rights, the recipient shall be entitled to receive a redemption differential for each such stock appreciation right which shall be the difference between the then fair market value of one share of the Common Stock of the Company and the exercise price of one stock appreciation right then being exercised. In the case of the redemption of stock appreciation rights by a subsidiary of the Company not located in the United States the redemption differential shall be calculated in United States dollars and converted....
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....o be valued at their fair market value on the date of exercise or a combination thereof. Article L. Additional Provisions.-(1) The Board, may, at any time, repeal this Plan and may amend it from time to time except that no such amendment may amend this paragraph, increase the aggregate number of shares subject to this Plan or reduce the price at which the stock options or stock appreciation rights may be granted, exercised or surrendered, or alter the class of employees eligible to receive stock options. The recipient of stock options and stock appreciations rights and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding stock options or stock appreciation rights are affected, notice thereof shall be given to the holders of such stock options and stock appreciation rights and such amendments shall not be applicable to such holder without his or her written consent. If this Plan is repealed in its entirety, all therefore granted unexercised stock options or stock appreciation rights shall continue to be exercisable in accordance with their terms. (2) In case any stock option or stock appreciation right is surrendered before exer....
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....ealed for tax years beginning after December 31, 1986, the designation of a portion of the sales realization as long-term capital gain can be important if the shares are ultimately used in charitable gift giving and may be important if the law on capital gains is ever amended. If the stock is disposed of within one year after exercise, the lesser of any gain on such disposition or the spread at exercise (i.e., the excess of the fair market value of the stock on the date of exercise over the option price) is treated as ordinary income, and any appreciation after the date of exercise is considered long-term or short-term capital exercise (even if greater than the gain on the disposition) is treated as ordinary income if the disposition is one on which a loss, if sustained, is not recognized - e.g., a gift, a "wash" sale or a sale to a related party. The amount of ordinary income recognized by the optionee is treated as a tax deductible expense to the Company. No other amount relative to an incentive stock option is a tax deductible expense to the Company. Non-statutory Stock Options.-With respect to tax effects which may accrue to the optionee, counsel advises that under existing ....
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....f stock appreciation rights, under Article J(8), "upon the exercise of stock appreciation rights, the recipient shall be entitled to receive a redemption differential for each such stock appreciation right which shall be the difference between the then fair market value of one share of the Common Stock of the Company and the exercise price of one stock appreciation right then being exercised". The redemption value of the stock appreciation right, therefore, is primarily a deferred wage or bonus payment, in cash or otherwise, measurable with reference to the appreciation of market price of company's shares. In contrast, the stock options scheme, the beneficiary of the same is allowed to buy the shares in the company, though subject to several conditions attached, at a price lower than the prevailing market price as at the point of time when the stock option is exercised. In the case of Stock Options, under Article K, "upon the exercise of a stock option, payment in full of the exercise price shall be made by the optionee". The above scheme clearly shows that connotations of the expressions "stock options" and "stock appreciation rights" are quite distinct, and that these two express....
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....arket price of shares as on the time of acquisition vis-a-vis the acquisition price of such shares, and capital gain or loss to the extent of difference in sale consideration of shares vis-a-vis the market price of shares as on the time of acquisition of such shares. The legal position regarding the amount received on redemption of stock appreciation rights and the value of benefit received by way of acquisition of shares at concessional prices, cannot, therefore, decided by the same yardstick. These two benefits have several and significant distinguishing features. Exercise of a stock appreciation right involves payment to the beneficiary, while exercise of a stock option involves payment, albeit concessional, by the beneficiary. The former results in receipt of a reward, though measurable in terms of the money value by which the share price has gone up, to the beneficiary, while the latter results in acquisition of an asset at a concessional price by the beneficiary. There cannot be a loss situation in the stock appreciation right because the exercise of stock appreciation rights is not mandatory and the same can be allowed to expire at the option of the beneficiary. There can, h....
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.... value of this benefit. In the case of the stock appreciation rights, what the assessee actually receives is a kind of cash bonus, which is in the nature of deferred wages and which is contingent upon the company doing well in financial terms. There is no need, as in the case of stock options, in converting the benefit into monetary terms because what is received by the assessee is itself in monetary terms. One cannot convert money into money. There cannot be a serious dispute about the point of time when the taxability is to be triggered because the redemption amount being dependent on the market price of shares which can move in any direction at any time, the income arises only when the stock appreciation right is redeemed. As for learned counsel's reliance on the decision of the House of Lords in the case of Abbot (supra), it deals with the question as to in which year the benefit of purchasing shares in employer company is to be taxed - in the year in which the shares are purchased or in the year in which the right to do so was granted. This question has no bearing on the issue before us. Not only we are dealing with redemption of stock appreciation right, which, as we have not....
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....n plan are materially different and, therefore, these two things has materially different tax implications. The Division Bench proceeded on the basis that SAR and ESOP are in materially the same - a hypothesis which, for the detailed reasons set out in this order, we are unable to accept. The conclusions arrived at by the Division Bench, therefore, do call for reconsideration. It is, in any event, nobody's case that the said decision is binding on this larger bench. We have carefully perused the said DB decision and, with respect, we are not persuaded by the same. 30. We have also taken note of the fact that in Article L(3) of the Procter & Gamble 1983 Stock Plan, the expression 'subsidiary' is defined as follows : "Subsidiary means any company in which fifty per cent (50 per cent) or more of the total combined voting power of all classes of stock is owned, directly or indirectly, by the company. In addition, the Board may designate for participation in this plan as "subsidiary", except for the granting of incentive stock options, those additional companies affiliated with the Company, in which direct or indirect ownership is less than fifty per cent (50 per cent) of the tota....
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....ept of income, but, on that account, the expression 'income' does not lose its natural connotation. Indeed, it has been repeatedly said that it is difficult to define the expression 'income' in precise terms; anything which can be properly described as income is taxable under the Act, unless, of course, it is exempt under one or other provisions of the Act. As held by the Hon'ble Supreme Court in the case of G.R. Karthikeyan (supra), the expression 'income' is of widest amplitude so as this expression may be given its natural and grammatical meaning. It should be construed in the widest sense. 34. The amount received by the assessee on redemption of share appreciation rights, as we have noted earlier in this order, is nothing but a deferred wage contingent upon performance of the company's shares in the market. The very preamble of the scheme, under which share redemption rights have been given to the assessee, also states that it is in the nature of "deferred awards related to the increase in the price of the Common Stock of the Company". It is thus clear that the amount received on redemption of stock appreciation rights is in the nature of consideration for services rendered ....
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....e any question of anything flowing from employer to the employee, and yet the salaries received by the Hon'ble Judges was held to be taxable under the head 'income from salaries'. The theory of compensation for services rendered following from employer to the employee being sine qua non for taxability under the head 'income from salaries' is thus no longer valid. What is material is that the amount received by the assessee should be in the nature of salaries. In our humble understanding, the ratio decidendi of the said judgment is that what Hon'ble Judges receive, as salary, is reward for their services and it is for this reason that such reward is brought within the scope of salary. This decision thus has the effect of expanding the scope of head of income 'salary' as it holds that what is relevant is the salary being a reward for employment rather than existence of an employer in conventional sense of the expression. The question of reward of employment flowing from employer to employee, in order to bring the same within the ambit of taxability under the head 'income from salaries', is thus redundant. 40. As for the connotation of the expression 'salary', we can do no better t....
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....tsider so far as PGI, i.e., the company with which the assessee has entered into contract of employment, is concerned. There is also no dispute that PGI is treated as a subsidiary of the PGU because unless it was so, the assessee could not have been granted stock appreciation rights in the first place. PGI is a party to the entire scheme of granting of stock appreciation rights, as evident from Article M of the P & G 1983 Stock Options Plan, which is reproduced below for ready reference : "Article M. Consent.-Every recipient of a stock option, or a stock appreciation right granted under this Plan, shall be bound by the terms and conditions of this Plan and of stock option or stock appreciation rights agreement referable thereto, and acceptance of any stock option or stock appreciation right agreement shall constitute a binding agreement between the recipient and the company and its subsidiaries including any successors to any of the interest to any of them." [Emphasis supplied] 45. The agreement for optionee and conditions of stock options and stock appreciation rights is set out in Article G of the aforesaid Plan. This article provides as follows : "1. In addition to such....
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....heme inasmuch as in case the assessee violates the said agreement, the employer company is entitled to injunctive or other appropriate relief. It is also agreed that this scheme shall constitute an agreement between the assessee and the PGU and its subsidiaries, including successors thereof. The PGI is all along an important and integral party to all these arrangements. The assessee has no other connection with PGU than the connection as an organisation connected with the company with which he has entered into an employment contract, and, therefore, anything that the assessee receives from PGU cannot be anything but the reward of his employment. As follows from the Hon'ble Supreme Court's judgment in the case of Justice Deoki Nandan Agarwal's case (supra), what is to be taxed under the head 'income from salaries' is whatever constitutes 'salary'. The expression 'salary', though not specifically defined under the Act, is the reward or consideration for services rendered by a person in employment. The assessee's receipts of whatever nature, in connection with his employment, are, therefore, to be treated as 'salaries'. 47. Even this aspect of the matter, however, is purely academi....
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....ncome from other sources'. The Tribunal, following the views of Hon'ble Calcutta High Court in the case of Roma Bose (supra) came to the conclusion that such payment made on behalf of the taxpayer constituted income of the assessee. The Tribunal was further of the opinion that the proper head under which this income could be assessed was the final head to be found under section 14 of the Act, i.e., 'income from other sources'. The correctness of this Tribunal decision was challenged before the Hon'ble Bombay High Court. It was in this context that Their Lordships of Hon'ble Bombay High Court, inter alia, observed as follows : "...We are afraid that we cannot accept (the) submission that, in the absence of a specific provision in clause (24) of section 2, such a benefit which the assessee has received from Ballarpur could not be regarded or considered to be his income which is liable to be assessed and taxed. The definition of "income" in section 2(24) is an inclusive definition and not an exhaustive one. There remains for our consideration only one other argument which was rather faintly submitted by the learned counsel for the assessee for our consideration. It was submitted....
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....other heads specified in section 14, items A to E. It is not the case of the assessee that any provision of the Act exempts the said income from the liability to tax...." 50. It was thus held by the Hon'ble Supreme Court that once it is concluded that an employment-related benefit is in the nature of income and even if it cannot be taxed under the head 'income from salaries', such an income can be taxed under the head 'income from other sources'. In other words, merely because an employment-related benefit cannot be taxed under the head 'income from salaries', such a benefit cannot go outside the ambit of taxable income. Of course, Their Lordships were dealing with the legal position prior to the five-judge bench decision in the case of Justice Deoki Nandan Agarwal's case (supra). 51. Hon'ble Supreme Court's judgment in the case of Nalinikant Ambalal Mody (supra) and Hon'ble Bombay High Court's judgment in the case of T.P. Sidhwa (supra) were duly taken note of, and yet the Hon'ble Supreme Court arrived at the above conclusion in Emil Webber's case (supra). We are thus of the view that even if the amount received by the assessee on redemption of share appreciation rights is h....
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....upra). Be that as it may, the legal position as on now is that the view of the Bombay High Court in Emil Webber's case (supra) stands approved by the Hon'ble Supreme Court. We are also not inclined to uphold contention of the assessee that the judgment of the Hon'ble Supreme Court in the case of Emil Webber's (supra) is per incurium and is not, therefore, binding on us. The judgments of Hon'ble Supreme Court are binding on us under article 141 of the Constitution of India. The words of Hon'ble Supreme Court are clear, categorical and unambiguous. It is not for us to question the reasoning adopted by the Hon'ble Supreme Court. Once Hon'ble Supreme Court comes to a conclusion, which is directly on the issue in appeal before us, we have to respectfully follow the same. Once Hon'ble Supreme Court comes to a conclusion that an employment-related benefit which is received from a person other than the employer, the same is to be taxed as an income from other sources, it cannot be open to us to take any other view of the matter. In the case of Asstt. CCE v. Dunlop India Ltd. [1985] 154 ITR 172 at page 180, Hon'ble Supreme Court has, inter alia, observed as follows : "We desire to add an....
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....legal proposition directly opposed to what was laid down by the Bombay High Court in Smt. T.P. Sidhwa's case (supra) is approved by the Hon'ble Supreme Court, the decision of the Hon'ble Bombay High Court in T.P. Sidhwa's case (supra), in our humble understanding, stands impliedly overruled. We are, therefore, unable to approve the stand of the learned counsel for the assessee that an employment-related benefit, in view of Hon'ble Bombay High Court's judgment in Smt. T.P. Sidhwa's case (supra), can only be taxed under the head 'income from salaries'. 54. As regards assessee's plea that the amount in question can only be taxed under the head 'capital gains' as the receipt is on account of transfer of a capital asset consisting of right to receive stock appreciation rights, we see no substance in the same for the simple reason that, as we have held earlier in this order and as the very preamble of Procter & Gamble (1983) Stock Plan itself states, the amount in question is in the nature of a deferred wages, in the genus of bonus, incentives and like, received as a fruit of employment-related activity which is revenue receipt in nature, and it is only the quantification of this amou....