TaxTMI 
TaxTMI 
2018 (8) TMI 343
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....56, is registered as a Non Banking Finance Company ('NBFC') with the Reserve Bank of India. The Company is engaged in the business of granting micro loans in rural areas, across 19 states in India. 2.1 A survey operation u/s 133A of the Act was conducted in the case of assessee on 17 December 2014 to verify the compliance with TDS provisions. During the survey, it was observed by the Deputy Commissioner of Income Tax, TDS Circle - 2(1), Hyderabad that Mr. Vikram Akula (here-in-referred to as Mr. Vikram'), then employee of the Company, has received compensation in the form of Employee Stock Options 'ESOP' in short) granted to him and a certain amount as non-compete fee vide a Separation and General Release Agreement da....
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....uo moto. 4. Separation Agreement has been used by the Assessee for deferring the tax liability of Mr. Vikram. Relying on section 23 of The Indian Contract Act, 1872 and the ruling of the Mumbai Tribunal in the case of Hathway Investments (P.) Limited (104 DTR 217), the Ld. AO has held that Separation Agreement has been used to defeat the provisions of withholding tax and therefore invalid. 5. As per the Ld. AO, the Appellant should have withheld taxes on non compete fee on entering into the Separation Agreement i.e. 23 November 2011 as the non-compete fee had 'accrued' to Mr. Vikram on entering into the Separation Agreement." 3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). ....
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....nd No.2, assuming but not admitting that interest u/s 201(1A) of the Act is to be levied, the Ld. CIT(A) a. Erred in holding that TDS deposited by the Appellant is to be re-characterized and adjusted towards interest u/s 201(1A) of the Act b. Erred in holding the appellant as assessee in default both in law as well as in facts for non deposit of TDS to government treasury and levying interest u/s 201(1A)(ii) of the Act whereas payment has already been made by the Appellant. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 7. Before us, the assessee filed its submissio....
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....te in form of shares allotted pursuant to ESOP plan, explanation (c) to Section 17(2)(vi) of the Act, provides as under: "the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares" Therefore, for the purpose of valuing the perk, the difference between the Fair Market Value ('FMV) of shares (as on the date of which option exercised) and amount paid by the assessee is treated as value of perk in the hands of the assessee. * Accordingly, on c....
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....the separation agreement. The essential conditions are : The non-compete fees payable upon fulfilment of commitments made by Mr. Vikram such as i) Non-disposal agreements entered for enforcing restriction on sale of shares to be allotted under Scheme 2007 ii) On receipt withholding tax on the allotment of shares. These are the essential conditions in order to safeguard the interest of the assessee. 9.1 In our considered view, the ex-employee has a right to exercise, once he exercises the option, the price of the shares are freezed. That means, the exercise of the option is only acceptance of the proposal as per the scheme 2007. The proposal comes with the obligation i.e. with conditions of such exercise of option.....