TaxTMI 
TaxTMI 
2020 (10) TMI 1169
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....ssessment year 2006-07. The appeal was admitted by a bench of this Court vide order dated 07.10.2014 on the following substantial question of law: Whether, on the facts, in the circumstances and on the grounds urged: i. The Hon'ble Tribunal was right or justified in confirming the order passed by the CIT(A) holding that the gains arising on cashless exercise of stock options would be taxable as income under the heads 'income from salaries' and 'short term capital gains', as against income under the head 'long term capital gains' as claimed by the Appellant? ii. The Hon'ble Tribunal was correct in holding that stock options did not constitute a 'capital asset' under Section 2....
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....F USA at an exercise price of US $0.08 per share. The assessee also had an option of cashless exercise of stock options which is an irrevocable direction to the broker to sell the underlying shares and deliver the proceeds of sale of shares after deducting the exercise / option price which was to be delivered to SiRF USA. In cashless exercise, the underlying shares are not allotted to the assessee and he is only entitled to receive the sale proceeds less the exercise price. The assessee in assessment year 2006 07 exercised his right under stock option plan by way of cashless exercise and received a net consideration of US $ 283,606 and offered the gain as a long term capital gain as the stock options were held nearly for ten years. The asse....
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....ing recorded by the tribunal that assessee was an employee of SiRF USA is perverse and therefore, the finding of the tribunal that consideration received on transfer of stock options is in the nature of income from salaries cannot be sustained in the eye of law. It is further submitted that the tribunal ought to have appreciated that there was no relationship of employer and employee between SiRF USA and therefore, no part of the income from exercise of stock option can be treated as 'income from salaries'. It is further pointed out that the tribunal ought to have appreciated that stock option was granted to the assessee when he was an independent consultant with SiRF USA and therefore, cannot be treated to be an employee for the pu....
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....ted the fact that on cashless exercise of options, there arises income in the nature of capital gains and the revenue has not challenged the correctness of the view taken by the tribunal in the aforesaid decisions and therefore, it is not open for the revenue to challenge its correctness in case of other assesses. In support of aforesaid submissions, reliance has been placed on decisions in 'CIT VS. L.W.RUSSEL', (1964) 53 ITR 91 (SC) AT PAGE 5, 'DHUN DADABHOY KAPADIA VS. CIT', (1967) 63 ITR 651 (SC), 'MANGALORE ELECTRIC SUPPLY CO. LTD. VS. CIT', (1978) 113 ITR 655 (SC), 'BERGER PAINTS INDIA LTD. VS. CIT', (2004) 135 TAXMAN 586 (SC). 5. On the other hand, learned counsel for the revenue while inviting the a....
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....any right to become, to be treated as, or to remain an Employee. The company and its subsidiaries reserve the right to terminate any person's service at any time and for any reason. 7. From perusal of communication dated 03.08.2006 sent by the SiRF USA to the assessee, it is evident that the assessee was an independent consultant to SiRF USA and was not an employee of SiRF USA at the relevant time. Thus, there was no relationship of employer and employee between the SiRF USA and the assessee and therefore, the finding recorded by the tribunal that the income from the exercise of stock option has to be treated as income from salaries is perverse as it is trite law that unless the relationship of employer and employee exists, the incom....