TaxTMI 
TaxTMI 
2026 (8) TMI 193
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....7(2)(vi) of the Act? 2. That the Ld. CIT(A) erred in upholding the tax demand by considering the sum received as perquisites despite the absence of jurisdictional conditions specified in Section 17(2)(vi) of the Act? 3. That the Ld. CIT(A) failed to appreciate that the stock options held by the Appellant were in the nature of 'capital asset' and the amount received on account of repurchase of those stock options is liable to be taxed as Long Term Capital Gain ("LTCG") and cannot be taxed as perquisites by merely relying upon Form 16? 4. That the Ld. CIT(A) failed to appreciate that the deduction of tax under Section 192 of the Act by Flipkart Pvt. Ltd. does not bind the Appellant from re-classifying the amount under the appropriate head of income? 5. That in the facts and circumstances of the case and law, the Ld. CIT(A) erred in holding that the interest is mandatory leviable under Section 234B of the Act? 6. That in the facts and circumstances of the case and law, the Ld. CIT(A) erred in holding that the reassessment proceedings were valid? 7. That in the facts and circumstances of the case and law, penalty is not levi....
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.... of vested options, it is clearly mentioned that repurchase of stock options would be taxable under the head "Income from Salaries", and the same will be reflected in Form-16. Accordingly, the AO held that perquisites of Rs. 2,33,80,616/- on account of repurchase of stock options are covered under the provisions of section 17(2) of the Act, and thus are to be treated as salary income and cannot be treated as long-term capital gains. The AO also rejected the reliance placed by the assessee on the decision of the Hon'ble Delhi High Court in Sanjay Baweja vs. DCIT, reported in (2024) 163 taxmann.com 116 (Delhi) and Akash Poddar vs. ACIT, reported in (2024) 165 taxmann.com 271 (Delhi), on the basis that the facts of these cases are different from the case of the assessee. 5. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that the stock options were received by the assessee as part of the employment of FIPL and the consideration received is on account of the same stock options. Thus, the learned CIT(A) held that the assessee's contention that no employer-employee relationship exists is misleading and factually incorrect. Further, by r....
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....earned Department Representative ("learned DR") submitted that the stock options were granted to the assessee under the Flipkart Stock Option Scheme, 2012, which was applicable to the entire Flipkart group and since the assessee was an employee of an Indian subsidiary, the assessee was also entitled to receive the stock options, and accordingly, was granted the same by FKS. The learned DR submitted that, therefore, the contention of the assessee that there was no employer-employee relationship between the payer and the assessee was rightly rejected by the lower authorities. Further, by referring to Form-16, the learned DR submitted that the amount was subject to TDS under section 192 of the Act, and the Letter of Offer for the Repurchase of Vested Options also clearly indicates that the consideration for the repurchase shall be taxable under the head "Income from Salary". As regards the taxability under the head "Capital Gains", the learned DR submitted that unless the conditions for taxability under the head "Capital Gains" are satisfied, the claim of the assessee that the receipt is not taxable under the head "Salaries" cannot be accepted. 8. We have considered the submissions....
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....taxable. Thus, as per the Revenue, since the stock options were granted to the assessee pursuant to his employment with one of the group entities of Flipkart, the consideration received by the assessee from FKS upon repurchase of the vested options can only be taxed under the head "Salaries". In support of its conclusion, the AO not only placed reliance upon Form-16 issued by the employer of the assessee, where under the amount received from FKS upon repurchase of the vested options was mentioned as perquisite under section 17(2) of the Act and the tax was deducted, but also relied upon the Letters of Offer for Repurchase of Vested Options dated 18.08.2019 and 18.09.2019. As per the Revenue, in the aforesaid letters dated 18.08.2019 and 18.09.2019, it is clearly mentioned that the repurchase of vested options would be taxable under the head "Income from Salaries". Thus, as per the Revenue, the consideration received by the assessee upon repurchase of the vested options is taxable as perquisite under section 17(2) of the Act. 11. On the contrary, as per the assessee, the stock options granted to the assessee under FSOP 2012 were never exercised, and no shares were ever allotted t....
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....", "perquisite" and "profits in lieu of salary". Section 17(2) of the Act consists of a list of benefits or advantages, which are incidental to the employment and received in excess of salary and taxable as perquisites under the head "Salaries". Section 17(2)(vi) of the Act under which the consideration received by the assessee from FKS on account of repurchase of vested options was held to be taxable by the AO, read as follows: - "(vi) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee. Explanation.-For the purposes of this sub-clause,- (a) "specified security" means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees' stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme; (b) "sweat equity shares" means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or ma....
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....mployee as reduced by the actual amount paid or recovered from the employee in respect of such security. Therefore, we are of the considered view that only after the option granted to the employee under the employees' stock option plan is exercised, the incidence for taxability under the provisions of section 17(2)(vi) of the Act arises. Until then, it is merely an employee's stock option, i.e. the option available to the employee to subscribe to the shares underlying the stock option, which cannot be considered to be a "specified security" under the provisions of section 17(2)(vi) of the Act. 17. Further, it is pertinent to note that Explanation (c) to section 17(2)(vi) of the Act provides a mechanism for computing the value of the specified security, which is considered as "perquisite" for the purpose of taxability under the head "Salaries". Thus, we are of the considered view that till a "specified security" comes into existence upon exercise of the stock option by the employee, no value can be assigned to it. Accordingly, in such a scenario, the question of taxability under the head "Salaries" does not arise. At this stage, it is pertinent to note the well-settled principle ....
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....al asset as a capital asset. In this regard, it is pertinent to note the provisions of clause (e) of Explanation-1 to section 2(42A) of the Act, which reads as follows: - "Explanation 1.-(i) In determining the period for which any capital asset is held by the assessee- ...... ..... (e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer ;" 21. We find that the Hon'ble Supreme Court in Miss Dhun Dadabhoy Kapadia v. CIT, reported in [1967] 63 ITR 651 (SC), held that for computing capital gains on renunciation of the right to subscribe for additional shares, diminution in the value of original shares would be regarded as the cost of acquisition for such right. Following the aforesaid decision of the Hon'ble Supreme Court, the Jurisdictional Hon'ble Karnataka High Court in Chittharanjan A. Dasannacharya vs. CIT, Bangalore, reported in [2020] 429 ITR 570 (Karn.), held that the stock options and the right to purchase the shares und....
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....e of stock options, the sale of such shares is taxable as "Capital Gains" under section 45 of the Act. 24. From the perusal of the record, we find that in order to arrive at the conclusion that the consideration received by the assessee on account of the repurchase of vested stock options by FKS is taxable as perquisite under the head "Salaries", the lower authorities, inter-alia, relied upon Letters of Offer for Repurchase of Vested Options dated 18.08.2019 and 18.09.2019, wherein in Schedule-4, it is mentioned that the repurchase of vested options would be taxable under the head "Income from Salaries". From the perusal of the said Letters, which form part of the paper book from pages 114-151, we find that, as per clause E, the information on taxation considerations contained in Schedule-4 is merely an indicative summary, which is not intended to be a complete discussion. It is further mentioned that the contents of Schedule-4 are not to be construed as tax advice. Further, it is specifically noted that eligible participants are urged to consult their own advisers regarding the legal, tax, regulatory, financial, and accounting consequences of the repurchase. Therefore, we do no....