TaxTMI 
TaxTMI 
2010 (6) TMI 906
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....of notice given u/s 148. The reopening of notice was issued on the following grounds: i) The foreign tax credit is treated at par with tax deducted at source or advance tax for the purpose of calculating interest under the Act. The provisions of section 209 or section 234B of the Act do not specifically permit the foreign tax credit to be treated at par with the advance tax or TDS. The explanation to Sec. 234B and 234C which says that the credit of taxes paid outside India is to be allowed in arriving at assessed tax, is effective from assessment year 2007-08 onwards and cannot be applied retrospectively to the prior assessment years and ii) As per provisions of sec.17(2) of the Act read with Rule 3 of the IT Rules 1962 (the Rules), the value of perquisite in respect of accommodation should be 10% of the salary, which arrives to Rs.1,36,253 whereas the value of perquisite in the return of income filed by the assessee is computed at Rs.1,34,713/-. 3. According to assessee counsel, the assessing officer in subsequent hearings has sought clarifications relating to US sourced interest and divided income disclosed in the Indian tax return and calculations of the for....
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....ue for which the reassessment notice is issued. This view of ours is fortified by the judgement of Hon'ble Supreme in the case of ITO Vs. Mewalal Dwaraka Prasad (176 ITR 529). In the instant case during the original assessment year proceedings for the assessment year 1965-66, the ITO had found three cash credits in the account books of the assessee and, after calling upon the assessee to substantiate the genuineness of the transactions, accepted the material produced by the assessee and treated the transactions as genuine. Thereafter, the ITO issued a notice u/s 148 of the IT Act, 1961 dated March 7, 1973, i.e., more than seven years after the assessment year had been completed, for bringing to tax the cash credits as the assessee's income. On a writ petition filed by the assessee challenging the validity of the notice the High Court held that the notice was within jurisdiction only in regard to one of the cash credits and directed the ITO not to reopen the assessment in relation to the other two cash credits and directed the ITO not to reopen the assessment in relation to the other two cash credits, as he could have no reason to believe that they had escaped assessment to ....
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...., the assessee offered the differential amount between the grant price and FMV for Indian Taxation. The assessee filed a written submission stating that under the provisions of the IT Act, prior to 1st April, 2001, in a case where an employee received any security under ESOP of Scheme, the difference between the FMV on the date of exercise and the grant price of the share was taxable as salary. During the relevant previous year 1996-97 and 99-00, when the options were exercised, the assessee was in USA and a non resident for the purpose of Indian Taxation and accordingly, the differential amount was not liable to tax in India. Subsequently, the shares were sold after 1st April 2001 during the previous year 2003-04 and therefore the cost of acquisition of the shares for the purpose of computing the capital gains in respect of the shares issued under ESOP should be the FMV as on the date of exercise. However, the above explanation of the assessee was not accepted by the assessing officer. The assessing officer referred to sub section 2(AA) of sec.49 inserted in the IT Act w.e.f. 1.4.2001, which deals with cost of shares for the purpose of computing capital gains. He also referred to ....
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.....) 7.1. He drew our attention to the Securities & Exchange Board of India (employees stock option scheme and employee stock purchase scheme) guidelines 1999-schedule 1(clause 13.1) Accounting Policies for Employees Stock Option Scheme (ESOP) wherein specifically stated as follows: a) in respect of options granted during any accounting period, the accounting value of the options shall be treated as another form of employee compensation in the financial statements of the company. b) The accounting value of the options shall be equal to the aggregate, overall employee options granted during the accounting period, of the intrinsic value of the option, if the company so chooses, the fair value of the option; 7.2. He submitted that U/s 49 of the Act dealing with cost with reference to certain modes of acquisition, deals under sub section (2AA) as follows: "Where the capital gain arises from the transfer of the shares, debentures or warrants, the value of which has been taken into account while computing the value of perquisite under clause (2) of sec.17 the cost of acquisition of such shares, debentures or warrants shall be the value under that clause". ....
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....so considered as income accrued in 1996-97 and 1999-2000 cannot be brought to tax in India. 8.1. He drew our attention to the following articles of the Double Taxation Avoidance Agreement (DTAA) between India and US : "Article 16: subject to the provision of Article 17 salaries wages, and other similar remuneration derived by a Resident of a contracting state in respect of an employment shall be taxable only in that state unless the employment is exercised in the other contracting state ". 9. He submitted that in the assessee's case, the remuneration on account of the perquisite value of ESOP was derived in respect of his employment with Microsoft Corporation in US. No part of such employment was exercised by the assessee in India in those years. By means of the above specific article 16 of the DTAA between India and US, the right of taxation of such salary and remuneration is only with US and not with India. Any attempt by the assessing officer to tax such portion of the employment income in India, as capital gains, would be contrary to the provision of the DTAA between India and US. 9.1. He drew our attention to the judgement of Hon'ble Supreme Court in ....
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....s stated to be tax deferred if such payment are tax deductible at the time of contribution but liable to tax at the time the same is withdrawn). The non resident sought a clarification from Hon'ble AAR whether at the time of withdrawal of the IRA contribution, if such non resident happens to be a resident in India, whether tax would be levied under the IT Act in India. The Hon'ble AAR in its order clearly stated as under: "the amount lying in IRA account in US represents part of the salary income received by the assessee in earlier years and deposited in IRA account as a form of compulsory savings augmented by interest, capital gain and other accretion thereto. The withdrawals mostly represent salary and other income which had accrued to the assessee at a point of time when he was a no resident in India. He will therefore be liable to pay no Indian tax thereon. The principle in the present case before the ITAT is also in the same line as mentioned above. 10.3. It is submitted that the definition of `cost' must be given a broader meaning to cover both the actual monetary payment and the other monetary income element comprised therei....
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....er than cash for providing know how or making available rights in the nature of intellectual property rights by whatever name called. The value of such shares will be treated as perquisite in the year in which such options are exercised by the employee or director as the case may be. Where the amount paid for such securities is 'nil' the perquisite value shall be the market value of such shares". 10.5. He drew our attention to the later amendment to this provision which is as follows: i) The Finance Act 2000 brought further amendments restricting the tax liability with respect to ESOP, which are issued in accordance with guidelines issued by central govt. and consequent to this amendment, the above clauses got substituted with modifications. A new sub section (2AA) was inserted u/s 49 of the Act. (2AA) where the capital gain arises from the transfer of shares, debentures or warrants, the value of which has been taken into account while computing the value of perquisite under clause (2) of section, 17 the cost of acquisition of such shares, debentures or warrants shall be the value under that clause. ii). The Finance Act, 2007 by an ame....
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....ssued in acknowledgement of the indebtedness' of the company to the assessee. But debentures very often have a market value of their own, quite distinct and apart from the loan amount. The market price will depend upon the period of redemption of the debentures, the rate of interest and various other taxes embodied in the terms and conditions in the issue of debentures and its price fluctuates as the market rate or bank rate of interest goes up or down. There was an additional factor in this case that the debentures were convertible debentures. The debenture holder had an option to convert the debentures into equity shares of the company. A convertible debenture of a company whose shares price is very high is likely to have a market value much higher than its face value. The cost of acquisitions in case of an exchange must be the market price of the property that has been given up or transferred by the assessee. 11. Finally he submitted that the capital gains tax aims to tax only what is untaxed by Income Tax as income. There will be no capital gains tax on the portion of the income which is already charged on income tax as income. Capital gain tax is chargeable on only so m....
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.... the proviso to sec. 17(2) (iii). Concurrently, sub section 2B of Sec.49 was omitted and sub section 2AA in section 49 was inserted by Finance Act, 2000. The effect of these amendments was that taxation was postponed to the year of disposal of the equity shares by way of capital gain and the cost of acquisition was the actual price if any paid by the employee. These proviso was in statute book up to substitution of new sec.2AA in earlier place by Finance Act w.e.f. 1.4.2010 i.e., in relation to assessment year 2010-2011 and subsequent years. As per new amendment, it provides that where the capital gain arises from the transfer of specified security or sweat equity shares referred to in sub clause (vi) of clause 2 of sec.17, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account for the purpose of the said sub clause. Now the assessee in the present case, wants application amended proviso. In our opinion, which is not the intention of legislature to make retrospective amendment. Now, we will go through the applicable provisions to the present case. Sec.49(2AA) reads as follows which was inserted in the IT Act w.e.....