TaxTMI 
TaxTMI 
2026 (9) TMI 600
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....he 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) erred in holding that the Explanation(a) to Section 17(2)(vi) includes securities offered under the ESOP Scheme in addition to the shares allotted pursuant to exercise of stock options and therefore, the same is liable to be taxed as 'perquisite'? 4. That the Ld. CIT(A) erred in holding that the compensation received by the Appellant is being taxed under Section 17(2) read with Section 15 of the Act and nonapplication of valuation clause under Explanation (c) does not foreclose the taxability? 5. That the Ld. CIT(A) erred in holding that compensation received by the Appellant is on account of an employment-linked benefit and thus, taxable as 'perquisite'? 6. 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 decide the taxability in the hands of the Appellant? 7. 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 is in the n....
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.... that FPS had deducted tax under section 192 of the Act and had reported the payment as salary in Form No.16. The Assessing Officer further noticed that the assessee had received the compensation at the rate of USD 43.67 for every ESOP held by him and the assessee had neither paid any amount towards the ESOPs nor exercised the options. The Assessing Officer also noticed that the assessee continued to retain all the ESOPs even after receiving the compensation. 4. The Assessing Officer held that the ESOPs had been granted to the assessee by reason of his employment and, therefore, any monetary benefit arising from such ESOPs had a direct nexus with the employer-employee relationship. The Assessing Officer referred to sections 15 and 17 of the Act and held that the inclusive definition of "perquisite" under section 17(2), particularly section 17(2)(vi), was wide enough to cover the compensatory payment received by the assessee even though the assessee had not exercised the options. The Assessing Officer distinguished the decisions of the Hon'ble Delhi High Court in Sanjay Baweja v. DCIT [2024] 163 taxmann.com 116/299 Taxman 313/474 ITR 376 (Delhi) and the Hon'ble Karnataka High Cou....
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.... employment. 7. The learned CIT(A) thereafter considered the conflicting decisions of the Hon'ble Delhi High Court in Sanjay Baweja and the Hon'ble Karnataka High Court in Manjeet Singh Chawla on the one hand and the Hon'ble Madras High Court in Nishithkumar Mukeshkumar Mehta on the other. The learned CIT(A) observed that none of these High Courts was the jurisdictional High Court for the assessee. The learned CIT(A) preferred the reasoning of the Hon'ble Madras High Court and held that the compensation constituted a taxable perquisite under section 17(2)(vi) of the Act. 8. The learned CIT(A) also gave an alternative finding that the compensation was taxable as "profits in lieu of salary" under section 17(3)(ii) read with section 15 of the Act. For this purpose, the learned CIT(A) relied upon the decision of the Special Bench of the Tribunal in Sumit Bhattacharya v. ACIT [2008] 112 ITD 1 (Mum)(SB) and held that a payment by a foreign parent company could be treated as employment-linked salary income where the benefit arose by reason of the assessee's employment with the subsidiary. The learned CIT(A), therefore, confirmed the addition of Rs.11,88,24,694 9. The assessee is ....
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.... 26. Moreover, the compensation was a voluntary payment and not transfer by way of any obligation. Notably, the present is not a case where the option holder has exercised his right. Rather, the facts suggest that the assessee has not exercised his options under the ESOP till date. It appears that due to the disinvestment of the PhonePe business from FPS, the Board of Directors of FPS had decided to provide a one-time voluntary payment to all the option holders pursuant to ESOP. It is imperative to point out that the management proceeded by noting that there was no legal or contractual right under ESOP to provide compensation for loss in current value or any potential losses on account of future accretion to the ESOP holders. It was further noted that FPS, on its own discretion, has estimated and decided to pay USD 43.67 as compensation for each stock option as held on the record date. 27. Therefore, it is elementary to highlight that the payment in question was not linked to the employment or business of the assessee, rather it was a one-time voluntary payment to all the option holders of FSOP, pursuant to the disinvestment of PhonePe business from FPS. In the present ca....
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....shithkumar Mukeshkumar Mehta v. DCIT (TDS) [2024] 165 taxmann.com 386/475 ITR 614 (Madras). The learned Single Judge of the Hon'ble Madras High Court held that the expression "specified security" in section 17(2)(vi) was sufficiently wide to include securities offered under an ESOP scheme and that the actual monetary compensation received at the pre-exercise stage could constitute a taxable perquisite. The Court relied upon the fact that the assessee had made no payment towards the ESOPs and continued to retain all the ESOPs after receipt of compensation and, on that basis, held the entire receipt taxable under the head "Salaries". 16. However, we find that the decision in Sanjay Baweja is a decision of a Division Bench dealing directly with the same Flipkart compensation, whereas Nishithkumar Mukeshkumar Mehta was rendered by a learned Single Judge. Neither decision is of the jurisdictional High Court. In these circumstances, while both constitute persuasive precedents, we consider it appropriate to follow the view expressed by the Division Bench in Sanjay Baweja, particularly because it directly interprets section 17(2)(vi) in the context of the identical FPS compensation and ....