Chittharanjan A. Dasannacharya, Bangalore v. ACIT, Bangalore

ITA 235/BANG/2012 | 2006-2007
Pronouncement Date: 31-10-2013 | Result: Dismissed

Appeal Details

RSA Number 23521114 RSA 2012
Assessee PAN ADHPD0400B
Bench Bangalore
Appeal Number ITA 235/BANG/2012
Duration Of Justice 1 year(s) 8 month(s) 8 day(s)
Appellant Chittharanjan A. Dasannacharya, Bangalore
Respondent ACIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-10-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 31-10-2013
Date Of Final Hearing 18-10-2013
Next Hearing Date 18-10-2013
Assessment Year 2006-2007
Appeal Filed On 21-02-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR VICE PRESIDENT AND SHRI N.V. VASUDEVAN JUDICIAL MEMBER ITA NO.1341 & 1342/BANG/2011 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 14(1) BANGALORE. VS. SHRI CHITTARANJAN A. DASANNACHARYA # C-302 TEMPLE MEADOWS 27 TH CROSS BANASHANKAR 2 ND STAGE BANGALORE 560 070. PAN : ADHPD 0400B APPELLANT RESPONDENT ITA NO.235/BANG/2012 ASSESSMENT YEAR : 2006- 07 SHRI CHITTARANJAN A. DASANNACHARYA # C-302 TEMPLE MEADOWS 27 TH CROSS BANASHANKAR 2 ND STAGE BANGALORE 560 070. PAN : ADHPD 0400B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 14(1) BANGALORE. APPELLANT RESPONDENT REVENUE BY : SHRI A. SUNDARARAJAN JT. CIT (SR.DR-I II) ASSESSEE BY : SHRI T. SURYANARAYANA ADVOCATE DATE OF HEARING : 18.10.2013 DATE OF PRONOUNCEMENT : 31.10.2013 ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 2 OF 31 O R D E R PER N.V. VASUDEVAN JUDICIAL MEMBER ITA NOS.1341/BANG/2011 & 235/BANG/2012 ITA 1341/BANG/2011 IS AN APPEAL BY THE REVENUE AN D ITA NO.235/BANG/2012 IS AN APPEAL BY THE ASSESSEE. BOT H THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 31.10.2011 OF THE CIT(APPEALS)-V BENGALURU. 2. THE ASSESSEE IS AN INDIVIDUAL AND IS A QUALIFIE D SOFTWARE ENGINEER. HE IS A M. TECH FROM IIT MUMBAI. THE ASSESSEE WAS DEPUTED TO USA IN THE YEAR 1995 BY HIS THEN EMPLOYER AEROSPACE SYSTEM S PRIVATE LTD. INDIA [ ASPL INDIA FOR SHORT] AS AN INDEPENDENT CONSULTANT TO SIRF T ECHNOLOGY INC. USA [ SIRF USA FOR SHORT]. HE SERVED IN USA IN AGGREGATE FOR NEARLY SIX YEARS INITIALLY FROM 1995 TO 1998 AS AN EMPLOYEE OF ASPL INDIA; AND LATER AS AN EMPLOYEE OF SIRF USA FROM 2001 TO 2004. THEREAFTER THE ASSESSEE RETURNED TO INDIA AND BECAME AN EMPLOY EE OF SIRF INDIA. 3. SIRF USA GRANTED CERTAIN STOCK OPTIONS TO THE A SSESSEE ON 04.10.1996 [ GRANT DATE ] I.E. WHILE THE ASSESSEE WAS AN INDEPENDENT CONSULTANT WHICH GAVE THE RIGHT TO THE ASSESSEE TO BUY/ACQUIRE 35 000 SHARES OF THE COMMON STOCK OF SIRF USA AT AN EXER CISE PRICE OF USD 0.08 EACH PURSUANT TO A STOCK OPTION PLAN [ SOP ] CALLED 1995 STOCK PLAN. THE ASSESSEE EXERCISED HIS RIGHT UNDER THE STOCK OPTION PLAN ON ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 3 OF 31 2 ND AND 3 RD OF MARCH 2006 (DATE OF EXERCISE) AND RECEIVED 5 000 AND 2000 SHARES RESPECTIVELY OF SIRF USA. SINCE SUCH SHARES WERE SOLD BY THE ASSESSEE ON THE SAME DAY OF EXERCISE IN A CASH LESS EXERCISE THE NET CONSIDERATION OF USD 204786 AND USD 78 820 AGGREGAT ING TO USD 283606 (RUPEE EQUIVALENT RS.1 27 62 295) WAS CONSIDERED BY HIM AS CAPITAL GAINS ARISING ON TRANSFER OF STOCK OPTIONS. ACCORDING TO THE ASSESSEE HE HELD THE STOCK OPTIONS FOR NEARLY 10 YEARS I.E. FROM TH E DATE OF GRANT DATE OR IN EVENT FROM THE DATE OF VESTING OF THE STOCK OPTION. ACCORDING TO THE ASSESSEE THE NET CONSIDERATION RECEIVED UPON EXERCI SE OF HIS RIGHT BEING THE VALUE OF THE SHARES WAS AN INCOME IN THE NATUR E OF LONG TERM CAPITAL GAINS UNDER THE INCOME TAX ACT 1961 (THE ACT) INASMUCH AS THE STOCK OPTIONS WERE HIS VALUABLE RIGHT AND CONVERSION THER EOF FOR THE CONSIDERATION IN THE FORM OF SHARES WAS TRANSFER OF HIS VALUABLE RIGHT. 4. THE RETURN OF INCOME FOR THE A.Y. 2006-07 WAS FI LED BY THE ASSESSEE DECLARING THE ENTIRE NET CONSIDERATION OF RS.1 27 6 2 295 AS LONG TERM CAPITAL GAINS. IN THE RETURN THE ASSESSEE ALSO DI SCLOSED THE SALARY INCOME OF RS.33 08 188 AND INTEREST INCOME OF RS.4 86 229. THE ASSESSEE INVESTED PART OF SUCH CONSIDERATION IN THE CONSTRUC TION OF A RESIDENTIAL PROPERTY AT NOIDA AND CLAIMED DEDUCTION OF RS.62 38 598/- U/S 54F OF THE ACT FROM THE LONG TERM CAPITAL GAINS DECLARED BY HI M IN THE RETURN OF INCOME. ON THE BALANCE CONSIDERATION OF RS. 65 23 6 97/- THE TAX DUE AMOUNTING TO RS. 13 04 739/- WAS PAID BY WAY OF TAX DEDUCTED/WITHHELD AT SOURCE BY SIRF USA AND BY WAY OF SELF ASSESSMENT TAX ALONG WITH THE ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 4 OF 31 APPLICABLE INTEREST. SIRF USA WITHHELD TAX AT SO URCE ON THE USD EQUIVALENT OF THE CONSIDERATION AND ISSUED A LETTER DATED 03.08.2006 TO THE ASSESSEE WHICH INDICATED THAT THE CONSIDERATION WA S TREATED AS CAPITAL GAINS IN USA. 5. IN THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT THE AO VIDE SHOW CAUSE NOTICE 17.10.2008 PROPOSED TO LEVY TAX ON THE CONSIDERATION RECEIVED ON STOCK OPTIONS AS BELOW:- (A) THE DIFFERENCE BETWEEN MARKET PRICE AND EXERCI SED PRICE ON THE TIME OF ACQUISITION I.E. ON THE DATE AND TIM E OF EXERCISE AND CONSIDERED SUCH BENEFIT AS INCOME FRO M OTHER SOURCES. (B) THE CAPITAL GAIN OR LOSS OWING TO THE DIFFEREN CE IN SALE CONSIDERATION VIS-A VIS THE MARKET PRICE OF THE SHA RES WHEN THE ACQUIRED SHARES ARE SOLD I.E. THE DATE AND TIME OF SALE OF THE SHARES WHICH WAS TREATED AS SHORT TERM CAPITAL GAINS. 6. THE AO ALSO PROPOSED TO REJECT THE ASSESSEES CL AIM FOR DEDUCTION U/S 54F OF THE ACT BECAUSE THE BENEFIT OF DEDUCTION U/S.54F OF THE ACT WILL BE AVAILABLE ONLY IF THE GAIN ON SALE OF SHARES IS CONSIDERED AS GIVING RAISE TO A LONG TERM CAPITAL GAIN I.E. THE ASSESSEE OUG HT TO HAVE HELD THE SHARES FOR A PERIOD OF NOT MORE THAN 12 MONTHS. THE AO WAS OF THE VIEW THAT THE CAPITAL ASSET WAS ACQUIRED ONLY WHEN THE O PTIONS WERE ACTUALLY EXERCISED I.E. ON 2 ND AND 3 RD MARCH 2006. 7. IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE THE ASSESSEE VIDE LETTER DATED 28.11.2008 SUBMITTED THAT THE STOCK OP TIONS WERE CAPITAL ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 5 OF 31 ASSETS COVERED U/S. 2(14) OF THE ACT AND EXERCISE OF SUCH OPTIONS AND CONVERSION INTO SHARES THEREAFTER WAS TRANSFER U/ S 2(47) OF THE ACT. ACCORDING TO THE ASSESSEE THE STOCK OPTIONS WERE TR ANSFERABLE. THE ASSESSEE TOOK A STAND THAT HE HELD THE STOCK OPTION S FOR NEARLY TEN YEARS I.E. WHEN THE STOCK OPTIONS WERE GRANTED DURING TH E YEAR 1996 BY SIRF USA. THE ASSESSEE THEREFORE CONSIDERED THE CONSIDE RATION RECEIVED ON THE EXERCISE OF OPTION WAS LONG TERM CAPITAL GAINS IN TERMS OF SECTION 48 OF THE ACT AND THEREFORE HE WAS ELIGIBLE FOR THE DE DUCTION U/S 54F OF THE ACT . 8. THE AO CONCLUDED THE ASSESSMENT U/S. 143(3) OF T HE ACT VIDE HIS ORDER DATED 26TH OF DEC 2008. THE ASSESSEES SUBMIS SIONS WERE REJECTED AND THE AO BROUGHT TO TAX THE DIFFERENCE BETWEEN TH E MARKET VALUE OF SHARES ON DATE OF EXERCISE AND THE EXERCISE PRICE A S INCOME FROM SALARY AS AGAINST HIS ORIGINAL PROPOSITION TO TAX THE SAME AS INCOME FROM OTHER SOURCES AND THE DIFFERENCE BETWEEN THE SALE PRICE OF SHARES AND THE MARKET VALUE OF SHARES ON THE DATE OF EXERCISE WAS CONSIDERED AS INCOME FROM SHORT TERM CAPITAL GAINS. THIS TREATMENT RES ULTED IN A TAX DEMAND OF RS.37 46 529 TO THE ASSESSEE. CONSEQUENTLY DED UCTION U/S. 54F OF THE ACT WAS ALSO DENIED TO THE ASSESSEE. 9. BEFORE THE CIT(APPEALS) THE ASSESSEE CONTENDED THAT WHAT WAS SOLD BY THE ASSESSEE WAS STOCK OPTION WHICH BY ITS ELF WAS A CAPITAL ASSET U/S. 2(14) OF THE ACT. IT WAS POINTED OUT THAT THE STOCK OPTION WAS ACQUIRED ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 6 OF 31 BY THE ASSESSEE AS EARLY AS 04.10.1996. THE ASSESS EE COULD EXERCISE OPTION AT ANY TIME AND IN ANY EVENT WITHIN FOUR Y EARS FROM 04.10.1996. THE ASSESSEE SUBMITTED THAT THE ASSESSEE ACQUIRED C APITAL ASSET AS EARLY AS 04.10.1996 OR ALTERNATIVELY ON 04.10.2000 (AFTER EXPIRY OF FOUR YEARS). SINCE THE STOCK OPTIONS WERE TRANSFERRED IN MARCH 2006 THERE WAS A CAPITAL GAIN ARISING OUT OF TRANSFER OF STOCK OPTIO NS WHICH HAS TO BE CONSIDERED AS LONG TERM CAPITAL GAIN. THE ASSESS EE ALSO SUBMITTED THAT THE DEDUCTION U/S. 54F OF THE ACT SHOULD BE GIVEN. 10. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISI ON OF ITAT DELHI BENCH IN THE CASE OF ABHIRAM SETH V. JCIT ITA NO.2302/DEL/2010 FOR THE A.Y. 2004-05 ORDER DATED 30.09.2011. IN THE AFORESAID CASE THE TRIBUNAL AFTER ANALYZING THE SCHEME OF ESOP CAME T O THE CONCLUSION THAT THE AMOUNT RECEIVED ON TRANSFER OF RIGHTS TO EXERCI SE OPTION WAS A LONG TERM CAPITAL GAIN. THE ASSESSEE ALSO DISTINGUISHED THE DECISION OF ITAT BANGALORE IN THE CASE OF GIRIDHAR KRISHNA V. ACIT (2008) 307 ITR (AT) 68 (BANG) / 117 TTJ (BANG) 965 WHEREIN THE QUESTION THAT AROSE FOR CONSIDERATION WAS AS TO WHAT IS THE DATE OF PURCHASE OF THE CAPITAL ASSET IN CASE OF AN EMPLOYEE STOCK OPTION (ESOP). THE TRIBUNAL HELD THAT THE DATE OF PURCHASE OF CAPITAL ASSET IN THE FORM O F SHARES IN AN ESOP WAS THE DATE ON WHICH THE SHARES WERE ALLOTTED TO THE A SSESSEE AND NOT ON THE DATE OF GRANTING OF AN OPTION OR VESTING OF AN OPTI ON IN FAVOUR OF THE ASSESSEE AS PER THE SCHEME OF ESOP. THE ASSESSEE P OINTED OUT BEFORE ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 7 OF 31 THE CIT(APPEALS) THAT IN THE CASE OF THE ASSESSEE THE QUESTION OF DATE OF PURCHASE OF THE SHARES IS NOT AT ALL IN DISPUTE AND THEREFORE THE AFORESAID DECISION RELIED UPON BY THE AO WILL NOT SUPPORT TH E CASE OF THE REVENUE. THE CIT(A) HOWEVER CONFIRMED THE VIEW OF THE AO B Y OBSERVING AS FOLLOWS:- 5. BEFORE ME THE AUTHORIZED REPRESENTATIVES OF THE APPELLANT ARGUED THAT THE DATE OF GRANTING OF STOCK OPTIONS S HOULD BE TAKEN AS DATE OF ACQUISITION OF THE CAPITAL ASSET. THEY A LSO PRODUCED BEFORE ME A COPY OF THE ORDER OF THE HONBLE ITAT DELHI A- BENCH IN THE CASE OF SHRI. ABHIRAM SETH VS JCIT DAT ED 30-09- 2011 WHEREIN THE CLAIM OF LONG TERM CAPITAL GAINS I S JUSTIFIED. HOWEVER AS THE FACTS OF THAT CASE ARE DIFFERENT FRO M THAT OF THE CASE OF THE APPELLANT I AM UNABLE TO ACCEPT THAT D ECISION. AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE I AM INCLINED TO AGREE WITH THE ARGUMENTS OF THE A.O AND ACCORDINGLY THE TOTAL INCOME DETERMINED BY THE A.O IS CONFIRMED. 11. THE ASSESSEE ALSO CHALLENGED THE LEVY OF INTERE ST U/S. 234B OF THE ACT. ON THE ABOVE ISSUE THE CIT(A) HELD AS FOLLOW S:- 6. THE APPELLANT ALSO CONTESTED THE CHARGING OF IN TEREST U/S 234B OF THE ACT ON THE GROUND THAT AS THE A.O TREAT ED THE BENEFIT FROM STOCK OPTION AS THE INCOME FROM SALARY INTERE ST U/S 234B OF THE ACT IS NOT LEVIABLE IN THE CASE OF THE APPEL LANT. AFTER EXAMINING THIS ISSUE I AM OF THE OPINION THAT WHENE VER THERE IS INCOME FROM SALARY THE RESPONSIBILITY TO DEDUCT TAX AT SOURCE FALLS ON THE EMPLOYER OF THE ASSESSEE. THEREFORE THE A.O IS DIRECTED NOT TO CHARGE INTEREST U/S 234B OF THE ACT ON THE I NCOME OF RS. 1 23 43 050/- ATTRIBUTABLE TO THE BENEFITS FROM STO CK OPTIONS. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 8 OF 31 12. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) IN H OLDING THAT INCOME ON EXERCISE OF OPTION TO ACQUIRE THE SHARES HAS TO BE TREATED AS INCOME FROM SALARY AND NOT ALLOWING DEDUCTION U/S. 54F OF THE ACT THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. AGGRIEVE D BY THE ORDER OF THE CIT(A) IN DIRECTING THE AO NOT TO LEVY INTEREST U/S . 234B OF THE ACT THE REVENUE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. 13. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE AND THE LD. DR. 14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS NOT EMPLOYEE OF SIRF USA AND THEREFORE RECEIPTS TH AT ACCRUED TO THE ASSESSEE ON SALE OF STOCK OPTION COULD NOT BE ASSES SED AS INCOME UNDER THE HEAD SALARIES. IN THIS REGARD IT WAS SUBMIT TED BY HIM THAT THE AO IN COMING TO THE CONCLUSION TO THE CONTRARY HAD RELIE D UPON THE DEFINITION OF EMPLOYEE AS GIVEN IN THE SIRF TECHNOLOGY INC. AMEND ED AND RESTATED 1995 STOCK PLAN WHEREIN THE TERM EMPLOYEE HAS BE EN DEFINED TO INCLUDE EVEN A CONSULTANT WHO PERFORMS SERVICES FOR THE CO MPANY OR THE SUBSIDIARY. IT WAS SUBMITTED THAT NO DOUBT THE ASS ESSEE PERFORMED SERVICES FOR THE COMPANY AS A CONSULTANT BUT THAT WILL NOT CONFER THE ASSESSEE ANY RIGHTS OF AN EMPLOYEE AS LAID DOWN IN SECTION 11 OF THE SIRF TECHNOLOGY INC. AMENDED AND RESTATED 1995 STOCK PLA N WHICH READS THUS:- ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 9 OF 31 SECTION 11. NO EMPLOYMENT RIGHTS . NO PROVISION OF THE PLAN NOR ANY OPTION GRANTED OR OTHER RIGHT TO ACQUIRE SHARES AWARDED UNDER THE PLAN SHALL BE CON STRUED TO GIVE ANY PERSON ANY RIGHT TO BECOME TO BE TREATED AS O R TO REMAIN AN EMPLOYEE. THE COMPANY AND ITS SUBSIDIARIES RESERVE THE RIGHT TO TERMINATE ANY PERSONS SERVICE AT ANY TIME AND FOR ANY REASON. 15. OUR ATTENTION WAS ALSO DRAWN TO LETTER DATED 03 .08.2006 GIVEN BY SIRF USA WHICH CLEARLY STATES THAT THE ASSESSEE WA S AN INDEPENDENT CONSULTANT TO SIRF USA WHEN THE OPTIONS WERE GRAN TED. IT WAS THEREFORE SUBMITTED BY HIM THAT THE THERE WAS NO EMPLOYER-EMP LOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND SIRF USA AT THE RELEVANT POINT OF TIME WHEN THE STOCK OPTIONS WERE GRANTED AND THEREFORE INCOME FROM EXERCISING STOCK OPTION CANNOT BE ASSESSED UNDER THE HEAD SAL ARIES. 16. THE LD. COUNSEL REITERATED THE SUBMISSIONS AS W ERE MADE BEFORE THE CIT(A) AND SUBMITTED THAT THE INCOME IN QUESTION WA S LONG TERM CAPITAL GAIN AND SHOULD BE ASSESSED AS SUCH. CONSEQUENTLY THE ASSESSEE SHOULD ALSO GET THE BENEFIT OF DEDUCTION U/S. 54F. 17. THE LD. COUNSEL FOR THE ASSESSEE ALSO DISTINGUI SHED THE DECISION RELIED UPON BY THE AO IN THE CASE OF GIRIDHAR KRISHNA (SUPRA) BY POINTING OUT THAT IN THE CASE OF THE ASSESSEE THE QUESTION WAS NOT WITH REGARD TO THE NATURE OF INCOME RECEIVED ON EXERCISE OF STOCK OPTION BUT IT WAS WITH REFERENCE TO THE DATE ON WHICH THE SHARES CAN BE CO NSIDERED AS PURCHASE IN A STOCK OPTION. OUR ATTENTION WAS ALSO DRAWN TO THE FACT THAT UNDER THE ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 10 OF 31 STOCK OPTION PLAN THE ASSESSEE CAN OPT FOR CASHLES S EXERCISE OF OPTION BY WHICH THE SHARES CAN BE SOLD THROUGH A STOCK BROKER AND PART OF THE PROCEEDS CAN BE DEPOSITED WITH SIRF USA IN DISCHAR GE OF THE PRICE PAYABLE TO SIRF USA ON EXERCISING THE OPTION AND THE DIFFERENCE BETWEEN THE OPTION PRICE AND THE SALE CONSIDERATION RECEIVE D BY THE ASSESSEE. THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE O F SUMIT BHATTACHARYA V. ACIT [2008] 300 ITR (AT) 347 (MUM) (SB) RELIED UPON BY THE ASSESSEE WAS ALSO DISTINGUISHED AS A CASE WHICH DID NOT DEA L WITH ESOP BUT DEALT WITH THE CASE OF STOCK APPRECIATION RIGHTS. OUR AT TENTION WAS DRAWN TO PARAGRAPHS 25 TO 27 OF THE AFORESAID JUDGMENT WHER EIN THE TRIBUNAL ITSELF OBSERVED THAT THERE WAS A DISTINCTION BETWEEN ESOP AND STOCK APPRECIATION RIGHTS. 18. IT WAS NEXT CONTENDED BY THE LD. COUNSEL FOR TH E ASSESSEE THAT THE STOCK OPTION GAVE A RIGHT TO PURCHASE SHARES AND SU CH RIGHT IS IN ITSELF A CAPITAL ASSET AS DEFINED IN SECTION 2(14) OF THE AC T. IN THIS REGARD OUR ATTENTION WAS INVITED TO SEVERAL DECISIONS ONE SUC H DECISION BEING THAT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TATA SERVICES LTD. 132 ITR 594 (BOM) . IT WAS ALSO CONTENDED THAT THE WORD TRANSFER U/S. 2(47) OF THE ACT IS VERY COMPREHENSIVE AND INC LUDES WITHIN ITS SCOPE TRANSFERS BOTH VOLUNTARY AND INVOLUNTARY. IT WAS S UBMITTED THAT BY THE PROCESS OF CASHLESS EXERCISE OF OPTION THE ASSESSE E RELINQUISHED HIS RIGHTS ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 11 OF 31 IN THE OPTION GIVING RISE TO A CAPITAL GAIN WHICH WAS A LONG TERM CAPITAL GAIN. 19. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISI ON OF THE ITAT DELHI BENCH IN THE CASE OF ACIT V. AMBARISH KUMAR JHAMB ITA NO.4107/DEL/2011 FOR THE A.Y. 2006-07 ORDER DATED 05.10.2012 WHEREIN IT WAS HELD THAT THE GAIN ON TRANSFER OF STOCK OPTION GIVES RISE TO LONG TERM CAPITAL GAIN. RELIANCE WAS ALSO PLACED ON THE DECI SION OF THE DELHI BENCH OF THE ITAT IN THE CASE OF ACIT V. PARAM PAUL UBEROI ITA NO.4477/DEL/2010 DATED 13.04.2012 WHEREIN IN AN IDENTICAL CASE OF CASHLESS EXERCISE OF STOCK OPTION THE TRIBUNAL HEL D THAT THERE WAS A LONG TERM CAPITAL GAIN. 20. THE LD. DR REITERATED THE STAND OF REVENUE AS R EFLECTED IN THE ORDER OF AO AND CIT. IT WAS SUBMITTED BY HIM THAT THOUGH THE ASSESSEE WAS A CONSULTANT HIS SERVICES WERE RENDERED FOR SIRF US A AND THEREFORE THE BENEFIT WHICH THE ASSESSEE RECEIVED WAS FOR RENDERI NG SERVICES. IT WAS SUBMITTED BY HIM THAT RELATIONSHIP OF EMPLOYER AND EMPLOYEE HAS TO BE VIEWED IN A LARGER CONTEXT AND AS LAID DOWN BY THE SPECIAL BENCH OF ITAT IN THE CASE OF SUMIT BHATTACHARYA (SUPRA) IT IS NOT NECESSARY THAT TO TAX UNDER THE HEAD INCOME FROM SALARIES THERE SHOULD BE EMPLOYER-EMPLOYEE RELATIONSHIP AND THAT IT IS ENOUGH IF THE SUM EARNE D IS A REWARD FOR SERVICES. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 12 OF 31 21. IT WAS ALSO POINTED OUT BY THE LD. DR THAT THER E WERE TWO EVENTS OF TAXABILITY THAT WERE TRIGGERED IN THE PRESENT CASE. THE FIRST EVENT WAS WHEN THE EMPLOYEE EXERCISED HIS RIGHT TO PURCHASE SHARES BY EXERCISING OPTION TO ACQUIRE THE SHARES. AT THIS STAGE THERE IS NO TRA NSFER OF ANY CAPITAL ASSET AS THE ASSESSEE ONLY SEEKS TO ACQUIRE CAPITAL ASSET . IT WAS SUBMITTED THAT THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE TH AT BY EXERCISING OPTION RIGHTS IN THE OPTION ARE EXTINGUISHED IS NOT CORRE CT AS UNDER ESOP OPTIONS ARE NOT TRANSFERABLE AT ALL. IT WAS POINTED OUT TH AT THE ONLY WAY IN WHICH OPTIONS CAN BE AVAILED IS TO ACQUIRE THE SHARES EIT HER BY THE EMPLOYER OR ITS SUCCESSORS IN INTEREST. A TRANSFER INTRVIVOS IS NOT POSSIBLE AT ALL. 22. THE SECOND EVENT OF TAXABILITY IS WHEN THE SHAR ES ACQUIRED PURSUANT TO THE EXERCISE OF OPTION ARE SOLD BY THE ASSESSEE. 23. IT WAS SUBMITTED BY THE LD. DR THAT THE ASSESSE E CANNOT CONSIDER ONLY ONE TAXABLE EVENT VIZ. SALE OF OPTIONS AND TR EAT IT AS GIVING RISE TO LONG TERM CAPITAL GAINS. THE STAND TAKEN BY THE AO AND CIT(APPEALS) IN THEIR ORDERS WERE AGAIN REITERATED. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE WAS A SOFTWARE ENGINEER. HE WAS IN EMPLOYMENT WITH A CO MPANY IN INDIA BY NAME AEROSPACE SYSTEMS PVT. LTD. [ASPL]. HE WAS SENT ON DEPUTATION AS AN INDEPENDENT CONSULTANT TO SIRF USA BY HIS EM PLOYER. HE SERVED SIRF USA FROM 1995 TO 1998 AS AN EMPLOYEE OF AEROS PACE SYSTEMS PVT. LTD. ON DEPUTATION AND AS INDEPENDENT CONSULTANT. THEREAFTER HE BECAME ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 13 OF 31 AN EMPLOYEE OF SIRF USA FROM 2001 TO 2004. THEREA FTER HE RETURNED TO INDIA AND BECAME AN EMPLOYEE OF SIRF INDIA. SIRF USA GAVE STOCK OPTION TO THE ASSESSEE ON 4-10-1996 WHEN THE ASSES SEE WAS A CONSULTANT. IT IS PLEA OF THE ASSESSEE THAT HE WAS AN INDEPENDENT CONSULTANT WHEN THE STOCK OPTIONS WERE GIVEN TO HIM BY SIRF USA. SOME OF THE TERMS OF THE STOCK OPTION NEED TO BE SEEN TO UNDERSTAND THE RIVAL CONTENTIONS. SIRF TECHNOLOGY INC. AMENDED AND RE STATED 1995 STOCK PLAN (HEREINAFTER REFERRED TO AS THE PLAN) GIVES THE PURPOSE OF THE PLAN AS A PLAN TO OFFER SELECTED EMPLOYEES DIRECTORS AND C ONSULTANTS AN OPPORTUNITY TO ACQUIRE A PROPRIETARY INTERESTS IN T HE SUCCESS OF THE COMPANY AND TO ATTRACT NEW EMPLOYEES WITH OUTSTANDING QUALI FICATIONS. THE TERM EMPLOYEE HAS BEEN DEFINED TO MEAN A CONSULTANT WHO PERFORMS SERVICES FOR THE COMPANY OR A SUBSIDIARY. THE MODE OF EXERC ISE OF OPTION IS TO BE GOVERNED BY THE STOCK OPTION AGREEMENT. THE PAYMEN T FOR SHARES IN THE FORM OF EXERCISE PRICE SHALL BE PAID WHEN THE SHARE S ARE PURCHASED EITHER IN US $ OR CAN BE PAID BY GIVING A DIRECTION TO THE BROKER TO SELL SHARES AND DELIVER ALL OR PART OF THE SALE PROCEEDS TO THE COM PANY IN PAYMENT OF THE AGGREGATE EXERCISE PRICE. THE PLAN ALSO PROVIDES T HAT AN OPTION GIVEN TO A PERSON DOES NOT GIVE THAT PERSON RIGHT TO BECOME OR BE TREATED AS AN EMPLOYEE. THE STOCK OPTION AGREEMENT BETWEEN THE A SSESSEE AND SIRF USA PROVIDES FOR OTHER DETAILS. WE WILL REFER TO S OME OF THE IMPORTANT AMONG THEM AND RELEVANT FOR THE PRESENT CASE. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 14 OF 31 (A) EXERCISE AND VESTING: THIS OPTION IS IMMEDIAT ELY EXERCISABLE ON THE DATE WHICH IS SIX MONTHS AFTER T HE VESTING START DATE AS SHOWN ON THE COVER SHEET AS T O ALL OF THE SHARES OF COMMON STOCK COVERED BY THIS OPTION. BEGINNING ON THE VESTING START DATE THE SHARES UND ER THIS OPTION WILL VEST (I.E. NO LONGER SUBJECT TO RIGHT OF REPURCHASE) OVER A FOUR-YEAR PERIOD AT THE RATE OF 1/48 TH PER MONTH IN ACCORDANCE WITH THE VESTING SCHEDULE INDI CATED BELOW: PORTION OF SHARES VESTED FROM THE VESTING START DATE UNTIL 6 MONTHS THEREOF NONE AT THE END OF 6 MONTHS FROM THE VESTING START DATE 6/48 TH FOR EACH ADDITIONAL FULL MONTH OF YOUR SERVICE TO T HE COMPANY THEREAFTER 1/48 TH ON THE FOURTH ANNIVERSARY OF THE VESTING START DATE 100% (B) THE OPTION WILL EXPIRE AT THE CLOSE OF BUSINESS AT COMPANY HEADQUARTERS ON THE DAY BEFORE THE 10 TH ANNIVERSARY OF THE DATE OF GRANT. (C) THE OPTION GRANTED CANNOT BE TRANSFERRED OR ASS IGNED. OPTION CAN ONLY BE EXERCISED. IT CAN BE BEQUEATHED . IT CANNOT BE SOLD OR OTHERWISE TRANSFERRED. (D) UNLESS AND UNTIL A CERTIFICATE FOR OPTION SHAR ES ARE ISSUED NONE CAN CLAIM TO RIGHTS AS A SHAREHOLDER OF THE CO MPANY. 25. THE ASSESSEE HAD A RIGHT TO OPT TO ACQUIRE 3500 0 SHARES AT $ 0.08. THE OPTION WAS GRANTED ON 4.10.1996 AND WOULD VEST STARTING FROM 4.10.1996 OVER A PERIOD OF 4 YEARS IN PROPORTIONS W HICH WE HAVE DESCRIBED IN THE EARLIER PARAGRAPH. THUS AS ON 4.10.2000 THE ASSESSEE HAD A RIGHT TO EXERCISE OPTION FOR PURCHASE OF 35000 SHARES AT $ 0 .08. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 15 OF 31 26. THE FIRST EVENT OF TAXABILITY IS TRIGGERED ON THE DATE WHEN THE OPTION TO ACQUIRE THE SHARES IS EXERCISED BY THE ASSESSEE. TILL SUCH TIME THE ASSESSEE HAS NO RIGHT TO ANY SHARES OF SIRF USA. THE BENEFIT ARISING TO AN EMPLOYEE BEING THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE (FMV) ON THE DATE ON WHICH THE OPTION IS EXERCISED LESS THE AMOUNT ACTUALLY PAID OR RECOVERED FROM THE EMPLOYEE WOULD BE SUBJECT TO TA X AS PART OF THE SALARY INCOME. IT IS THE PLEA OF THE ASSESSEE THAT THIS O FF COURSE WOULD BE THE CASE WHERE THERE IS EMPLOYER EMPLOYEE RELATIONSHIP WHEN THE STOCK OPTION WAS GRANTED TO THE ASSESSEE. WE ARE OF THE VIEW THA T IN THE LIGHT OF THE OBJECT OF THE STOCK OPTION COUPLED WITH THE FACT TH AT EVEN AN INDEPENDENT CONSULTANT WORKING FOR SIRF USA OR ANY OF ITS SUBS IDIARIES IN CONSIDERED AS EMPLOYEE THIS CONCLUSION OF THE REVENUE HAS TO BE UPHELD. THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE WA S THAT THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BECAUSE THE SCHEME P ROVIDES THAT NO PERSON CAN CLAIM RIGHTS AS EMPLOYEE JUST BECAUSE HE HAS BEEN GIVEN OPTION UNDER THE PLAN. THIS ARGUMENT IN OUR VIEW C ANNOT BE ACCEPTED BECAUSE THE OBJECT OF THE SCHEME IS TO BENEFIT PERS ONS WHO WORK FOR SIRF USA AND NOT RESTRICTED JUST TO PERSONS WHO ARE EMPL OYEES ON THE PAY ROLLS IN THE STRICT SENSE OF THE TERM. CLAUSE-11 OF THE PLAN IN OUR VIEW IS ONLY FOR THE LIMITED PURPOSE OF CURTAILING ANY RIGHTS OF EMP LOYMENT BEING CLAIMED BY THE PERSON TO WHOM STOCK OPTION IS GIVEN. IN THIS REGARD WE FIND THAT THE PRINCIPLES LAID DOWN BY THE HONBLE SPECIAL BENCH I TAT BOMBAY IN THE CASE OF SUMIT BHATTACHARYA ( SUPRA ) ARE RELEVANT. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 16 OF 31 27. IN THE AFORESAID CASE DECIDED BY A SPECIAL BENC H THE ASSESSEE WAS MANAGING DIRECTOR OF PGI IN INDIA A PART OF GR OUP OF COMPANIES HEADED BY PGU IN USA. PGU HAD GRANTED SAR (STOCK A PPRECIATION RIGHTS) TO ASSESSEE IN RECOGNITION OF HIS CONTINUIN G CONTRIBUTIONS TO THE LONG TERM SUCCESS AND DEVELOPMENT OF THE BUSINESS OF THE GROUP IN ACCORDANCE WITH P&G 1983 STOCK PLAN AND THE REGULATIONS OF THE STOCK OPTION COMMITTEE OF THE BOARD OF DIRECTORS (1983 STOCK PLA N). THE ASSESSEE RECEIVED A SUM OF RS. 4 79 13 851 FROM PGU IN THE R ELEVANT ASSESSMENT YEAR ON ACCOUNT OF REDEMPTION OF SAR. THE QUESTION BEFORE THE SPECIAL BENCH WAS AS TO WHETHER THE SAID AMOUNT IS CHARGEAB LE TO TAX? IF YES UNDER WHAT HEAD OF INCOME? THE SPECIAL BENCH DEALT WITH DISTINCTION BETWEEN THE NATURE OF SAR AND THE STOCK OPTIONS AND HELD THAT WHILE IN STOCK OPTION THE ASSESSEE GETS A CAPITAL ASSET AT A CONCESSIONAL OR NOMINAL PRICE WHAT IS TO BE TAXED IS THE VALUE OF THIS BENEFIT. IN THE CASE OF THE SAR WHAT THE ASSESSEE ACTUALLY RECEIVES IS A K IND OF CASH BONUS WHICH IS IN THE NATURE OF DEFERRED WAGES AND WHICH IS CONTINGENT UPON THE COMPANY DOING WELL IN FINANCIAL TERMS. THE SPECIAL BENCH FURTHER HELD THAT THERE IS NO NEED AS IN THE CASE OF STOCK OPTIONS IN CONVERTING THE BENEFIT INTO MONETARY TERMS BECAUSE WHAT IS RECEIVED BY THE ASSESSEE IS ITSELF IN MONETARY TERMS AND ONE CANNOT CONVERT MONEY INTO MO NEY. ON THE POINT OF TIME WHEN TAXABLE EVENT OCCURS THE SPECIAL BENCH HELD THAT THE TAXABILITY IS TRIGGERED WHEN SAR IS REDEEMED BECAUSE THE REDEM PTION AMOUNT BEING DEPENDENT ON THE MARKET PRICE OF SHARES WHICH CAN M OVE IN ANY DIRECTION ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 17 OF 31 AT ANY TIME. THE SPECIAL BENCH FURTHER HELD THAT A MOUNT RECEIVED BY THE ASSESSEE IS ASSESSABLE UNDER THE HEAD SALARIES AS THE THEORY OF COMPENSATION FOR SERVICES RENDERED FLOWING FROM EMP LOYER TO THE EMPLOYEE BEING SINE QUA NON FOR TAXABILITY UNDER THE HEAD I NCOME FROM SALARIES IS NO LONGER VALID. THE SPECIAL BENCH FOUND THAT PGU IS NOT A RANK OUTSIDER QUA PGI OF WHICH THE ASSESSEE IS EMPLOYEE AND AS PE R PARTS. M AND G OF THE 1983 STOCK PLAN PGI IS PARTY TO THE ENTIRE SCH EME OF GRANTING SAR. THE BENCH ALSO OBSERVED THAT THE ASSESSEE HAS NO OT HER CONNECTION WITH PGU THAN THE CONNECTION AS AN ORGANISATION CONNECTE D WITH THE COMPANY WITH WHICH HE HAS ENTERED INTO AN EMPLOYMENT CONTRA CT AND THEREFORE ANYTHING THAT THE ASSESSEE RECEIVES FROM PGU CANNOT BE ANYTHING BUT THE REWARD OF HIS EMPLOYMENT. THE SPECIAL BENCH HELD T HAT THE AMOUNT IN QUESTION IS IN THE NATURE OF A DEFERRED WAGE IN TH E GENUS OF BONUS INCENTIVES AND LIKE RECEIVED AS A FRUIT OF EMPLOYM ENT RELATED ACTIVITY WHICH IS REVENUE RECEIPT IN NATURE AND IT IS ONLY THE QU ANTIFICATION OF THIS AMOUNT WHICH IS LINKED TO A CAPITAL ASSET THAT IS VALUE OF SHARES. 28. WE ARE OF THE VIEW THAT THE PRINCIPLE LAID DOW N IN THE AFORESAID CASE WOULD BE APPLICABLE TO THE FACTS OF THE PRESENT CAS E. THE FACT THAT AT THE TIME WHEN PAYMENTS WERE MADE TO THE ASSESSEE THE A SSESSEE WAS NOT IN EMPLOYMENT OF SIRF USA IN OUR VIEW WOULD ALSO BE IMMATERIAL AS THE CONSIDERATION FOR THE PAYMENT IN QUESTION WAS SERVI CES RENDERED BY THE ASSESSEE IN THE PAST. WE THEREFORE HOLD THAT THE A SSESSEE WAS TO BE REGARDED AS EMPLOYEE FOR THE PURPOSE OF THE PLAN AN D THE BENEFITS ARISING ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 18 OF 31 UNDER THE PLAN AND ANY BENEFIT RECEIVED HAS TO BE T REATED AS INCOME UNDER THE HEAD SALARIES. WE THEREFORE CONFIRM THE ORDE R THE REVENUE AUTHORITIES IN THIS REGARD. 29. THE NEXT ASPECT TO BE DECIDED IS AS TO WHETHER THE STOCK OPTION CAN BE SOLD OR OTHERWISE TRANSFERRED. IN THIS REGARD T HE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE HAS BEEN THAT THE STOCK OP TION GRANTED IS A CAPITAL ASSET U/S.2(14) OF THE ACT. THE ASSESSEE H AS SOLD THAT OPTION BY THE PROCESS OF CASHLESS EXERCISE TO SELL THE OPTION AS PROVIDED IN THE PLAN. SUCH SALE CAN GIVE RAISE TO INCOME UNDER THE HEAD CAPITAL GAIN. WE ARE UNABLE TO AGREE WITH THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE. AS WE HAVE ALREADY SEEN THE OPTION TO PURCHASE SHARES CAN ONLY BE EXERCISE. IT CANNOT BE ALIENATED. IN THE EVENT OF DEATH IT I S SUBJECT TO EITHER TESTAMENTARY OR INTESTATE SUCCESSION. TO FALL UNDE R THE HEAD CAPITAL GAIN THERE MUST BE A TRANSFER OF A CAPITAL ASSET DURING THE PREVIOUS YEAR. THE ASSESSEES CASE THAT WHAT HE SOLD WAS THE OPTION IS NOT ACCEPTABLE FOR THE AFORESAID REASON. WHAT THE ASSESSEE SOLD WAS SHARE S WHICH THE ASSESSEE ACQUIRED BY EXERCISING HIS RIGHT IN THE FO RM OF AN OPTION TO PURCHASE THE SHARES AT A PARTICULAR PRICE. THE SAL E OF SHARES AFTER EXERCISING THE OPTION IS THE SECOND EVENT WHICH TRI GGERS TAX LIABILITY WHICH WILL BE DISCUSSED IN THE SUCCEEDING PART OF THIS OR DER. WE THEREFORE HOLD THAT INCOME IN QUESTION WAS NOT CABLE OF BEING ASSE SSED UNDER THE HEAD CAPITAL GAIN AS THERE WAS NO TRANSFER OF ANY CAPI TAL ASSET GIVING RISE TO CAPITAL GAIN. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 19 OF 31 30. ACCORDINGLY AN EMPLOYER IS REQUIRED TO COMPUT E THE BENEFIT UNDER THE STOCK OPTIONS INCLUDE THE SAME AS PART OF THE SALARY INCOME AND ACCORDINGLY WITHHOLD THE TAX ON THE SAME FROM THE EMPLOYEE. THIS HAS BEEN DONE BY SIRF USA. THE SAME TREATMENT SHOULD FOLLOW IN INDIA AS WELL. 31. THE NEXT EVENT OF TAXABILITY UNDER THE STOCK O PTIONS WOULD ARISE IN THE EVENT OF SALE/TRANSFER OF SHARES. THE DIFFERENC E BETWEEN THE SALE CONSIDERATION AND THE FAIR MARKET VALUE ON THE DATE OF EXERCISE WOULD BE TREATED AS CAPITAL GAINS AND SUBJECT TO CAPITAL GAI NS TAX. THE CAPITAL GAINS COULD BE LONG TERM OR SHORT TERM DEPENDING UPON TH E PERIOD OF HOLDING OF SUCH SHARES/SECURITIES. ADMITTEDLY IN THE PRESENT CASE THE SHARES WERE HELD FOR A PERIOD OF LESS THAN 1 YEAR BY THE ASSESS EE AND THEREFORE THE GAIN IN QUESTION WAS SHORT TERM CAPITAL GAIN. WE THER EFORE UPHOLD THE ORDER OF THE REVENUE AUTHORITIES IN THIS REGARD. 32. WITH REGARD TO THE DECISION OF THE DELHI TRIBU NAL IN THE CASE OF AMBARISH KUMAR JHAMB ( SUPRA ) AND ABHIRAM SHETH ( SUPRA ) THOSE WERE CASES WHERE AS PER THE STOCK OPTION PLAN THERE WAS ACTUAL TRANSFER OF SHARES WHICH WERE SUBJECT MATTER OF STOCK OPTION BY THE EMPLOYER TO A TRUSTEE WHO HELD THE SHARES FOR AND ON BEHALF OF T HE EMPLOYEE. THE TRIBUNAL ON FACTS FOUND THAT THE ASSESSEE HAD TRANS FERABLE RIGHTS TO THE SHARES ON THE DATE OF GRANT OF OPTION AND THEREFORE HELD THAT THE GAIN ON ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 20 OF 31 SALE OF SHARES COMPRISED IN THE STOCK OPTION GAVE R AISE TO CAPITAL GAINS. IN OUR VIEW THE FACTS OF THE PRESENT CASE STAND ON A DIFFERENT FOOTING AS CAN BE SEEN FROM THE STOCK OPTION PLAN THE MAIN POINTS OF WHICH HAVE ALREADY BEEN GIVEN IN THE EARLIER PARAGRAPHS OF THIS ORDER. 33. WE MAY ALSO ADD THAT CASHLESS EXERCISE OF OPTI ON IS ONLY A MODE IN WHICH THE PAYMENT HAS TO BE MADE BY THE ASSESSEE FO R EXERCISING HIS OPTION AND TO PAY THE EXERCISE PRICE TO SIRF USA. THAT CANNOT CHANGE THE CHARACTER OF INCOME OR THE HEAD OF INCOME UNDER WHI CH THE RECEIPT IS TO BE ASSESSED. WHAT THE ASSESSEE SOLD WAS NOT THE OPTIO N BUT THE SHARES ACQUIRED ON EXERCISING THE OPTION. BY EXERCISING O PTION TO ACQUIRE SHARES THERE IS NO TRANSFER OF ANY CAPITAL ASSET AND THERE FORE THERE IS NO QUESTION OF ANY INCOME BEING ASSESSED UNDER THE HEAD CAPITA L GAIN. 34. FOR THE REASONS GIVEN ABOVE WE UPHOLD THE ORD ER OF THE CIT(A) AND DISMISS THE APPEAL BY THE ASSESSEE. 35. AS FAR AS THE APPEAL BY THE REVENUE IS CONCERN ED THE ISSUE IS WITH REGARD TO CHARGING OF INTEREST U/S.234B OF THE ACT. THE CIT(A) PROCEEDED ON THE PREMISE THAT THE HEAD OF INCOME UNDER WHICH THE INCOME IS ASSESSED BEING SALARY IT IS THE DUTY OF THE EMPL OYER TO DEDUCT TAX AT SOURCE AND THE ASSESSEE CANNOT BE PENALISED FOR NON DEDUCTION OF TAX AT SOURCE BY THE EMPLOYER. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 21 OF 31 36. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D DR WHO SUBMITTED THAT THE EMPLOYER WAS UNDER NO OBLIGATION TO DEDUCT TAX AT SOURCE IN THE PRESENT CASE AS THE PAYMENT IN QUESTI ON WAS MADE IN USA FOR SERVICES RENDERED IN USA. THE EMPLOYER IN THE PRESENT CASE IS SIRF USA. THE QUESTION IS AS TO WHETHER THE OBLIGATION CAN EXTEND TO SALARY PAID BY A PERSON IN USA FOR SERVICES RENDERED ABROA D. THE RELEVANT PART OF SECTION 192 (1) READS AS FOLLOWS: SALARY. (1) ANY PERSON RESPONSIBLE FOR PAYING ANY INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' SHALL AT THE TIME OF PAYMENT DEDUCT INCOME-TAX ON THE AMOUNT PAYABLE AT THE AVERAGE RATE OF INCOME-TAX COMPUTED ON THE BASIS OF THE RATES IN FORCE FOR THE FINANCIAL YEAR IN WHICH THE PAYMENT I S MADE ON THE ESTIMATED INCOME OF THE ASSESSEE UNDER THIS HEAD FO R THAT FINANCIAL YEAR. 37. THE PROVISIONS OF SEC.192 OF THE ACT CAST AN OB LIGATION ON ANY PERSON MAKING PAYMENT IN THE FORM OF SALARY. THUS IT CAN BE SAID THAT SEC.192 OF THE ACT WILL OPERATE SO AS TO IMPOSE AN OBLIGATION ON SIRF USA TO DEDUCT TAX AT SOURCE ON PAYMENT MADE TO ASSESSEE AS THE ASSESSEE AS ON THE DATE OF PAYMENT WAS RESIDENT IN INDIA AND HIS ENTIRE GLOBAL INCOME IS TAXABLE IN INDIA. IN THAT VIEW OF THE MATTER WE HOLD THAT THE ASSESSEE CAN BE HEARD TO SAY THAT HE HAD TAKEN INTO ACCOUNT THE TAX DEDUCTIBLE AT SOURCE BY SIRF USA WHILE ESTIMATING HIS TAX LIABIL ITY FOR PAYMENT OF ADVANCE TAX U/S. 209 OF THE ACT. WE THEREFORE UPHO LD THE ORDER OF CIT(A) AND DISMISS APPEAL BY THE REVENUE. ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 22 OF 31 ITA NO.1342/BANG/11 38. THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 31.10.2011 OF CIT(A)-V BENGALURU RELATING TO AY 0 6-07 WHEREBY THE CIT(A) CANCELLED PENALTY IMPOSED ON THE ASSESSEE U/ S. 271(1)(C ) OF THE ACT. 39. THE EFFECTIVE GROUND RAISED BY THE REVENUE REA DS THUS: 2. THE LEARNED CIT(A) OUGHT TO HAVE NOTED THAT TH E ASSESSEE REPRESENTED THE CAPITAL GAINS AS LTCG WHILE BEING F ULLY AWARE THAT IN ESSENCE IT WAS A CASHLESS TRANSACTION FOR WHICH HE HAD ALL THE EVIDENCE. FURTHER THE ASSESSEE ACTED ON HIS OWN VOLITION ON EXERCISING THE OPTION AND WOULD HAVE BEEN AWARE OF THE TRUE NATURE OF THE STOCK OPTION. THE ASSESSEE CLAIMED TH E INCOME AS LTCG RESULTING IN LOWER TAXATION THAN IF OFFERED AS STCG BUT ALSO WENT ON TO CLAIM AN AMOUNT OF RS.65 23 697/- A S EXEMPTION U/S. 54F. THUS THERE WAS UNDER REPRESENTATION OF IN COME MISCLASSIFICATION OF INCOME RESULTING IN LOWER RAT ES WRONG CLAIM U/S.54F AND MISREPRESENTATION OF THE NATURE OF TRAN SACTION. THIS LEADS TO CLEAR CONCEALMENT AND MISREPRESENTATION OF PARTICULARS AMOUNTING TO INACCURACY. THE ASSESSEE HAD PROJECTED CAPITAL GAIN IN A PARTICULAR MANNER IN THE RETURN OF INCOME. MER E REPRESENTATION OF CERTAIN FACTS ENUMERATED IN A PAR TICULAR MANNER DO NOT AMOUNT TO A TRUE AND FULL DISCLOSURE. IT IS EVIDENCED THAT THERE WAS INTENTION ON THE PART OF THE ASSESSEE TO MISREPRESENT WRONG INFORMATION AND CONCEAL THE INCOME. MOREOVER IT CLEARLY SHOWS THAT THE ASSESSEE WAS NOT IGNORANT OF LAW. IN FACT HE ONLY MADE A WRONG CLAIM. THE ASSESSEES IGNORANCE OF REL EVANT PROVISIONS OF LAW CANNOT BE TAKEN AS AN EXCUSE. THE REFORE PENALTY PROVISIONS U/S.271(1)(C) IS ATTRACTED EVEN IF CONCEALMENT WAS NOT WILLFUL. ACCORDINGLY THE AO HAS IMPOSED PE NALTY. 40. AS WE HAVE ALREADY SEEN IN THE CROSS APPEALS OF THE REVENUE AND THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE THAT TH ERE WAS NO LONG TERM ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 23 OF 31 CAPITAL GAIN ON SALE OF OPTIONS AND CONSEQUENTLY TH E BENEFIT OF SECTION 54F WAS DENIED BY THE AO. IN RESPECT OF THE AFORESAID ADDITION MADE IN THE ASSESSMENT PROCEEDINGS BY DENYING THE BENEFIT OF SE CTION 54F OF THE ACT TO THE ASSESSEE THE AO INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. THE ASSESSEE TOOK A STAND THAT HE ACTED ON A BONA FIDE BELIEF THAT THE OPTIONS WERE CAPITAL ASSETS AND THAT THE AO CAME TO THE CONCLUSIONS TO THE CONTRARY BASED ON DECIDED CASES WHICH WERE RENDERE D MUCH AFTER FILING OF RETURN OF INCOME BY THE ASSESSEE. IT WAS POINTED O UT THAT THERE WERE NO EXPRESS PROVISIONS IN THE INCOME-TAX ACT FOR TREATM ENT OF STOCK OPTIONS AND THAT NO FINALITY HAS ATTAINED IN THE MATTER OF TAXA TION OF INCOME ARISING ON EXERCISE OF STOCK OPTIONS. IT WAS SUBMITTED THAT T HE ISSUE WAS HIGHLY DEBATABLE AND THEREFORE THE VIEW TAKEN BY THE ASSES SEE CANNOT BE FOUND FAULT WITH. THE ASSESSEE SUBMITTED THAT HE HAD NOT CONCEALED ANY PARTICULARS OF INCOME AND HAS GIVEN ALL THE DETAILS WITH REGARD TO THE STOCK OPTION. THE ASSESSEE ALSO POINTED OUT THAT NONE OF THE DETAILS FURNISHED BY THE ASSESSEE WERE ERRONEOUS OR INCORRECT. IT WAS O NLY BECAUSE OF THE LEGAL POSITION AS UNDERSTOOD BY THE ASSESSEE AND AS ADOPT ED BY AO THAT THE IMPUGNED ADDITION CAME TO BE MADE. 41. THE AO HOWEVER DID NOT AGREE WITH THE SUBMISS IONS MADE BY THE ASSESSEE. HE HELD THAT THE ASSESSEE WAS A HIGHLY E DUCATED PROFESSIONAL. ACCORDING TO HIM THE ASSESSEE OUGHT NOT TO HAVE CL AIMED DEDUCTION U/S. 54F OF THE ACT TREATING INCOME AS LONG TERM CAPITAL GAIN. THE AO FOUND THE ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 24 OF 31 FOLLOWING WAS THE DISCLOSURE MADE BY THE ASSESSEE I N THE RETURN OF INCOME:- INCOME FROM CAPITAL GAINS LONG TERM CAPITAL GAINS SALE OF STOCK OPTIONS IN US RECD FROM PARENT CO. GRANT YEAR OF STOCK OPTIONS 1996 SALE YEAR OF STOCK OPTIONS 2006 LONG TERM CAPITAL GAIN ON SALE OF STOCK OPTIONS FIRST SECOND TOTAL CONVR. TRADE TRADE GAIN RATE US $ US $ US $ GAINS 78820 204786 283606 45 12762295 LESS: DEDUCTION U/S 54F INVESTMENT IN RESIDENTIAL HOUSE PROPERTY AMOUNT PAID TOWARDS PURCHASE OF RESIDENTIAL HOUSE PROPERTY AT:- SV-II-05-TF ELDECO UTOPIA PLOT 3 SECTOR 93 A NOIDA 6238598 TAXABLE LONG TERM CAPITAL GAINS 6523697 42. THE AO WAS OF THE VIEW THAT THE ABOVE COMPUTATI ON GIVES AN IMPRESSION THAT THE ASSESSEE HAS EARNED LONG TERM C APITAL GAIN. HE WAS OF THE VIEW THAT THE ASSESSEE MISREPRESENTED THE FACTS WITH A VIEW TO CONFUSE THE ISSUES AND PAY LOWER TAXES. THEREAFTER THE AO OBSERVED THAT MENS REA WAS NOT REQUIRED FOR LEVYING PENALTY U/S. 271(1)(C ) OF THE ACT. THE AO SUMMARISED HIS CONCLUSIONS AS FOLLOWS:- ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 25 OF 31 ON THE FACTS AND CIRCUMSTANCES NARRATED ABOVE THE ASSESSEE IS LIABLE FOR PENALTY U/S 271(1) (C) OF THE INCOME TAX ACT 1961. AS DISCUSSED ABOVE THE CONCEALMENT IS CLEARLY DELIBERA TE WILLFUL AND WITH FULL KNOWLEDGE OF THE ASSESSEE. THE A.O IS SAT ISFIED THAT THIS IS A FIT CASE FOR IMPOSITION OF PENALTY. IN IMPOSIN G THE PENALTY THE FOLLOWING ASPECTS OF THE CASE ARE BEING TAKEN INTO ACCOUNT TO ARRIVE AT THE QUANTUM OF PENALTY TO BE IMPOSED:- 1) THERE WAS MISREPRESENTATION OF STCG AS LTCG LEA DING TO WRONG CLAIM OF EXEMPTION U/S 54 F AND THEREFORE LOW ER PAYMENT OF TAX. 2) THE DETAILS REGARDING THE TRANSACTIONS WERE AVA ILABLE WITH THE ASSESSEE. 3) DURING COURSE OF SCRUTINY THERE APPEARED TO BE NO ATTEMPT AT NONCOOPERATION ON THE PART OF THE ASSESSEE. 4) THE ASSESSED TAXES WERE PAID UP FORTHWITH. 43. AGGRIEVED BY THE ORDER OF THE AO IMPOSING PENAL TY THE ASSESSEE FILED APPEAL BEFORE THE CIT(APPEALS). THE CIT(A) C ANCELLED THE PENALTY IMPOSED BY THE AO ON THE ASSESSEE OBSERVING AS UNDE R:- 6. THE APPELLANT ALONG WITH HIS AUTHORIZED REPRESE NTATIVES APPEARED BEFORE ME AND STATED THAT HE HAD BEEN A RE GULAR INCOME TAX PAYER FOR MANY YEARS IN INDIA AND ABROAD AND HE NEVER HAD ANY INTENTION TO CONCEAL THE PARTICULARS OF HIS INC OME. IN THE RETURN OF INCOME FILED BY HIM FOR THE ASSESSMENT YE AR 2006-07 ON 31.08.2006 HE DECLARED ALL THE FACTS AND AS ADVISED BY HIS CONSULTANT HE CLAIMED LONG TERM CAPITAL GAINS BUT T HERE WAS NO MALAFIDE INTENTION ON HIS PART TO EVADE TAXES. THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT HAD FILED A NUMBER OF JUDICIAL DECISIONS IN SUPPORT OF THEIR ARGUMENTS. 7. AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE I AM SATISFIED THAT THERE IS ONLY WRONG CLAIM MADE BY TH E APPELLANT BUT THERE IS NO CONCEALMENT OF INCOME AS DIFFERENT INTE RPRETATIONS ARE ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 26 OF 31 POSSIBLE ON THE FACTS OF THE CASE. IN VIEW OF THIS THE PENALTY LEVIED BY THE AO IS CANCELLED AND THE APPEAL IS ALL OWED. 44. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 45. THE LD. DR REITERATED THE STAND OF THE REVENUE AS REFLECTED IN THE GROUNDS OF APPEAL. INCIDENTALLY THE GROUNDS OF AP PEAL ARE NOTHING BUT REITERATION OF THE STAND TAKEN BY THE AO IN THE ORD ER IMPOSING PENALTY. 46. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE N EED TO BRIEFLY EXPLAIN AS TO HOW EMPLOYEES STOCK OPTION PLAN (ESOP ) WERE TAXED AT VARIOUS POINT OF TIME IN INDIA. ESOP (EMPLOYEES ST OCK OPTION PLAN) WERE TAXED VIDE CIRCULAR NO.710 DATED JULY 24 1995. TH E CBDT IN THE SAID CIRCULAR CLARIFIED THAT SHARES ISSUED TO EMPLOYEES AT LESS THAN MARKET PRICE AMOUNTED TO A PERQUISITE UNDER SECTION 17(2)(II). L ATER SUB-CLAUSE (IIIA) WAS ADDED TO SECTION 17(2) BY THE FINANCE ACT 1999 TO PROVIDE THAT WHEN ANY SHARE SECURITY ETC. WAS OFFERED DIRECTLY OR INDIRE CTLY BY THE EMPLOYER THE DIFFERENCE BETWEEN MARKET VALUE OF THE STOCK AND TH E COST AT WHICH IT WAS OFFERED WAS TO BE TAXED AS PERQUISITE IN THE YEAR I N WHICH THE RIGHT WAS EXERCISED. THE DIFFERENCE BETWEEN THE MARKET VALUE ON THE DATE OF EXERCISE OF THE OPTION AND THE SALE CONSIDERATION WAS TO BE TAXED AS CAPITAL GAINS IN THE YEAR OF SALE. IN THE YEAR 2000 ESOPS GRANTED A T CONCESSIONAL RATE WERE NOT TREATED AS PERQUISITE AND THE EMPLOYEES WE RE SUBJECTED TO ONLY CAPITAL GAINS TAX ON TRANSFER OF THE SHARES/STOCKS. THE PROVISION WAS FURTHER ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 27 OF 31 AMENDED WITH EFFECT FROM APRIL 1 2001 TO THE EFFEC T THAT ONLY ESOPS QUALIFYING UNDER THE GUIDELINES ISSUED BY SECURITIE S AND EXCHANGE BOARD OF INDIA (SEBI) WOULD NOT BE CHARGEABLE TO TAX AS PERQ UISITE. IN THE YEAR 2007 FRINGE BENEFIT TAX (FBT) WAS INTRODUCED. UNDER FBT REGIME ESOP TAXATION UNDERWENT A CHANGE. EMPLOYERS WERE REQUIRE D TO PAY FBT ON THE EXERCISE OF ESOPS BY EMPLOYEES ON THE DIFFERENCE BE TWEEN THE FAIR MARKET VALUE (FMV) ON THE DATE OF VESTING AS REDUCED BY TH E EXERCISE PRICE. THERE WAS NO SEPARATE TAXATION IN THE HANDS OF THE EMPLOY EES. FINANCE (NO2) ACT 2009 ABOLISHED FBT AND BROUGHT VARIOUS BENEFITS OFF ERED TO EMPLOYEES BY EMPLOYERS INCLUDING ESOPS WITHIN THE AMBIT OF PERQU ISITE TAX AND CONSEQUENTLY MADE ESOPS TAXABLE UNDER THE HEAD SALA RIES IN THE HANDS OF EMPLOYEES. PRESENTLY ESOPS ARE SPECIFICALLY INCLUD ED AS PERQUISITE BY SECTION 17(2)(VI). EMPLOYEES ARE NOW REQUIRED TO PA Y PERQUISITE TAX ON THE DIFFERENCE BETWEEN THE FMV ON THE DATE OF EXERCISE AS REDUCED BY THE EXERCISE PRICE. IN BOTH THE FBT AND PERQUISITE TAX REGIME CAPITAL GAINS ON ALIENATION OF SHARES ARE CHARGEABLE TO TAX IN THE H ANDS OF EMPLOYEES AT THE TIME OF TRANSFER OF THE SHARES ON THE DIFFERENCE BE TWEEN THE SALE PRICE AND THE FMV. 47. THE QUESTION AS TO WHEN ESOPS ARE GRANTED BY FOREIGN ENTITIES FOR SERVICES RENDERED IN SUBSIDIARIES OF THE FOREIGN EN TITIES OUTSIDE INDIA AS WELL AS IN INDIA THE TAXATION OF THE BENEFIT IN THE HAN DS OF THE EMPLOYEE IN INDIA BECAME DIFFICULT. UNDER THE FBT REGIME THE CBDT H AD SPECIFICALLY PRESCRIBED THE METHODOLOGY FOR TAXING FRINGE BENEFI T WHEN EMPLOYEES WERE ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 28 OF 31 PRESENT IN INDIA ONLY FOR PART OF THE GRANT PERIOD. THE EXTRACT OF THE RELEVANT CBDT CIRCULAR 9/2007 DATED SEPTEMBER 20 2007 - FRE QUENTLY ASKED QUESTION 4 AND THE REPLY ARE REPRODUCED BELOW: QUOTE QUESTION 4: HOW WILL THE VALUE OF FRINGE BENEFIT BE DETERMINED IN CASE WHERE EMPLOYEE WAS BASED IN INDIA ONLY FOR A P ART OF THE GRANT PERIOD? ANSWER: IN A CASE WHERE THE EMPLOYEE WAS BASED IN I NDIA ONLY FOR A PART OF THE GRANT PERIOD A PROPORTIONATE AMO UNT OF THE VALUE OF FRINGE BENEFIT WILL BE LIABLE TO FBT. THE PROPOR TIONATE AMOUNT SHALL BE DETERMINED BY APPLYING TO THE VALUE OF THE FRINGE BENEFIT THE PROPORTION WHICH THE LENGTH OF THE PERIOD OF ST AY IN INDIA BY THE EMPLOYEE DURING THE GRANT PERIOD BEARS TO THE L ENGTH OF THE GRANT PERIOD. UNQUOTE AS EXPLAINED ABOVE Q4 OF THE SERIES SPECIFICALLY C OVERS THE SITUATION OF PROPORTIONATE TAXATION IN CROSS BORDER EMPLOYMENT. OTHER RELEVANT QUESTIONS WHICH COVER FOREIGN TAXATION INCLUDE Q3 A ND Q5 REPRODUCED BELOW: QUOTE QUESTION 3. WILL FBT APPLY IN CASE OF EMPLOYEES OF THE INDIAN SUBSIDIARY FOR SHARES AWARDED BY THE FOREIGN HOLDIN G COMPANY IF THE EMPLOYEES OF THE INDIAN SUBSIDIARY ARE ALLOTTED OR TRANSFERRED SHARES WHILE OUTSIDE INDIA ? ANSWER : IN THE ANSWER TO QUESTION NO.20 OF CBDT CI RCULAR NO. 8/2005 DT. 29.8.2005 IT HAS BEEN CLARIFIED THAT AN EMPLOYER IS LIABLE TO FRINGE BENEFIT TAX ON THE VALUE OF FRINGE BENEFITS PROVIDED OR DEEMED TO HAVE BEEN PROVIDED TO EMPLOYE ES BASED IN ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 29 OF 31 INDIA. THEREFORE AN INDIAN SUBSIDIARY WOULD BE LIA BLE TO PAY FBT IN RESPECT OF THE VALUE OF THE SHARES ALLOTTED OR T RANSFERRED BY THE FOREIGN HOLDING COMPANY IF THE EMPLOYEE WAS BASED I N INDIA AT ANY TIME DURING THE PERIOD BEGINNING WITH THE GRANT OF THE OPTION AND ENDING WITH THE DATE OF VESTING OF SUCH OPTION (HEREAFTER SUCH PERIOD IS REFERRED TO AS GRANT PERIOD') IRRESPECT IVE OF THE PLACE OF LOCATION OF THE EMPLOYEE AT THE TIME OF ALLOTMENT O R TRANSFER OF SUCH SHARES. QUESTION 5. WHETHER A FOREIGN COMPANY IS LIABLE TO FRINGE BENEFIT TAX IN RESPECT OF SHARES ALLOTTED OR TRANSFERRED TO AN EMPLOYEE WHO IS DEPUTED TO WORK IN INDIA IN THE YEAR OF SUCH ALL OTMENT OR TRANSFER? ANSWER: A FOREIGN COMPANY IS LIABLE TO FBT IN RESPE CT OF SHARES ALLOTTED OR TRANSFERRED TO ITS EMPLOYEE WHO IS BASE D IN INDIA . HOWEVER IN SUCH CASES ONLY A PROPORTIONATE AMOUNT OF THE VALUE OF THE FRINGE BENEFIT WILL BE LIABLE TO FBT. THE PR OPORTIONATE VALUE SHALL BE DETERMINED BY APPLYING TO THE VALUE OF THE FRINGE BENEFIT THE PROPORTION WHICH THE LENGTH OF THE PER IOD OF STAY IN INDIA BY THE EMPLOYEE DURING THE GRANT PERIOD BEARS TO THE LENGTH OF THE GRANT PERIOD. (THE VALUE OF FRINGE BENEFIT MEANS THE FAIR MARKET VALUE OF THE SPECIFIED SECURITY OR SWEAT EQUITY SHARES ON THE D ATE ON WHICH THE OPTION VESTS WITH THE EMPLOYEE AS REDUCED BY T HE AMOUNT ACTUALLY PAID BY OR RECOVERED FROM THE EMPLOYEE I N RESPECT OF SUCH SHARES.) UNQUOTE 48. WHEN EMPLOYEES WORK ONLY FOR PART OF THE PERIOD WHICH ENABLES THEM TO AVAIL OF ESOP IN INDIA AND WHEN THEY GO ABR OAD AND COMPLETE THE REMAINING PERIOD WHICH ENABLES THEM TO AVAIL OF ESO P THEY MIGHT EXERCISE OPTION OUTSIDE INDIA. IN THAT EVENT IT CAN BE ARGU ED NO PERQUISITE VALUE ARISES IN INDIA FOR THE PROPORTIONATE PERIOD OF TIM E THAT EMPLOYEES STAY IN INDIA IF THE OPTIONS ARE EXERCISED OUTSIDE INDIA. T HE CHARGEABLE EVENT IS THE ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 30 OF 31 DATE OF EXERCISE OF OPTION AND THIS ARGUMENT WOULD BE VERY DIFFICULT TO DEAL WITH. CONVERSELY AS IN THE PRESENT CASE THE ASSE SSEE WAS BASED OUTSIDE INDIA AT THE TIME OF GRANT OF ESOPS AND ALSO FOR TH E PERIOD FOR WHICH HE HAS TO SERVE THE EMPLOYER TO BE ABLE TO EXERCISE THE OP TION BUT HAD COME BACK TO INDIA AND EXERCISED THE OPTION UNDER ESOP. BECAU SE THE EVENT OF CHARGEABILITY TO TAX IN INDIA HAS HAPPENED IN INDIA THE ASSESSEE WOULD HAVE TO PAY TAX IN INDIA AS WELL AS IN USA. THERE ARE NO GUIDELINES IN THIS REGARD ISSUED BY THE CBDT. 49. IN SUCH CIRCUMSTANCES WHEN THE LAW WITH REGARD TO CHARGEABILITY OF BENEFIT ARISING OUT OF ESOP IS IN SUCH FLUID STATE CAN THE ASSESSEE BE SAID TO BE GUILTY OF HAVING FURNISHED INACCURATE PARTICU LARS OF INCOME. IN OUR VIEW IT WOULD BE MOST UNJUST TO LEVY PENALTY IN TH E GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. IN THIS REGARD WE FIND THAT THE ASSESSEE HAS NOT CONCEALED PARTICULARS OF INCOME AND HAS DISCLOS ED ALL FACTS WITH REGARD TO STOCK OPTION PLAN AND THE BENEFIT HE RECEIVED. THE PARTICULARS GIVEN BY HIM WERE ALSO TRUE. ONLY DIFFERENCE BETWEEN THE AS SESSEE AND THE DEPARTMENT IS THAT THE ASSESSEE SAID THE SUM IN QUE STION WAS TAXABLE AS LONG TERM CAPITAL GAIN AND THAT THE ASSESSEE WAS EN TITLED TO THE CONSEQUENTIAL BENEFITS OF SEC.54F OF THE ACT. THE DEPARTMENT HOWEVER HELD IT TO BE INCOME CHARGEABLE TO TAX UNDER THE HE AD SALARIES AND CONSEQUENTLY DENIED BENEFIT OF SEC.54F OF THE ACT. IN OUR VIEW IN THE GIVEN FACTS AND CIRCUMSTANCES THE BONA FIDE S OF THE ASSESSEE CANNOT BE DOUBTED. THE ASSESSEE SHOULD BE ENTITLED TO THE BE NEFIT OF EXPLN.1 TO ITA NOS.1341 & 1342/BANG/2011 & 235/BANG/2012 PAGE 31 OF 31 SEC.271(1)(C) OF THE ACT IN AS MUCH AS FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME UNDER THE ACT HAVE BEEN DISCLOSED BY THE ASSESSEE. THE ASSESSEE HAS OFFERED AN EXPLANATION WHICH IS BONA FIDE . THE ASSESSEE HAS DISCLOSED ALL THE FACTS RELATING TO THE CLAIM F OR DEDUCTION MADE BY HIM AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME . 50. FOR THE REASONS GIVEN ABOVE WE UPHOLD THE ORD ER OF THE CIT(A) AND DISMISS THE APPEAL BY THE REVENUE. 51. IN THE RESULT ALL THE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASUD EVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE DATED THE 31 ST OCTOBER 2013. /D S/ COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4 . CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.