Commissioner Of Income-Tax And Another v. Wipro Ltd.

I.T.A No. 46 of 2003

Decided on January 16, 2009

The Judgment of the Court was delivered by

Deepak Verma, J.:— Sri Arvind, learned counsel appeared on behalf of the appellants and Miss Saina Mary Thomas, learned counsel appeared for the respondent.

2. Heard on admission. Records perused.

3. The Revenue is in appeal under section 260A of the Income-tax Act, 1961 against the order dated July 31, 2002, passed by the Income-tax Appellate Tribunal, Bangalore Bench, in Appeal I.T.A No. 296.Bang/2001 for the assessment year 1999-2000.

4. The appeal has been admitted on the following substantial questions of law:

“(a) Whether the Tribunal was correct in holding that the assessee-company was not liable to deduct TDS under section 192 of the Act over the issue of its shares under a stock option plan to its employees at a concessional rate as it cannot be treated as a perquisite (salary) and, therefore, the assessee cannot be treated as a defaulter under section 201(1) of the Act and consequently no interest under section 201(1A) of the Act can be levied?

(b) Whether the Tribunal was correct in holding that the issue of 1,11,775 shares of the assessee-company by WERT (a trust) in favour of the employees of the assessee-company divested the assessee-company of its obligation to deduct the TDS?

(c) Whether the Tribunal was correct in holding that section 17(2)(iiia) of the Act was not clarificatory in nature and-was not applicable to the current assessment year?”

5. Learned counsel for the respondent submitted that the said questions of law have now been answered by the Supreme Court in a recent judgment reported in Commissioner Of Income Tax, Bangalore v. Infosys Technologies Ltd., [2008] 297 ITR 167 and contended that the aforesaid questions of law have now been answered in favour of the assessee and against the Revenue.

6. To highlight the said situation, learned counsel for the respondent has placed reliance on the following relevant paras at the said judgment, which reads thus (page 174):

“15. In the case of Cit v. B.C Srinivasa Setty., [1981] 128 ITR 294 (SC) this court held that the charging section and the computation provision under the 1961 Act constituted an integrated code. The mechanism introduced for the first time under the Finance Act, 1999, by which ‘cost’ was explained in the manner stated above was not there prior to April 1, 2000.

7. The new mechanism stood introduced with effect from April 1, 2000, only. With the above definition of the word ‘cost’ introduced, vide sub-clause (iiia), the value of the option became ascertainable. There is nothing in the memorandum to the Finance Act, 1999, to say that this new mechanism would operate retrospectively. Further, a mechanism which explains ‘cost’ in the manner indicated above cannot be read retrospectively unless the Legislature expressly says so. It was not capable of being implemented retrospectively. Till April 1, 2000, in the absence of the definition of the word ‘cost’, the value of the option was not ascertainable. In our view, sub-clause (iiia) is not clarificatory. Moreover, the meaning of the words ‘specified securities’ in sub-clause (iiia) was defined or explained for the first time, vide the Finance Act, 1999, with effect from April 1, 2000. Moreover, the words “allotted or transferred” in subclause (iiia) made things clear only after April 1, 2000. Lastly, it may be pointed out that even sub-clause (iiia) has been subsequently deleted with effect from April 1, 2001. For the aforestated reasons, we are of the view that sub-clause (iiia) cannot be read as retrospective.”

8. It has further been held in paragraph 16 and 17 as hereunder (page 175):

“16. Be that as it may, proceeding on the basis that there was a ‘benefit’, the question is whether every benefit received by the person is taxable as income. In our view, it is not so. Unless the benefit is made taxable, it cannot be regarded as income. During the relevant assessment years, there was no provision in law which made such benefit taxable as income. Further, as stated, the benefit was prospective. Unless a benefit is in the nature of income or specifically included by the Legislature as part of income, the same is not taxable. In this case, the shares could not be obtained by the employees till the lock-in-period was over. On the facts, we hold that in the absence of legislative mandate a potential benefit could not be considered as ‘income’ of the employee(s) chargeable under the head ‘Salaries’. The stock was non-transferable and the stock exchange was also accordingly notified. This is where the weightage ought to have been given by the Assessing Officer to an important factor, namely, the lock-in-period. This has not been done. It is important to bear in mind that if the shares allotted to the employee had no realizable sale value on the day when he exercised his option then there was no cash inflow to the employee. It was not possible for the employee to know the future value of the shares allotted to him on the day he exercised his option. Even the cost of acquisition as ‘nil’ came to be introduced in the 1961 Act by the Finance Act, 1999, only with effect from April 1, 2000. In fact, the later deletion of sub-clause (iiia) is an indicator of the ineffective charge.

17. For the aforestated reasons, we are of the view that the Department had erred in treating Rs. 165 crores as the perquisite value for the assessment years 1997-98, 1998-99 and 1999-2000. During those years, the fifth anniversary had not taken place and, therefore, it was not possible for the assessee-company to estimate the value of the perquisite during that period, it was not open to the Department to ignore the lock-in-period. Therefore, the Department had erred in treating the respondent herein as an assessee in default for not deducting TDS at 30% as stated in the order of assessment. This is not a case of tax evasion. The assessee had floated the trust because of the buy-back problems, which were genuine problems in cases where the employees stood dismissed, removed or in the case of resignation in which cases they were required to return the allotment.”

9. In the light of the aforesaid submissions, we have no hesitation to hold that the aforesaid substantial questions of law projected in this appeal stand squarely answered by the Supreme Court in favour of the assessee and against the Revenue. Learned counsel for appellants has not disputed this legal position. We accordingly do so. The appeal stands finally disposed of.