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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
ORDER PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of Income Tax Officer along with DRP-2, Mimbai-3 (for short ‘CIT’) dated 28.02.2022 under section 143(3) r.w.s. 144C (13) of the Income Tax Act, 1961 (for short ‘the Act’) for A.Y. 2018-19. The assessee has raised the following grounds of appeal:
Unni Krishnan Vadakkedath Sugathan “1. On the facts and in the circumstances of the case and in law, the Assessing Officer (AO) following the directions of the Dispute Resolution Panel (the DRP') has erred in assessing the total income of the Appellant at Rs 34,74,620/- as against the returned Income of the Appellant at Rs 15,50,750/-; 2. On the facts and in the circumstances of the case and in law, the AO following directions of the DRP has erred in assessing the ESOP perquisites amounting to Rs. 19,23,874/- as income earned in India and is taxable in the hands of the Appellant; 3. On the facts and in the circumstances of the case and in law, the DRP and the AO has failed to appreciate and accept the fact that the Appellant was granted the ESOP benefits for employment services rendered outside India, in the State of UAE, hence, the ESOP perquisite income has accrued outside India and is not chargeable to tax in India and as a consequence, the AO be directed to delete the taxability of ESOP perquisite income.
Without prejudice to above, on the facts and in the circumstances of the case and in law, the DRP and the AO has erred in concluding that the Appellant is not entitled for relief from taxability of ESOP perquisite under Article 15 of Double Taxation Avoidance Agreement between India and UAE (DTAA') read with provisions of Section 90 of the Act; 5. On the facts and circumstances of the case and in law, the DRP and the AO has erred in following legal precedents [Hon'ble Delhi and Hyderabad Tribunal and Hon'ble Delhi High Court] on the subject, which uphold the Appellant's legal proposition on the subject that ESOP perquisites in the given facts are not chargeable to tax in India; 6. On the facts and circumstances of the case and in law, the DRP and the AO has erred in relying the judgment in the Appellant's own case for AY 2013-14, though the facts of the said AY are clearly distinguishable to the facts of the AY under considerations 7. The Appellant further craves, leave, to add, alter amend any ground of appeal
before or at the time of hearing.”
2. Brief facts of the case are that assessee is an employee of HDFC Bank Ltd. working in India till 30-09-2007. Thereafter he was seconded to UAE representative office of bank w.e.f 01-10-2007 assessee had been rendering Unni Krishnan Vadakkedath Sugathan employment service outside India at UAE. Assessee filed its return of income declaring total income at Rs 15,50,750/- on 29-08-2018.
3. AO issued a draft assessment order dated 19-04-2021 u/s 144C and proposed an addition of Rs. 62,56,950/- on account of ESOPs received by the assessee as taxable in India. Aggrieved by the draft assessment order assessee filed objections with DRP to Mumbai. DRP to Mumbai also confirmed the draft assessment order and in turn with reference to DRP directions AO finalised the final assessment order vide dated 28-02-2022 u/s 143(3) r.w.s. 144C (13). Vide this assessment order AO added back a proportionate value of ESOPs as perquisites amounting to Rs. 19, 23,874/-. Being aggrieved with this order of AO passed in compliance to the directions of DRP, assessee preferred this appeal before ITAT. We have gone through the order of AO, draft assessment order of AO and order of DRP, submissions of the assessee along with case laws relied upon.
4. It is observed that assessee joined the service with HDFC Bank on 12-04- 2003, assessee seconded to HDFC Bank UAE representative office on 01-10- 2007.Thereafter assessee was granted ESOPs for his services in India on 27-06- 2007, which vested on 27-06-2008 (50%) and on 27-06-2009 (50%) in respect of 18500 shares. Assessee exercised his vested right during the AY 2013-14 and 2014-15. The same were taxed in those years respectively. At that time assessee challenged the action of AO i.e. adding back the value of ESOPs as perquisites in AY 2013-14 and 2014-15 on the ground that the assessee is a non-resident and the same perquisites value is not taxable in his hands. This matter travelled up to tribunal and tribunal confirmed the action of AO on the ground that the ESOPs Unni Krishnan Vadakkedath Sugathan are taxable in the AY 2013-14 and 2014-15 as the same benefits were vested with assessee for the services rendered in India may be the exercise of this option opted later. In our observation it is crystal clear from the assessment order of AY 2013-14 and 2014-15 r.w I.T.A.T order vide and 1201/Mum/2018 that whatever accrued to the assessee for his services in India in the form of ESOPs has already been taxed. This fact is also not under challenge that since 01- 10-2007 to 20-09-2017 assessee was rendering services outside India hence, in between whatever may be the ESOPs granted and exercised by the assessee are not chargeable to tax as perquisites u/s 17(2)(vi). It is also pertinent to mention that sec 5 and sec. 9 not at all attracted in the case of assessee.
We also relied upon the same ratio laid down by ITAT in assessee own case and relied upon by the DRP for AY 2013-14 and 2014-15 that chargeability of ESOPs dependent upon the fact that where exactly the services were rendered by the assessee. in this case these ESOPs series XVIII was granted to the assessee on 18-01-2012 in lieu of his services from 01-10-2007 (past services) till 20-09-2017 (future service to be rendered abroad).
In view of the above facts on records and not under challenge we hold that the amount of Rs. 19,23,874/- added to the income of the assessee as ESOPs perquisites u/s 17(2)(vi) is not tenable and bad in law. To support this decision on legal count we rely upon the following judicial pronouncements: Anil Bhansali Vs ITO (2015) 168 TTJ 412(Hyd.-Trib) ACIT Vs Robert Arthur Keltz (2013) 35 taxman.com 424(Del.-Trib) ITO Vs Avtar Singh Wadhwan 247 ITR 260 (Bomb). DIT( I.T Tax) Vs Prahalad Vijendra Rao (2011) 198 taxman 551 (Kar.)
Unni Krishnan Vadakkedath Sugathan Ranjit Kumar Bose Vs ITO( 1986) 18 ITD 230(Kol.-trib) OECD Commentary to model tax convention 2017 edition UN Commentary to model tax convention 2011 edition 7. In view of the above facts on records and applicable judicial pronouncement we set aside the order of AO and directed to delete the addition on account of ESOPs in the hands of the assessee vested to him during the period 01-10-2007 to 20-09-2017.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 13th day of January, 2023.