ADDL. COMMISSIONER OF INCOME TAX vs. BHARAT V. PATEL

CIVIL APPEAL No. 4380/2018Supreme Court[2018] 7 S.C.R. 106724 April 2018Bench: 2 JudgesAuthor: R.K. AGRAWAL, ABHAY MANOHAR SAPRE COMMISSIONER OF12 pages
AI SummaryDismissed

What were the facts?

The respondent, Bharat V. Patel, was the Chairman and Managing Director of Procter and Gamble (P&G), India. He was issued Stock Appreciation Rights (SARs) by P&G USA and received an amount of Rs. 6,80,40,724/- upon their redemption. This transaction occurred prior to April 1, 2000. The Assessing Officer determined the respondent's total income at Rs. 7,23,11,013/- for Assessment Year 1998-99, an increase from the declared income. The CIT(Appeals) upheld the Assessing Officer's order. The Income Tax Appellate Tribunal partly allowed the respondent's appeal. Both the respondent and the Revenue filed appeals before the High Court of Gujarat, which dismissed the Revenue's appeals, upholding the Tribunal's decision. The Revenue then appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the amount received by the respondent on redemption of SARs prior to April 1, 2000, is not taxable as a perquisite under Section 17(2) of the Income Tax Act, 1961. The Court found that the amendment inserting clause (iiia) in Section 17(2) by the Finance Act, 1999, was effective from April 1, 2000, and was later omitted by the Finance Act, 2000. Since the transaction occurred before April 1, 2000, it could not be covered by this clause in the absence of an express provision for retrospective effect. The Court rejected the Revenue's argument that the amount could be taxed under Section 17(2)(iii), emphasizing that a receipt must be made taxable before it can be treated as income and that taxing provisions should be construed strictly. Regarding the alternative plea under Section 28(iv), the Court held that its applicability is confined to transactions arising from business or profession, which was not the case here. Therefore, the appeals filed by the Revenue were dismissed.

What were the issues?

1. Whether the amount received by the respondent on redemption of Stock Appreciation Rights (SARs) prior to April 1, 2000, is taxable as a perquisite under Section 17(2) of the Income Tax Act, 1961, considering the amendment brought by the Finance Act, 1999, and its retrospective applicability? The Revenue argued that the amendment inserting clause (iiia) in Section 17(2) should be applied retrospectively, or alternatively, the amount could be taxed under Section 17(2)(iii). The respondent contended that the transaction predates the amendment and that taxing provisions must be strictly construed. 2. Whether the amount received by the respondent on redemption of SARs falls within the ambit of Section 28(iv) of the Income Tax Act, 1961? The Revenue alternatively argued for the applicability of Section 28(iv). The respondent argued that this section applies only to business or profession-related transactions, which is not the case here.

Which sections of the Income-tax Act were involved?

Section 17(2),Section 17(2)(iiia),Section 17(2)(iii),Section 28(iv),Section 143(3)

AI-generated summary — verify with the full judgment below

A B C D E F G H 1067 ADDL. COMMISSIONER OF INCOME TAX v. BHARAT V. PATEL (Civil Appeal No. 4380 of 2018) APRIL 24, 2018 [R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.] Income Tax Act, 1961 – s.17(2) – ‘Perquisite’ – Amendment thereto, if retrospective – Respondent, Chairman and MD of Procter and Gamble (P&G), India (subsidiary of (P&G) USA) was issued Stock Appreciation Rights (SARs) by (P&G) USA and received an amount of Rs.6,80,40,724/- on its redemption – Issue as to the taxability of the amount so received by the Respondent on redemption of SARs – Held: “Perquisite” is usually a non-cash benefit given by an employer to an employee in addition to entitled salary or remuneration – In order to bring the perquisite transferred by the employer to the employees within the ambit of tax, legislature brought an amendment u/s.17 by inserting Clause (iiia) in s.17(2) of the IT Act through the Finance Act, 1999 with effect from 01.04.2000 which was later omitted by the Finance Act, 2000 – Since, the transaction in the instant case pertains prior to 01.04.2000, hence, it cannot be covered under the said clause in the absence of an express provision of retrospective effect – Finance Act, 199

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 17(2)

All 161 judgments and leading authorities on Section 17(2) →

Latest GST High Court judgments

Search GST case law →