RAMESWARA REDDY KUMMATHI,CHENNAI vs. ACIT NCC-17, CHENNAI

All the appeals of the two independent assessees are directed against the respective orders of the Commissioner of Income Tax (Appeals) -5, Chennai, confirming the penalty levied by the Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961 (in short 'the Act'). We heard all these appeals together and disposing of the same by this common order.

Shri Avinash, Wadhwani, the Ld.counsel for the assessees, submitted that the Assessing Officer levied penalty under Section 271(1)(c) of the Act. On appeal, the CIT(Appeals) confirmed the same. According to the Ld. counsel, both the assessees are employees of M/s Cognizant Technologies India Pvt. Ltd. The parent company of the assessees, namely, M/s Cognizant Technology Solutions Corporation, a Delware Corporation, USA promoted an incentive plan for the employees of M/s Cognizant Technologies India Pvt. Ltd. As per this plan, according to the Ld. counsel, the assessees were given option for availing Stock Appreciation Rights. According to the Ld. counsel, Stock Appreciation Right is nothing but a right for appreciation of the value of shares allotted by the parent company. According to the Ld. counsel, the assessees did not have right over the share, only the value of appreciation right was given to the assessees. The Stock Appreciation Right allotted to the assessee was also subjected to tax in USA. According to the Ld. counsel, the Stock Appreciation Rights offered to the assessees are capital asset, therefore, the value realized by the assessees on Stock Appreciation Rights is nothing but a capital gain. Accordingly, the assessees offered the same for taxation. However, according to the Ld. counsel, the Assessing Officer found that the Stock Appreciation Rights is a revenue receipt. The orders of the Assessing Officer were also confirmed by the CIT(Appeals) and this Tribunal. According to the Ld. counsel, a further appeal was made before the High Court which is pending for adjudication.

Shri Avinash, Wadhwani, the Ld.counsel for the assessees, further submitted that the Stock Appreciation Right was given by USA company and the assessees are not employees of USA company. According to the Ld. counsel, there was no employer and employee relationship between the assessees and USA company.

On the contrary, Shri M. Mathivanan, the Ld. Departmental Representative, submitted that the assessees claimed the gain on the value of Stock Appreciation Rights as a capital gain. According to the Ld. D.R., in fact, it is a profit in lieu of salary, therefore, it has to be assessed as revenue receipt. To that extent, the assessees have furnished inaccurate particulars of income. According to the Ld. D.R., the claim of the assessees as capital gain amounts to inaccurate particulars of income.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not the case of the Revenue that the shares were allotted to the assessees.

The question arises for consideration is whether there was concealment of income or whether the assessees have furnished inaccurate particulars of income? It is nobody’s case that the assessees have concealed the allotment of Stock Appreciation Rights or gain arising out of such appreciation. As rightly pointed out by the Ld.counsel for the assessees, the difference of opinion between the assessees and the Assessing Officer is on classification of head of income. In other words, whether the gain arising on appreciation rights is a capital gain or revenue receipt.

In the result, the appeals filed by both the assessees are allowed.