1. Redemption of Stock Appreciation Rights (SARs) — Dispute over taxability as perquisite under Section 17(2) or capital gains under the Income Tax Act. (Para 3 , 10 , 11 )
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2018 Supreme(SC) 414
SUPREME COURT OF INDIA
R.K. Agrawal and Abhay Manohar Sapre, JJ.
Addl. Commissioner of Income Tax – Appellants
Versus
Bharat V. Patel – Respondents
Civil Appeal No.4380 of 2018 (Arising out of Special Leave Petition (C) No. 24888 of 2015) with Civil Appeal No. 4381 of 2018 (Arising out of Special Leave Petition (C) No. 25001 of 2015
Decided On : 24-04-2018
Important Points
IMPORTANT POINT
The amount received on redemption of SARs prior to 01.04.2000 is not taxable.
The amount received on redemption of SARs prior to 01.04.2000 is not taxable.
Subject
Taxation Law - Income Tax
Act Referred
Headnote
(a) Interpretation if statute – Taxing statute – Courts cannot construe the law in such a way that brings an individual within the ambit of Income Tax Act to pay tax who otherwise is not liable to pay. (Para 13, 18)
(b) Income Tax act, 1961 – Section 17(2) (iii) – Inserted with effect from 01.04.2000 – Instant transaction pertaining to prior to 01.04.2000 – Held, section 17(2) (iii) not attracted. (Para 13)
[2008] 297 ITR 167 (SC) – Relied upon
[2008] 112 ITD 1 (MUM.) (SB) – Referred
(c) Interpretation of statute – Taxing statute – Circular – Cannot be used to introduce a new tax provision in a Statute which was otherwise absent. (Para 16)
Facts of the case:
On 10.09.1998, the Respondent, who is the Chairman and Managing Director of Procter and Gamble (P&G), India, filed his income tax return for the Assessment Year 199899 and declaring the total income at Rs. 40,13,820/-.
The Assessing Officer concluded the assessment proceeding and determined the total income of the Respondent at Rs. 7,23,11,013/- against the declared income.
The Respondent preferred an appeal before the Commissioner of Income Tax (Appeals) which was dismissed.
The Tribunal partly allowed the appeal filed by the Respondent.
The High Court allowed the appeal filed by the Respondent while dismissing the appeal of the Revenue.
Finding of the Court:
The amount received on redemption of SARs prior to 01.04.2000 is not taxable.
Result: Appeal dismissed.
Legal Category Hierarchy
Advocates Appeared:
For the Appellants :- Arijit Prasad, Mrs. Anil Katiyar, Adv.
For the Respondents:- M/s. Karanjawala & Co.,
For the Appellants :- Arijit Prasad, Mrs. Anil Katiyar, Adv.
For the Respondents:- M/s. Karanjawala & Co.,
Table of Contents
2. Revenue contends SARs redemption is a perquisite under Section 17(2)(iii) or Section 28(iv); Respondent argues the relevant amendment was prospective and not applicable. (Para 6 , 7 , 8 )
3. The amendment introducing Section 17(2)(iiia) is prospective; SARs differ from concessional shares; Section 28(iv) requires a business-related transaction. (Para 12 , 13 , 15 , 16 , 17 )
4. Taxing provisions must be construed strictly; prospective amendments cannot be applied retrospectively to transactions occurring before their effective date without express statutory provision. (Para 13 , 18 )
5. Appeals filed by the Revenue dismissed. (Para 19 )
6. Are amounts received on redemption of Stock Appreciation Rights (SARs) taxable as perquisites prior to 01.04.2000?
No, because the specific provision covering such benefits, Section 17(2)(iiia), was introduced by the Finance Act 1999 with prospective effect from 01.04.2000 and cannot be applied retrospectively to prior transactions. (Para 12 , 13 , 15 )
7. Can the redemption of Stock Appreciation Rights be taxed under Section 28(iv) of the Income Tax Act?
No, the applicability of Section 28(iv) is confined to cases where the benefit or perquisite arises from business activities or the exercise of a profession. (Para 17 )
8. What is the general rule for interpreting taxing provisions in the absence of specific statutory language?
Taxing provisions must be construed strictly so that no person who is otherwise not liable to pay tax is made liable to pay. (Para 13 , 18 )
9. Does CBDT Circular No. 710 regarding shares issued at less than market price apply to Stock Appreciation Rights (SARs)?
No, the circular deals with cases where the employer issues shares to employees at less than the market price, which is distinct from the allotment and redemption of SARs. (Para 16 )
JUDGMENT
R.K. Agrawal, J.
Leave granted.
2. These appeals have been preferred against the impugned judgment and order dated 23.12.2014 passed by the High Court of Gujarat at Ahmedabad in Tax Appeal Nos. 6 and 14 of 2004 whereby the Division Bench of the High Court dismissed the appeals filed by the Revenue while upholding the decision of the Income Tax Appellant Tribunal (for brevity 'the Tribunal') dated 27.06.2003.
3. Brief facts:-
(a) On 10.09.1998, the Respondent, who is the Chairman and Managing Director of Procter and Gamble (P&G), India, filed his income tax return for the Assessment Year 199899 and declaring the total income at Rs. 40,13,820/-.
(b) The Assessing Officer, vide order dated 12.02.2001, concluded the assessment proceeding under Section 143(3) of the Income Tax Act, 1961 (in short 'the IT Act') and determined the total income of the Respondent at Rs. 7,23,11,013/- against the declared income.
(c) Being aggrieved, the Respondent preferred an appeal before the Commissioner of Income Tax (Appeals) being No. CAB/I-643/2000-2001. After considering the case, learned CIT (Appeals), vide order dated 28.03.2002, dismissed the appeal of the Respondent after comprehensively discussing the taxability of the alleged amount and upholding the Assessment Order passed by the Assessing Officer.
(d) Being dissatisfied, the Respondent carried the matter before the Tribunal. The Tribunal, vide order dated 27.06.2003, in ITA No. 2241/Ahd/2002 partly allowed the appeal filed by the Respondent.
(e) At this juncture, the Respondent as well as the Revenue both preferred cross appeals before the High Court of Gujarat at Ahmedabad.
(f) At the same time, consequent to the decision of the Tribunal dated 27.06.2003, the Assessing Officer started the proceeding side by side to give effect to the order dated 27.06.2003. Vide order dated 15.09.2003, the Assessing Officer held that the difference being sum of Rs. 6,80,40,649/- paid to the Respondent by P&G, USA shall be treated as capital gains on transfer/redemption of shares, and hence, the Respondent is liable to pay tax on capital gains. Being aggrieved with the order dated 15.09.2003, the Respondent filed an appeal before the CIT (Appeals) being No. CAB/V-37/04-05 which was upheld by learned CIT (Appeals) in favour of Assessing Officer while dismissing the appeal of the Respondent.
(g) Being dissatisfied, the Respondent further preferred an appeal before the Tribunal. The Tribunal, vide order dated 24.09.2010, dismissed the appeal. The decision of the Tribunal dated 24.09.2010 was not challenged further.
(h) The Division Bench of the High Court, vide judgment and order dated 23.12.2004, allowed the appeal filed by the Respondent while dismissing the appeal of the Revenue.
(i) Hence, the present appeals have been filed by the Revenue before this Court.
4. We have given our thoughtful consideration to the submissions of leaned senior counsel for the parties and perused the factual matrix of the case.
Point(s) for consideration:-
5. Whether in the present facts and circumstances of the case, any interference by this Court is required with the impugned decision of the High Court?
Rival contentions:-
6. At the outset, learned counsel for the Revenue contended that the High Court erred in law while upholding that the amount received on redemption of Stock Appreciation Rights (SARs) is to be treated as capital gains and not perquisite under section 17(2)(iii) of the IT Act. However, the same is not taxable under the category of capital gains since no consideration had passed from the Respondent.
7. In support of his argument, learned counsel placed reliance on Sumit Bhattacharya v. ACIT Circle 16(1), Mumbai - [2008] 112 ITD 1 (MUM.) (SB) and contended that the Respondent, having received an amount on redemption of Stock Appreciation Rights (SARs) as an employee of the company and there was an employer-employee relationship subsisting at the relevant point of time, therefore, the amount received on redemption of
