COMMISSIONER OF INCOME-TAX, DEPUTY COMMISSIONER OF INCOME-TAX vs INFOSYS TECHNOLOGIES LTD.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2006 Supreme(Kar) 993

Karnataka High Court
Judges : R.Gururajan,N.Ananda
COMMISSIONER OF INCOME-TAX, DEPUTY COMMISSIONER OF INCOME-TAX - Appellant
Versus
INFOSYS TECHNOLOGIES LTD. - Respondent
. T. A. 433 Of 2002
Decided On : 12/15/2006
Advocates Appeared :
G.Sarangan, M.V.SESHACHALA, S.PARTHASARATHY

Headnote:Interpretation of Statutes - Proviso - Provision having proviso - How be construed. . Dilatory Settled Principles: The cardinal rule of construction of the provisions of a section with a proviso is to apply the broad general rule of construction, which is that a section or enactment must be construed as a whole, each portion throwing light if need be on the rest. The true principle undoubtedly is that the sound interpretation and meaning of the statute, on a view of the enacting clause, saving clause, and proviso, taken and construed together, is to prevail. Unless the words are clear, the Court should not so construe the proviso as to attribute an intention to the legislature to give with one hand and take away with another. To put it in other words, a sincere attempt should be made to reconcile the enacting clause and the proviso and to avoid repugnancy between the two. (Rule applied in construing). [AIR 1959 SC 1012].
       Cases Referred: AIR 1996 SC 1491; 226 ITR 625; AIR 1959 SC 1012; AIR 1970 SC 1173; 224 ITR 186; 243 ITR 383; 224 ITR 186.
       Interpretation of Taxing Statutes - Quantum of tax - Is for legislature to decide. [R. Gururajan and N. Ananda, JJ.]: It is for the legislature to decide the quantum of tax and not for the Courts to decide the quantum. No words can be read into the Statute and no words can be omitted by the Courts while interpreting Statute for the purpose of taxation. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. At the same tine, the Courts also have to take into considerations particularly taxing Statute a construction beneficial to assessee in case of ambiguity.
       Cases Referred: AIR 1996 SC 1491; 226 ITR 625; AIR 1959 SC 1012; AIR 1970 SC 1173; 224 ITR 186; 243 ITR 383; 224 ITR 186.
       Labour and Services - Management of industry - Participation of workmen - Object.
       Cases Referred: AIR 1996 SC 1491; 226 ITR 625; AIR 1959 SC 1012; AIR 1970 SC 1173; 224 ITR 186; 243 ITR 383; 224 ITR 186.
       Income Tax Act, 1961 - Section 17 (2) - Perquisite - Meaning - It is the value of any benefit or amenity granted or provided free of cost or at a concessional rate.
       Cases Referred: AIR 1996 SC 1491; 226 ITR 625; AIR 1959 SC 1012; AIR 1970 SC 1173; 224 ITR 186; 243 ITR 383; 224 ITR 186.
       Income Tax Act, 1961 - Section 17 (2) - Perquisite - Shares allotted by company in favour of its employees through a trust created by company - If exigible. [R. Gururajan and N. Ananda, JJ.]: It shall be the value of the benefit that shall be taxable as a perquisite. Such value has to be arrived at a manner defined by a Statute. Unless, otherwise the value is ascertainable by a mechanism laid down in the statute, the same cannot be brought to tax. We are in agreement with this finding of the Tribunal. Assuming that the same value can be attached to the benefit that value is not ascertainable in terms of the scheme and in terms of the allotment. In fact, the Tribunal also has noticed that the benefit for being taxed has to be valued. What is allotted is not transferable till a defined period being 5 years from the date of grant of warrants. Transfer of these shares within the defined period would not be good delivery at all. The certificate of shares, has been enfaced with a stamp regarding the non-transferable period. The Tribunal has also noticed the Wealth Tax Act in the matter of valuation. After noticing all these aspects of the matter, the Tribunal, in our view has come to a right conclusion that there is no ascertainable value attached to this share option and in that view of the matter, the initiation is not possible.
       Cases Referred: AIR 1996 SC 1491; 226 ITR 625; AIR 1959 SC 1012; AIR 1970 SC 1173; 224 ITR 186; 243 ITR 383; 224 ITR 186.
       Income Tax Act, 1961 - Section 192 - Deduction of tax at source - Whether shares allotted to employees form part of salary which includes perquisites and hence employer liable to deduct tax at source. [R. Gururajan and N. Ananda, JJ.]: There exists a Trust Deed and there exists a scheme framed by the Government. In the light of the scheme of the Government and in the light of the existence of a Trust and in the light of no malafide intention available on record, we are not inclined to accept the findings of the Commissioner now set aside by the Tribunal that the Trust is only a conduit. On the other hand, the material on record would reveal that the shares have been allotted to a Trust and the Trust after noticing the eligibility etc., has chosen to provide a stock option to its employees. Therefore, from the point of grant by the Trust, it cannot be treated as a benefit at the hands of the employer. The Tribunal has considered the material in a detailed manner and to our mind that finding is reasonable and the same finding has to be accepted in the given circumstances. Therefore, we are clear in our mind that the stock option made by Infosys cannot be treated as a perquisite as held by the Tribunal which is accepted by us in this order. Assuming that it is a benefit, even then, the authorities have to show that a liability is caused on the employer in terms of Section 192 for the purpose of proceedings Under Section 201 of the Act. The authorities cannot forget that the tax is calculated at the hands of the employer on the ground of default. Department must be careful in branding an assessee as a defaulter unless the department is able to satisfy the default condition in terms of the taxing statute with material facts.
       Cases Referred: AIR 1996 SC 1491; 226 ITR 625; AIR 1959 SC 1012; AIR 1970 SC 1173; 224 ITR 186; 243 ITR 383; 224 ITR 186.
       Constitution of India - Article 43A - Object of - Stated. [R. Gururajan and N. Ananda, JJ.]: The laudable object of Article 43A is to a certain extent achieved by this company. That laudable object is sought to be either diluted or destroyed by taking an unsustainable plea.
       Cases Referred: AIR 1996 SC 1491; 226 ITR 625; AIR 1959 SC 1012; AIR 1970 SC 1173; 224 ITR 186; 243 ITR 383; 224 ITR 186.

( 1 ) ASSESSEE is a company having its registered office at Bangalore. It filed its annual TDS returns for the assessment year 1997-98. This return came to be scrutinized. It was found that TDS was not deducted in respect of shares issued to the assessees employees. A show cause notice dated 8. 6. 1999 was issued proposing to treat the assessee as a defaulter for failing to deduct tax at source Under Section 201 (1) of the Act. The assessee objected to this notice by furnishing its reply in terms of a letter dated 2. 8. 1999 and 28. 9. 1999. The assessing officer passed an order on 7. 10. 1999. Aggrieved by the said order, an appeal was filed before the Commissioner of appeals. He also rejected the appeal filed by the assessee. A second appeal was filed and the Tribunal has allowed the appeal filed by the assessee. Revenue is therefore before us. The following two questions of law are framed: 1. 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 stock option plan to its employees at a concession rate as it cannot be treated as a perquisite (salary) and therefore the assesses cannot be treated as a defaulter Under Section 201 (1) of the Act and consequentially no interest Under Section 201 (1a) of the Act can be levied.

( 2 ) 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. 2. The facts, grounds and the questions of law raised in ITA No. 432/2002 and ITA No. 433/2002 are one and the same. Hence, it is unnecessary once for us to again to refer to the facts and the questions of law raised in those two cases.

( 3 ) . Seshachala, learned Counsel argues that grant of shares to employees is nothing but perquisite available to an employee in the light of his status as an employee of Infosys. Stock option provides for a benefit in as much as the shares are allotted at a reduced rate to the employees. It is nothing but a concession or benefit granted to an employee and it would certainly amount to a perquisite to an employee. Such perquisites are includable in the salary and the non reduction in as far as the perquisite would attract the proceedings as has been done in the case on hand. He would also refer to us various Clauses to say that the Tribunal is wrong in reversing the orders of the authority.

( 4 ) HEARD Sr. Sarangan, learned Counsel appearing for the assessee. He would take us to the material on record in the case on hand. Be refers to us the various case laws in support of his submissions. He would refer to us the Intention of the Legislature in the matter of grant of shares to the employees. He refers to us a Trust that has been created by the Infosys Technologies Ltd. The Trust Deed is dated 15. 9. 1994. Re refers to various Clauses of the Trust to say that the settlor has chosen to provide an opportunity to the employees to participate in the growth or prosperity of the Settlor through issue of shares or other securities or warrants which would entitle such employees to apply for shares of the company through the Settlor's Employees Stock offer Plan (ESOP) or through any other means. Be also says that the grant of share is not automatic. It depends upon various terms and conditions in terms of the scheme. He says that in the case on hand, shares were offered to its employees after applying the conditions contained in the details of the Trust Deed. It is the Trust that allots shares and not the Company. He argues that the terms 'income', 'salary' and 'perquisite' in terms of the Income Tax Laws would provide that Section 192 of the Income Tax Act is wholly inapplicable to the facts of the case. He also says that the subsequent insertion of Section 17 (2) (c) (iii) would also show that the intention of the Legislature is to exclude these shares for not being a perquisite in terns of the Act. He

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Judicial Analysis

SupremeToday

2006 Supreme(Kar) 993

Karnataka High CourtJudges : R.Gururajan,N.AnandaCOMMISSIONER OF INCOME-TAX, DEPUTY COMMISSIONER OF INCOME-TAX - AppellantVersusINFOSYS TECHNOLOGIES LTD. - Respondent. T. A. 433 Of 2002Decided On : 12/15/2006Advocates Appeared : G.Sarangan, M.V.SESHACHALA, S.PARTHASARATHY

Judicial Analysis

Karnataka High Court
Judges : R.Gururajan,N.Ananda
COMMISSIONER OF INCOME-TAX, DEPUTY COMMISSIONER OF INCOME-TAX - Appellant
Versus
INFOSYS TECHNOLOGIES LTD. - Respondent
. T. A. 433 Of 2002
Decided On : 12/15/2006
Advocates Appeared :
G.Sarangan, M.V.SESHACHALA, S.PARTHASARATHY