I-T - Whether receipts from sale of shares of foreign company received under stock option as employee and claimed as long-term capital gains, are liable to be taxed as perquisites under salary head - Yes, rules ITAT
MUMBAI, DEC 26, 2011: THE issues before the Tribunal are - Whether receipts from sale of rights on shares of foreign parent company received by the resident assessee as an employee under a Stock Option Grant, claimed as long term capital gains is liable to be taxed as perquisites under the head salary and whether the annual rateable value for the purpose of section 23(1)(a) has to be different from what was determined by the Municipal authorities for the purpose of imposing property tax. And the verdict partly goes against the assessee.
Facts of the case
The individual assessee was an employee of the company Pfizer India Ltd. The assessee had received rights under the Stock Option grant from the US-based parent company, M/s Pfizer Inc. USA. The assessee only held the rights to the shares of the parent company under the stock Option Grant and not the shares due to the exchange control restrictions on holding of foreign securities by resident Indians.
Subsequently, the assessee sold the rights to these shares of the parent company and offered the same in his income tax return as long term capital gains. Following the decision in the preceding assessment years, the AO assessed this amount as perquisite under the head salary on a substantive basis. In appeal the CIT(A) upheld the AO's action in treating this amount as long term capital gains arising on exercise of rights under ESOP, as perquisites and taxed the same in the computation of income under the head "salaries".
The assessee owned six flats. The assessee stayed in one of these properties, which was declared as self occupied and its annual rateable value was taken at nil. The assessee sold another property during the relevant year. In the case of two other properties, which remained vacant during the previous year, the assessee claimed that neither the annual rateable value nor the property tax was available and, therefore, the annual letting value (ALV) was calculated as an estimate and no property tax was claimed thereon. As these properties were purchased long ago, the assessee did not have certificates from the Municipal authorities whereby the annual letting value was estimated.
The AO did not accept the estimate and concluded that the assessee had not submitted the municipal rate to substantiate the basis of the computation of the ALV and current capital value. Accordingly, the AO made a reasonable estimate according to the size and location of the property. After allowing 30 per cent for repairs and maintenance, the AO estimated the annual values and made an addition under the head "income from house property".
In appeal by the assessee, the CIT(A) upheld the AO's action in calculating the annual rateable value of three house properties for the purpose of computing "income from house property" on an estimated basis. The CIT(A) accepted the stand of the AO as the assessee had not provided ny basis for the computation of annual letting value and there is no information regarding the municipal ratable value nor the details of the capital value. There was also no indication that the assessee had intended to let out the properties or that he had made efforts to let it out. Therefore, the CIT(A) held that the provisions of section 23(1)(a) would apply and not the provisions of section 23(1)(c).
In appeal before the Tribunal, the assessee submitted that the annual letting value for calculating notional income was accepted by the department in all the earlier years.
Having heard the parties, the Tribunal held that,
++ the issue of perquisites was covered against the assessee in its own case for earlier assessment years by the decision of the co-ordinate bench of the Tribunal. Accordingly, this ground taken by the assessee was dismissed;
++ regarding the annual value of house property, the issue was covered in principle by various decisions of the co-ordinate bench of the Tribunal some of which had been upheld by the Bombay High Court. The Tribunal had held that the standard rent determinable under the provisions of the rent legislation had to be taken as the annual letting value of the property. The Tribunal had also held that the annual municipal value, if available, could itself be the annual letting value and if the actual rent received or receivable was more than the annual municipal value, then the actual rent would be taken as the annual value. This order of the Tribunal had also been affirmed by the Bombay High Court. Following these orders, the calculation of the annual rateable value was to be based on the value determined by the Municipal authorities, which also fixed the annual value on the basis of the cost of construction of the building. Therefore the department was not justified in recalculating the annual letting value of the two flats owned by the assessee, which were vacant during the entire previous year. This matter was accordingly restored to the file of the AO for fresh adjudication in the light of these observations. This ground was thus allowed for statistical purposes.
MUMBAI, DEC 26, 2011: THE issues before the Tribunal are - Whether receipts from sale of rights on shares of foreign parent company received by the resident assessee as an employee under a Stock Option Grant, claimed as long term capital gains is liable to be taxed as perquisites under the head salary and whether the annual rateable value for the purpose of section 23(1)(a) has to be different from what was determined by the Municipal authorities for the purpose of imposing property tax. And the verdict partly goes against the assessee.
Facts of the case
The individual assessee was an employee of the company Pfizer India Ltd. The assessee had received rights under the Stock Option grant from the US-based parent company, M/s Pfizer Inc. USA. The assessee only held the rights to the shares of the parent company under the stock Option Grant and not the shares due to the exchange control restrictions on holding of foreign securities by resident Indians.
Subsequently, the assessee sold the rights to these shares of the parent company and offered the same in his income tax return as long term capital gains. Following the decision in the preceding assessment years, the AO assessed this amount as perquisite under the head salary on a substantive basis. In appeal the CIT(A) upheld the AO's action in treating this amount as long term capital gains arising on exercise of rights under ESOP, as perquisites and taxed the same in the computation of income under the head "salaries".
The assessee owned six flats. The assessee stayed in one of these properties, which was declared as self occupied and its annual rateable value was taken at nil. The assessee sold another property during the relevant year. In the case of two other properties, which remained vacant during the previous year, the assessee claimed that neither the annual rateable value nor the property tax was available and, therefore, the annual letting value (ALV) was calculated as an estimate and no property tax was claimed thereon. As these properties were purchased long ago, the assessee did not have certificates from the Municipal authorities whereby the annual letting value was estimated.
The AO did not accept the estimate and concluded that the assessee had not submitted the municipal rate to substantiate the basis of the computation of the ALV and current capital value. Accordingly, the AO made a reasonable estimate according to the size and location of the property. After allowing 30 per cent for repairs and maintenance, the AO estimated the annual values and made an addition under the head "income from house property".
In appeal by the assessee, the CIT(A) upheld the AO's action in calculating the annual rateable value of three house properties for the purpose of computing "income from house property" on an estimated basis. The CIT(A) accepted the stand of the AO as the assessee had not provided ny basis for the computation of annual letting value and there is no information regarding the municipal ratable value nor the details of the capital value. There was also no indication that the assessee had intended to let out the properties or that he had made efforts to let it out. Therefore, the CIT(A) held that the provisions of section 23(1)(a) would apply and not the provisions of section 23(1)(c).
In appeal before the Tribunal, the assessee submitted that the annual letting value for calculating notional income was accepted by the department in all the earlier years.
Having heard the parties, the Tribunal held that,
++ the issue of perquisites was covered against the assessee in its own case for earlier assessment years by the decision of the co-ordinate bench of the Tribunal. Accordingly, this ground taken by the assessee was dismissed;
++ regarding the annual value of house property, the issue was covered in principle by various decisions of the co-ordinate bench of the Tribunal some of which had been upheld by the Bombay High Court. The Tribunal had held that the standard rent determinable under the provisions of the rent legislation had to be taken as the annual letting value of the property. The Tribunal had also held that the annual municipal value, if available, could itself be the annual letting value and if the actual rent received or receivable was more than the annual municipal value, then the actual rent would be taken as the annual value. This order of the Tribunal had also been affirmed by the Bombay High Court. Following these orders, the calculation of the annual rateable value was to be based on the value determined by the Municipal authorities, which also fixed the annual value on the basis of the cost of construction of the building. Therefore the department was not justified in recalculating the annual letting value of the two flats owned by the assessee, which were vacant during the entire previous year. This matter was accordingly restored to the file of the AO for fresh adjudication in the light of these observations. This ground was thus allowed for statistical purposes.
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