By TIOL News Service

NEW DELHI, APRIL 26, 2018: THE ISSUE AT HAND BEFORE THE APEX COURT WAS - Whether where the allotment of Stock Appreciation Rights to an assessee as a perquisite, is distinct from allotment of shares, and thus not taxable as Capital Gains. YES IS THE ANSWER.

Facts of the case

The assessee, an individual, is the chairperson and managing director of Proctor & Gamble India, a leading FMCG brand. In his returns filed for the relevant AY he declared his total income of about Rs 40 lakhs. However, on assessment, the AO determined the assessee's total income at about Rs 7.2 crores. Later, the CIT(A) upheld the findings of the AO. On subsequent appeal, the Tribunal partly allowed the assessee's appeal, whereupon both the assessee as well as the Revenue preferred appeals before the High Court.

Meanwhile the AO sought to recover tax on the differential amount, and held that the differential sum paid to the assessee by P&G, USA would be treated as capital gains on transfer or redemption of shares, and so the assessee was liable to pay tax on capital gains. Against such order the assessee again approached the CIT(A), who once again dismissed the assessee's appeal. The Tribunal too confirmed the order passed by the CIT(A). Against such Tribunal order, the assessee filed no appeal. Thereupon, the High Court settled the first appeal in favor of the assessee.

On hearing the matter, the Apex Court was of the view that,

++ considering the CBDT Circular No. 710 dated 24.07.1995, which deals with the taxability of shares issued at less than the market price, it appears that such Circular dealt with the cases where the employer issued shares to the employees at less than the market price. In the instant case, the assessee was allotted Stock Appreciation Rights (SARs.) by the (P&G) USA which is different from the allotment of shares. Hence, in the opinion of this court such Circular has no applicability on the instant case. Moreover, a Circular cannot be used to introduce a new tax provision in a Statute which was otherwise absent;

++ considering the provisions of Section 28(iv) of the Act, it is apparent that such benefit or perquisite shall have arisen from the business activities or profession whereas in the instant case there is nothing as such. The applicability of Section 28(iv) is confined only to the case where there is any business or profession related transaction involved. Hence, the instant case cannot be covered under Section 28(iv) of the IT Act for the purpose of tax liability.

(See 2018-TIOL-162-SC-IT)