Introduction:
In the intricate world of income taxation, the recent legal battle in the case of Sumit Bhattacharya v. ACIT (2020) has spotlighted the complexities surrounding the assessment of Stock Appreciation Rights (SARs). This blog post delves into the details of the case, shedding light on the evolving landscape of perquisites, particularly in the context of employment relationships.
The SARs Saga:
The crux of the matter lies in Section 17(2) of the Income Tax Act, particularly in the interplay between perquisites and salary. Sumit Bhattacharya, the assessee in question, received the right of redemption concerning SARs from a company during the relevant previous year, while being an employee of the said company. The redemption of SARs occurred in the financial year 1998-99.
The Assessing Officer’s Standpoint:
The Assessing Officer took a stance asserting that the amount received upon the redemption of SARs, during the tenure of employment, should be treated as taxable income under the head ‘income from salaries.’ This position was rooted in the existing employer-employee relationship during the pertinent time.
Unveiling Sub-clause (iiia) of Section 17(2):
A critical element in this case is sub-clause (iiia) of Section 17(2), which broadens the scope of perquisites. It includes the value of any specified security allotted or transferred by any person, free of cost or at a concessional rate, to an individual who is or has been in employment of that person.
Tribunal’s Backing:
The Tribunal affirmed the Assessing Officer’s order, citing the applicability of sub-clause (iiia) and emphasizing the inclusion of SARs as specified securities falling under its purview.
Court’s Order:
However, the tide turned on appeal to the Court. The Court’s keen observation highlighted a crucial temporal aspect. It noted that sub-clause (iiia) became effective only from April 1, 2000. Since the assessee had received SARs during the assessment year 1998-99, predating the insertion of sub-clause (iiia), the Court ruled that the amount could not be considered a perquisite for taxation under the head ‘salaries.’
Conclusion:
As the landscape of taxation continues to evolve, cases like Sumit Bhattacharya serve as beacons guiding taxpayers and professionals through the intricacies of perquisites and their taxation. Staying abreast of such legal developments is crucial to navigating the ever-changing waters of income taxation with confidence and compliance.
