Please find attached our Newsflash on the Bangalore ITAT’s ruling in Pramod Kumar Jain v. DCIT. The case concerned an employee who received approximately Rs. 2.34 crore when an overseas group company repurchased his vested but unexercised stock options. The Tribunal held that, since the options had not been exercised and no shares had been allotted, the receipt was taxable as a long-term capital gain on the facts of the case, rather than as a salary perquisite.
The key highlights of the ruling are:
• No perquisite arose under section 17(2)(vi): Without exercise of the options and allotment or transfer of the underlying shares, the prescribed perquisite value could not be computed.
• The options were a capital asset: The vested options represented a right to subscribe to shares, and their repurchase amounted to a transfer of that right.
• Form 16 and TDS were not conclusive: Classification of the receipt as a perquisite in Form 16 and deduction of tax under section 192 did not determine its treatment under the Act.
• An actual repurchase was material: The Tribunal distinguished the transfer of options in this case from a payment received while the employee continued to hold the options.
The ruling is relevant to employees and employers evaluating the tax and TDS treatment of stock option repurchases. However, the application of the rationale to other cases will depend on the terms of the option plan and the nature of the payment, particularly whether the options are transferred or retained.
We hope you find the Newsflash insightful.
Click here to download - RSM India Newsflash - Bangalore Tribunal clarifies tax treatment of unexercised stock options repurchase - Taxable as capital gains; not salary
