Income Tax Appellate Tribunal Mumbai Sumit Bhattacharya vs Asstt. Commissioner Of Income Tax on 3 January, 2008 ORDER Pramod Kumar, Accountant Member 1 This is an appeal filed by the assessee and is directed against the order dated 15th December 2004 passed by the (sic)(A) in the matter of assessment under Section 143(3) r.w.s. 254 of the Income Tax Act, (sic) [hereinafter refered to as 'the Act'] for the assessment year 199899. The assessee has challenged the impugned order on the following grounds: GROUND I 1. The learned Commissioner of income Tax (Appeals) Mumbai XVI ["CIT(A)"] erred in treating the sum of Rs. 4,79,13,851, being the amount received on redemption of 'Stock Appreciation Rights [SARs] by the appellant during the financial year 199798 as taxable perquisites under the head 'Salaries'. 2. He further erred in holding that: i. Since the SARs were granted to the appellant by Procter & Gamble Inc USA ("parent company grantor of SARs") on behalf of and by virtue of his being incumbent of Procter & Gamble India ("employer"), the same were taxable as perquisites, even though there was no employeremployee relationship between the appellant and the grantor of the SARs. ii. The grant of SARs and its redemption is clearly linked with the appellant and arise because of his employment and to keep him employed with the Procter & Gamble group. iii. The payment received by the appellant is intimately connected with his being in employment with Procter & Gamble group. iv. Instead of paying profit in lieu of salary, Procter & Gamble has chosen to compensate the appellant through the arrangement of SARs, and this is just a mode of computation of profits to be paid to the appellant. v. Actual benefit to the appellant arises on the redemption of, and not on the grant of, the SARs. 3. He failed to appreciate that, if at all amount could be taxed, the same could have been done at the time of grant of SARs. 4. The appellant prays that the action of the CIT(A) of taxing the amount received on redemption of SARs, as income from salary, be deleted. GROUND II 1. The learned CIT(A) erred in rejecting the submission of the appellant that SARs were in the nature of a capital asset, and since the same were acquired without a cost, no capital gains would arise on transfer of the same. 2. He further erred in: i. Not following the order of the Hon'ble ITAT, Ahmedabad bench, on the same issue, in the case of another executive of the same company. ii. Holding that decision of the Hon'ble ITAT, Bangalore bench, in the case of Infosys Technologies and PSI Data Systems were not applicable to the appellant's case. iii. Not granting exemption from capital gains under Section S4 EA of the Act. 3. The appellant prays that the SARs be considered as a capital receipt not chargeable to tax. GROUND III 1. The CIT(A) erred in confirming the levy of interest under Section 234 B of the Act. 2. The appellant prays that interest under Section 234 B be deleted. GROUND IV The appellant craves leave to add, alter and/ or amend all or any of the grounds of appeal. 2. When this appeal originally came up for hearing before a Division Bench, the issue in appeal was claimed to be covered by the order dated 27th June 2003 passed by a co ordinate bench of this Tribunal in the case of Bharat V Pate! v. Additional Commissioner of Income Tax (ITA No. 2241/Ahd/2002: assessment year 199899). The Division Bench noticed that in the said decision, the co ordinate bench, in turn, had relied upon a decision of Bangalore bench in the case of Infosys Technologies Limited v. DCIT 78 ITJ 598 but then, in the case of this very assessee and in the first round of proceedings, another co ordinate bench had observed that "the decision of ITAT Bangalore bench in the case of Infosys Technologies Limited v. DCIT 78 TTJ 598 is not applicable to the facts of this case". It was also noticed by the Division Bench that in Bharat V Patel's case (supra), the co ordinate bench has proceeded on admittedly erroneous presumption that, in the case of the stock appreciation rights also, the assessee has an obligation to pay for the amount at which stock appreciation right grant is given. It was in this backdrop, and having noted that the CIT (A), in the impugned order, has also referred to these inconsistencies, the Division Bench recommended constitution of a larger bench, of three or more members, to decide the following question: Whether or not the amount received by the assessee employee on redemption of stock appreciation rights constitutes income liable to tax in his hands, irrespective of the fact that no shares or stock are actually allotted to him and that the assessee does not have any rights to receive such shares and stock? 3. The recommendation so made by the Division Bench was accepted by the Hon'ble President, and, that is how this Special Bench, constituted by the Hon'ble President under Section 255(3)