COMMISSIONER OF INCOME TAX, BANGALORE versus INFOSYS TECHNOLOGIES LTD.

Citation: [2008] 1 S.C.R. 136 · Decided: 04-01-2008 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Dismissed

Judgment (excerpt)

(2008) 1 S.C.R. 136 
A 
COMMISSIONER OF INCOME TAX, BANGALORE 
~-
j 
II. 
INFOSYS TECHNOLOGIES LTD. 
(C.A. No. 3725 of 2007) 
8 
JANUARY 4, 2008 
(S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.) 
Income Tax Act, 1961; S. 17(2)(iii a) as inserted .by 
amendment; Ss.20 & 192: 
c 
Perquisite value - Employees Stock Option Scheme -
Issuance of warrant convertible into equity by Employees 
Welfare Trust of a company - Non-transferable for five years 
- Liability of assessee to deduct tax on perquisite value/ 
difference between market value of share and price paid by 
D the employees - Held: Not liable - Income earned from shares 
allotted under the Scheme not taxable in terms of extant 
provisions under the Act -
Since shares allotted not 
transferable for five years, they have no realizable value -
-l~ 
Thus, there was no cash in flow to employees on account of 
E mere exercise of option for allotment of shares in lieu of warrant 
- Under the circumstances, Revenue erred in treating the 
difference between market value of share and consideration 
price of share paid by employees as perquisite value for the 
purpose of levy of tax - Since Clause (iii a) of S. 17 defining 
F cost introduced in the Act only on 1.4.2000, it is not applicable 
to assessment years 1997-98; 1998-99 and 1999-2000, the 
assessment years in question - Moreover, the cost/specified 
securities as defined under Clause (iii a) of S. 17 means the 
amount actually paid for acquiring securities - Shares in the 
G instant case could not be obtained by employees till lock-in-
period was over - Moreover, in the absence of legislative 
mandate, a potential benefit could not be considered as 
income chargeable to tax - Nence, assessee in question 
cannot be treated as defauiter for not deducting tax at source 
in the absence of clear provisions on valuation of perquisites 
H 
136 
COMMISSIONER OF INCOME TAX, BANGALORE v. 
137 
INFOSYS TECHNOLOGIES LTD. 
- Interpretation of Statutes - Legislative intendment. 
A 
~ .v 
Words and Phrases: 
'Perquisite value', 'specified securities', 'salary' and 'profits' 
- Meaning of in the context of S.17(1), (2) and Clause (iii a) of 
S.17 of the Income Tax Act, 1961. 
B 
Respondent-assessee, a public limited company, 
created a Trust known as Technologies Employees 
't· 
Welfare Trust and allotted 7,50,000 warrants@ Re. 11- each 
to the Trust for allotment to employees under the 
Employees Stock Option Scheme. Each warrant entitled c 
the Holder to get allotment of one equity share of the value 
of Rs. 10/- each for total consideration price of Rs. 100/-. 
During the assessment years 1997-98, 1998-99 and 1999-
2000, warrants were offered to the eligible employees at 
Re. 1/- each by the Trust. Under the Scheme, every warrant D 
had to be retained for a minimum period of 1 year. 
Thereafter, employee was entitled to elect and obtain 
~-
shares allotted to him on payment of the balance amount 
of Rs.99. The option could be exercised at any time after 
12 months but before expiry of the period of 5 years. E 
During the lock-in-period, the custody of shares remained 
with the Trust. The shares were non-transferable. The 
company also informed the Bombay Stock Exchange 
(BSE) that the equity shares, so allotted, were non-
transferable and would not constitute good delivery. For F 
the assessment year 1999-2000, the Assessing Officer 
~~ 
(AO) held that the total amount paid by the employees 
consequent to the exercise of option was Rs. 6.64 crores 
whereas the market value of those shares was Rs. 171 
crores. He held that the respondent-assessee was a 
defaulter for not deducting TDS in terms of S.192 of the G 
Act amounting to Rs. 49.52 crores on the perquisite value 
--f-
of Rs. 165 crores. Similar orders were also passed by the 
AO for assessment years 1997-98 and 1998-99. These 
orders were confirmed by CIT(A). Aggrieved, the assessee 
filed appeal before the Tribunal. The Tribunal held that the H 
138 
SUPREME COURT REPORTS 
[2008] 1 S.C.R. 
A right granted to the employee for participating in the 
scheme was not a "perquisite" under Section 17(2)(iii) of 
the Income Tax Act, 1961. The order was affirmed by the 
High Court. Hence the present appeals. 
The question which arose for determination in these 
B appeals was as to whether tax had to be deducted under 
Section 192 of the 1961 Act, by the respondent-assessee, 
on the amount earned by its employees from exercise of 
stock option granted to them by the company through 
the 

Excerpt shown. Read the full judgment & AI analysis in Lexace.