|CORAM:||B. Ramakotiah (AM), Saktijit Dey (JM)|
|SECTION(S):||5(1), 6(6)(a), 9(1)(ii), Article 16(1)|
|CATCH WORDS:||Accrual of income, ESOP, salary|
|DATE:||January 21, 2015 (Date of pronouncement)|
|DATE:||January 22, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 5(1) r.w. Art 16(1) of DTAA: Taxability of stock options allotted outside India by foreign co to NOR employee for services rendered in India considered|
When the residential status of the assessee is accepted as ‘not ordinarily resident’, income which accrues or arises to him outside India cannot and should not form part of the total income, unless the other conditions of proviso to section 5(1) are satisfied. Moreover, section 9(1)(ii) also makes it clear, income under the head “Salaries shall be deemed to accrue or arise in India if it is earned in India towards services rendered in India”. Article 16(1) of India-USA DTAA also provides that salary derived by a resident of USA in respect of an employment exercised in USA shall be taxable in USA. Learned A.R. has also referred to the commentary on OECD model tax convention relating to taxation of stock option income derived by an employee while working in two countries which provides, employment benefit attributable to the stock option should be considered to be derived from a particular country in proportion of the number of days during which employment has been exercised in that country to the total number of days during which the employment services from which the stock option is derived is exercised. In our view, all these aspects have to be examined before coming to the conclusion that the perquisite value of stock awards are taxable in India. Furthermore, assessee’s claim that stock awards amounting to Rs.44,18,625, attributable to services rendered in USA, was offered to tax in USA also needs to be looked into by examining the returns filed before the USA tax authorities, copies of which were submitted before A.O. and forms part of paper book. As it appears, neither the A.O. nor the Ld. CIT(A) have made any endeavour to examine these factual details. Only because the stock award were treated as part of salary in the TDS certificate issued in Form No.16 issued by employer, for that reason alone, it cannot be concluded that the entire stock amount is taxable in India. The information submitted by the employer under section 133(6) in letter dated 10.03.2009 also does not conclusively prove that amount received under SOTP is entirely relatable to services rendered in India. The employer has only stated that the stock awards proceeds were received by the assessee in India. Rather, in the aforesaid letter the employer has clarified that stocks were allotted to assessee when he was under employment of Microsoft Corporation, USA. Further, assessee sold the stocks to broker appointed by Microsoft, USA in the year 2003. Assessee only received the final installment of SOTP sales in financial year 2006-07. Therefore, without ascertaining how much of the SOTP is attributable to services rendered in India, the entire amount cannot be made taxable only because the money was received in India. Therefore, we are of the view that the assessee having residential status of ‘not ordinarily resident’, only that portion of the stock awards and SOTP attributable to services rendered in India can form part of total income for the impugned assessment year.