The assessee in the assessment exercised his right under the stock option plan by way of cashless exercise and received a net consideration of US $ 283,606 and offered the gains as a long term capital gains as the stock options were held nearly for ten years. The AO assessed the gain as salary which was confirmed by the CIT (A) and Tribunal. On appeal the High Court held that, there was no relationship of employer and employee between the U. S. company and the assessee. The assessee never received the shares in the stock options. At the time of grant of options to the assessee in the year 1996, section 17(2)(iia) of the Act was not there in the statute. The difference between the option/exercise price of the stock option and the fair market value of the shares on the date of exercise of the stock option was assessable as capital gains. Court also held that   the Revenue in case of the several other assessee’s had accepted the facts that on cashless exercise of option, there arises income in the nature of capital gains. However, in the case of the assessee the aforesaid stand was not taken. The Revenue could not be permitted to take a different view. (AY.2006-07)