In a major setback to the current Google Cloud India Vice President and former Microsoft employee, Mr. Anil Bhansali, the Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has dismissed an income tax appeal challenging addition under the Income Tax Act, 1961.
The case is relating to the time when assessee was employed as general manager in M/s Microsoft India (R&D) private limited. He filed the return of income for the assessment year 2008-09 on 28/02/2009 declaring a total income of Rs. 2,91,43,913/-. During the course of assessment, learned Assessing Officer noticed that the assessee had acquired 2,274 shares of M/s Microsoft Corporation in the financial year 2001-02 with a grant price of $ 5.97 and 735 shares during the financial year 2003-04 at the 0 cost under ESOP. The Assessing Officer further noticed that the assessee sold such shares during the financial year 2007-08, but failed to offer the capital gains in the assessment year 2008-09.
Before the Tribunal, the assessee contended that at the time of exercise of stock option in USA and also at the time of stock awards, the assessee paid the difference between the fair market value of the shares prevailing at the time of such exercise and paid the federal taxes thereon, and therefore, the fair market value of the shares shall be taken as the cost of acquisition.
The assessee further made an alternative contention that if for any reason the grant price was taken as cost of acquisition of shares, the assessee requested to allow the foreign tax credit of taxes paid by him in USA at the time of exercise of stock options/vesting of stock awards, as per the provisions of section 90 (2) of the Act read with Article 25(2)(a) of the DTAA.
Dismissing the above arguments, the Tribunal comprising Shri Rama Kanta Panda (Accountant Member) & Shri K. Narasimha Chary (Judicial Member) observed that in this case, according to the assessee, he paid federal taxes on the difference between the fair market value and the grant price.
“It is not his case that the employer paid the fringe benefit tax in tune with the provisions under section 115WA of the Act while taking into consideration the fair market value in accordance with 115WC(1)(ba) of the Act. This fact clearly establishes that it is a clear case of assessee paying tax treating the value of shares as perquisite, but not the employer paying the fringe benefit tax on the difference between the fair market value and the grant price. According to us, to this scenario, provisions under section 49(2AA) of the Act, but not section 49(2AB) of the Act are applicable. When section 49(2AB) of the Act has no application to the facts of the case, the argument of the learned AR basing on the applicability of Article 26 of the DTAA falls to ground,” the Tribunal said.
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