The Income Tax Appellate Tribunal (ITAT), Mumbai Bench ordered the Dubai-based executive of HDFC Bank to pay tax on ESOPs in India.
The assessee, Unnikrishnan V. S. is an individual, who is an employee of HDFC Bank Limited, Mumbai, and currently on deputation to HDFC Bank Representative Office in Dubai. The status of the assessee is of the non-resident.
During the relevant financial period, the assessee exercised the options granted to the assessee by the HDFC Bank Limited, which vested on 27th June 2008 (50%) and on 27th June 2009 (50%).
Upon exercise of these options in respect of 18,500 shares. The grant price of these options was Rs 219.74 per share, whereas the market price, as on the date on exercising the option, ranged from Rs 507.40 to Rs.659. The perquisite value of these options, being the difference in the market value of the shares in relation to grant price of the shares, aggregated to Rs.72,77,320.
It was in this backdrop that the HDFC Bank Limited deducted tax at source on the said perquisite value in respect of exercise of options. However, while filing the return of income, disclosing total income of Rs 78,50,010 and claiming an income tax refund of Rs 21,46,410, on 28th August 2013, the assessee claimed a relief of Rs 20,44,855 under section 90.
When the income tax return was picked up for scrutiny and this claim was probed further, the assessee submitted that “though the income from ESOP perquisite was not taxable in India”, on account of limitations in reporting and disclosure of said income in the return of income, “the assessee had to report and disclose the said income in its form, as reflected in the return of income filed by the assessee, and seek a refund of tax deducted at source by the employer i.e. HDFC Bank”.
The bank employee also made an alternative submission, saying under the provisions of the India-UAE tax treaty, these sums could not be taxed in India.
The Coram headed by Vice President, Pramod Kumar and Saktijit Dey while rejected the contention of the HDFC Bank employee that the ESOPs related to employment in Dubai and the income (perquisite value) did not accrue or arise in India and hence was not taxable in India.
The ITAT bench held that Article 15 of the India-UAE tax treaty envisages taxation of the ESOP benefit, in the country where the related employment is carried out. Thus, even under the tax treaty, the ESOP benefits would be taxable in India as it related to services carried out in India.
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