| The Tax Publishers2020 TaxPub(DT) 4485 (Karn-HC) : (2020) 429 ITR 0570 : (2021) 276 TAXMAN 0433 INCOME TAX ACT, 1961
Section 14
Where assessee was an independent consultant and was not an employee at relevant time and therefore, there was no relationship of employer and employee between assessee and his employer, accordingly, gains arising on cashless exercise of stock options were not taxable as income under the head 'Income from Salaries' as income was in nature of capital gains.
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Head of income - 'Income from Salaries' or 'Capital Gains' - Short-term gains arising on cashless exercise of stock options -
Assessee challenged order of Tribunal upholding the order of CIT(A), wherein it was held that gains arising on cashless exercise of stock options would be taxable as income under the heads 'Income from salaries' and 'short term Capital Gains', as against income under the head 'long-term capital gains' claimed by assessee. Held: Assessee was an independent consultant and was not an employee at relevant time. Thus, there was no relationship of employer and employee between assessee and his employer (SIRF, USA). Therefore, finding recorded by Tribunal that income from the exercise of stock option was to be treated as income from salaries was perverse as it is trite law that unless the relationship of employer and employee exists, the income cannot be treated as salary. Revenue in case of several other assessees has accepted the fact that on cashless exercise of stock option, there arises income in the nature of capital gains. It was not open for revenue to take one stand in case of assessee, and to challenge correctness of same in case of other assessee.
Followed: N.R. Ravikrishnan v. Asstt. CIT 2018 SCC ONLINE ITAT 20272 : 2018 TaxPub(DT) 7908 (Bang-Trib), Dr. Muthian Sivathanu v. ACIT [I.T.A. No. 553/CHNY/2018, dated 24-10-2018] : 2018 TaxPub(DT) 7268 (Chen-Trib), Kamlesh Bahedia v. ACIT (2014 SCC ONLINE ITAT 3857) : 2014 TaxPub(DT) 4577 (Del-Trib), Berger Paints India Ltd. v. CIT (2004) 135 TAXMAN 586 (SC) : 2004 TaxPub(DT) 1388 (SC) and CIT v. L.W. Russel 1964 TaxPub(DT) 315 (SC).
REFERRED : Addl. CIT v. Bharat V. Patel (2018) 92 Taxmann.COM 386 (SC) : 2018 TaxPub(DT) 2010 (SC), Mangalore Electric Supply Co. Limited v. CIT (1978) 113 ITR 655 (SC) : 1978 TaxPub(DT) 981 (SC), Miss Dhun Dadabhoy Kapadia v. CIT (1967) 63 ITR 651 (SC) : 1967 TaxPub(DT) 251 (SC), Sumit Bhattacharya v. Asstt. CIT (2020) 118 Taxmann.Com 371 (Bom) : 2020 TaxPub(DT) 1539 (Bom-HC), Chittaranjan A. Dasannacharya v. Asstt. CIT & (Vice-Versa) 2014 TaxPub(DT) 3208 (Bang-Trib) and Sumit Bhattacharya v. Asstt. CIT (2008) 300 ITR (AT) 34 (MUM) (SB) : 2008 TaxPub(DT) 1417 (Mum-Trib).
FAVOUR : In assessee's favour.
A.Y. : 2006-07
IN THE KARNATAKA HIGH COURT
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