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Court dismisses IT case against Infosys
By siliconindia
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Tuesday, 08 January 2008, 20:30 IST
New Delhi: Giving a relief to Infosys Technologies, the Supreme Court has dismissed an income tax case against the IT firm regarding its alleged failure to deduct TDS on earnings of employees from an employees stock option scheme (ESOP) offer, reported The Economic Times.
"Estimation of TDS under section 192 (Income Tax Act) in the absence of clear provisions on valuation of 'perquisite' in this case would not justify the department in treating the respondent (Infosys) as assessee in default," said a bench of Justices SH Kapadia and BS Reddy.
The Bangalore based IT company had created a Technologies Employees Welfare Trust with a view to implement its ESPOs program. The company allotted about 7,50,000 warrants at Re 1 each to the trust. Each warrant entitled the holder to apply for and be allotted with one equity share of the face value of Rs 10 each for a total consideration of Rs 100.
During the assessment years 1997-98, 1998-99 and 1999-2000, warrants were offered to the eligible employees at Re 1 each by the Trust. Under the ESOP scheme, every warrant had to be retained for a minimum period of 1 year. At the end of that period, employees were entitled to obtain shares allotted to them on payment of the balance Rs 99. The option could be exercised at any time after 12 months, but before the expiry of 5 years.
The allotted shares were subject to a period during which their custody remained with the Trust. The assessing officer for the assessment year 1999-2000 held that the total amount paid by the employees consequent to the exercise of option was Rs 6.64 crore (around $1.6 million), whereas the market value of those shares was Rs 171 crore (around 43 million).
So, the department treated Rs 165 crore (around 41 million) as "perquisite value" on which TDS was charged. It was held that the assessee company was a defaulter for not deducting the TDS under section 192 of the Income Tax Act. Similar orders were also passed for assessment years of 1997-98 and 1998-99.
On the plea of Infosys, the Income Tax Appellate Tribunal ruled that the right granted to the employees for participating in the scheme was not a "perquisite" under section 17(2) (III) of the IT Act.
