TMI Blog2002 (7) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... dof information technology and other areas. A perusal of the annualTDS return for the assessment years under appeal, showed that theappellant had not deducted tax on the stocks issued to the employees.The appellant had formulated a scheme of employees stock option plan(ES0P) through which the employees of WL are offered the shares ofthe company. The appellant created a trust called Wipro Equity RewardTrust (WERT) on 9th Nov., 1984, with the primary objective ofproviding convenient method for conferring benefits on variousqualifying employees of Wipro Products Ltd. (since renamed as WiproLtd.) and its affiliates by way of receiving shares in WL and itsaffiliates for providing better motivation to such employees. WERTsubscribed to the shares of WL. Subsequently, many bonus shares weregiven to WERT. 3.2 The trust formulated rule for achieving the objective of thetrust. As per the rule, WL or any other person or persons appointedby WL from time to time, notify the names of the beneficiaries whoare entitled to receive the shares of WL or its affiliates. Thenotification contains directions on the number of such shares to bereceived by such beneficiary (employee) and intervals at which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(1A). The number of shares received by thebeneficiaries of the WERT year-wise for various years, the liabilityfor TDS and interest are given hereunder : ‖Asst yr. No. of shares Perquisite value as determined by tthe AO Tax under s. 201(1) Interest under s. 201(1 A) 1997-98 4,100 15,94,900 6,37,960 3,33,303 1998-99 3,625 21,96,750 6,59,025 2,20,765 1999-00 1,11,775 20,10,83,225 6,03,24,967 96,51,984 5.1 It is argued by the learned authorised representative Mr.Pradeep that the authorities below erred in imposing the liabilitymentioned above on the assessee even though there is noemployer-employee relationship between WERT (transferor) and thebeneficiaries (transferees), therefore, there was no perquisite onthe award of shares. It is not correct to state that the award ofshares to the employees as beneficiaries under WERT results in aperquisite as per cl. (lit) of s. 17(2) of the Act. The AO shouldhave realized that s, 17(2)(iii) covers only situations where theemployer grants any benefit or amenity to the employees and it doesnot cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s settled by WL as an irrevocable trust. (b) WERT is being assessed to tax in its status as an employeeswelfare trust and has paid tax on the dividend income, capital gainsand income from other sources. The appellant has filed intimationunder s. 143(l)(a) for two years. (c) WERT is an employee welfare trust created by WL for thebenefit of its employees. Conferring benefits through a trust isrecognised by cl. (iv) of the proviso under s. 164{1) of the Act. (d) WERT originally acquired the shares in WL through subscriptionat a time when the allotment price and market price was similar. Thepurchase consideration was duly paid to Wipro Ltd. WERT also receivedbonus shares from Wipro Ltd. which lead to the swelling of the numberof shares. Under the circumstances, when the shares are received bythe beneficiaries from WERT pursuant to the trust deed it cannot beconstrued that Wipro Ltd. is passing on perquisites through WERT tothe employees. WERT received no benefit from Wipro Ltd. (e) The appellant invited attention to the Companies Act, 1956, asper which it is mandated that a company cannot buy back its ownshares and no new share shall be allotted to any person other thanexisting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no employer andemployee relationship between the transferor and transferee as is thecase when shares are received by a beneficiary from WERT, noperquisite arises. Assuming that perquisite is required to bedetermined the AO erred in arriving at the value of the perquisitearising on account of shares being awarded by WERT. He adopted thequoted value of shares on a recognized stock exchange on the date ofthe grant of the award as the basis for arriving at the market(sic-value of) perquisite. The quoted price on a recognized stockexchange represents the price when a holder of shares is in aposition to sell the shares, free from encumbrances, as per the stockexchange regulations. The shares should be delivered to the exchangewithin 2 or 3 days after the weekly settlements. 5.7 The employees receiving shares from WERT are prohibited fromselling the shares during the period of lock-in covered by theundertaking executed by them. To ensure that no sale is made, theshares are held jointly in the names of the employees and WERT duringthe said period. Thus, the employees who receive the benefit of theWERT cannot legally transfer nor deliver the shares in order toreceive the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isrequested in appeal that directions should be given to value theshares having regard to the restrictions attached to the shares. Andthus prayed that the order of the AO is cancelled and liability forTDS and interest is deleted. 6. A reference was made to CBDT Circular No. 710, according towhich if the shares are allotted to the employees at concessionalrate the same was opined to be a taxable perquisite. At thisjuncture, we will only observe that CBDT circular is binding on theofficers working under it and not on the assessee but for thestatutory provision in the Act. Every year CBDT is issuing a circularafter the enactment of the Finance Act as to the liability of theemployer to deduct tax. In none of the circulars prior to insertionof s. 17(2)(iiia) any liability for deducting tax on perquisite inthe form of ESOP benefit is prescribed. The assessee, therefore,cannot be expected to interpret various complex provisions of theAct, other enactments, or the circulars, in preference to a specificcircular issued by the CBDT, explaining the scope of liability todeduct tax from the payment to the employees. In such a situation, anassessee can be said to have bona fide belief for non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust is only a conduit to achieve larger object of conferringbenefits on the employees. 7.3 In reply, the learned authorised representative submitted thatthe English case laws should not be relied upon without firstestablishing that the legal provisions under both UK and Indianenactments are pan materia. As per s. 161, once the representativeassessee, i.e., the trust is taxed, there cannot be tax on the sameincome in the hands of the beneficiaries. Award of shares by thetrust amounts to distribution of assets/income by the trust in favourof the beneficiaries, such a distribution is not a taxable eventunder the IT Act, as the beneficiaries had a pre-existing beneficialinterest in the assets of the trust and mere determination ofinterest does not give rise to any taxable event. It was furthersubmitted that WERT is a private discretionary trust and has beentaxed already at the applicable rate as prescribed under s. 164. Thetrust has already paid taxes running to several crores for variousyears and the assessment in the hands of the trust has beencompleted. In spite of this, if it is held that the trust as aconduit then, the taxes paid in the hands of the trust should befirst r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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