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2024 (6) TMI 78 - HC - Income TaxSalary Perquisite u/s 17(2)(vi) - one-time payment made on behalf of FPS formed a part of salary - as per revenue payment received was linked to ESOPs as a form of compensation for diminution of the fair market value of stock - HELD THAT - A literal understanding of the provision would provide that the value of specified securities or sweat equity shares is dependent upon the exercise of option by the petitioner. Therefore for an income to be included in the inclusive definition of perquisite it is essential that it is generated from the exercise of options by the employee. The facts of the present case suggest that the petitioner has not exercised his options under the FSOP till date. The stock options were merely held by the petitioner and the same have not been exercised till date and thus they do not constitute income chargeable to tax in the hands of the petitioner as none of the contingencies specified in Section 17 (2) (vi) of the Act have occurred. The compensation was a voluntary payment and not transfer by way of any obligation. Notably the present is not a case where the option holder has exercised his right. Rather the facts suggest that the petitioner has not exercised his options under the FSOP till date. As due to the disinvestment of the PhonePe business from FPS the Board of Directors of FPS had decided to provide a one-time voluntary payment to all the option holders pursuant to FSOP. It is imperative to point out that the management proceeded by noting that there was no legal or contractual right under FSOP to provide compensation for loss in current value or any potential losses on account of future accretion to the ESOP holders. As elementary to highlight that the payment in question was not linked to the employment or business of the petitioner rather it was a one-time voluntary payment to all the option holders of FSOP pursuant to the disinvestment of PhonePe business from FPS. In the present case even though the right to exercise an option was available to the petitioner the amount received by him did not arise out of any transfer of stock options by the employer. Rather it was a one-time voluntary payment not arising out of any statutory or contractual obligation. Thus the reasoning appended to the impugned order holding that the amount in question tantamount to perquisite u/s 17 (2) (vi) of the Act cannot be countenanced in law as the stock options were not exercised by the petitioner and the amount in question was one-time voluntary payment made by FPS to all option holders in lieu of disinvestment of PhonePe business. We set aside the impugned order - We however note that since the transaction already took place on 31.07.2023 we accordingly accord liberty to the petitioner to file an application for refund of TDS amount before the Revenue. It is further directed to the Revenue to consider the application of the petitioner in view of the observations made hereinabove and as per extant regulations.
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