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2021 (1) TMI 558 - AT - Income TaxAccrual of income in India - Taxation of ESOP benefit - CIT-A upholding the action of AO to tax Employee Stock Option as perquisite u/s 17 - HELD THAT:- The income, even if it was inchoate at the point of time when the options were granted, has accrued and has arisen in India. The assessee is a non-resident in the current assessment year, but quite clearly, the benefit, in respect of which the income is bring sought to be taxed now, had arisen at an earlier point of time in India. Viewed thus, the income in respect of ESOP grant benefit accrued and had arisen at the point of time when the ESOP rights were granted, even though the taxability in respect of the same, on account of the specific legal provisions under section 17(2)(vi), has arisen in the present in this year. If grant of stock option is the part of remuneration, as observed in this OECD publication and rightly so, it accrues a benefit when these options are granted, and the said benefit accrues in the jurisdiction in which the qualifying services are rendered. In our humble understading, therefore, the action of the Assessing Officer in bringing the said income to tax in the hands of the assessee in the present assessment year, even though the status of the assessee in the present assessment year, was non-resident, cannot be faulted. ESOP benefit in question were only taxable in U.A.E. as the said income is protected by Article 15 of the Indo U.A.E. tax treaty and as the assessee was a resident of the U.A.E. in the relevant assessment year - Scheme of Article 15 permits taxation of ESOP benefit, which is included in the scope of the expression “other similar remuneration” appearing immediately after the words “salaries and wages”, in the jurisdiction in which the related employment is exercised. Thus, in case the assessee is to get ESOP benefits in respect of his service in U.A.E. and he exercises these options at a later point of time, say after returning to India and ceasing to be a non-resident, he will still have the treaty protection of that income under article 15(1). This principle, however, is not a one-way route. Conversely, when the assessee gets the ESOP benefit on account of rendering services in India, he cannot have the benefit of article 15 in respect of the said income. The reason is simple. Article 15(1) itself provides that “salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State” and so far as the “other similar benefits” are concerned, which include the ESOP benefits, the employment is exercised in the other contracting State, i.e., in India. As much as the nexus is required to be between salaries and wages vis-à-vis the employment, the nexus is also required between other similar benefits vis-à-vis the employments; what hold goods for the former holds good for the latter as well. In the absence of nexus of ‘other similar benefits’, as wages and salaries, received by the assessee vis-à-vis his employment in the U.A.E., the treaty protection of the said income in India cannot be available to a resident of the U.A.E. Thus as the assessee has not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as is relatable to the service rendered by the assessee in India is taxable in India - The assessee’s claim for the treaty protection is thus equally devoid of legally sustainable merits, and we reject the same. - Decided against assessee.
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