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2016 (5) TMI 819 - ITAT CHENNAI

2016 (5) TMI 819 - ITAT CHENNAI - TMI - TDS on Stock Appreciation Rights as a perquisite in the hands of the assessees - India - USA DTAA - whether the Stock Appreciation Rights availed by the assessees suffered tax twice, once in USA and again in India? - Held that:- The incentive was given to the assessees as a compensation for the services rendered to M/s Cognizant Technologies India Pvt. Ltd. It was not given for transfer of capital asset or termination of any source of income. Therefore, th .....

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n, a Delaware Corporation, USA. Since the right to receive the appreciation value alone was conferred on the assessees and not right on the stock itself, this Tribunal is of the considered opinion that what was received by the assessees is not capital asset. Hence, the same is liable for taxation as revenue receipt.

There is no material available on record to suggest that the value of Stock Appreciation Rights was suffered tax in USA. The assessees have not produced the certificate be .....

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efore, while confirming that the value of Stock Appreciation Rights received by the assessees is liable for taxation, the matter is remitted back to the file of the Assessing Officer for limited purpose of examining whether the assessee has paid tax in USA on the value of the very same Stock Appreciation Rights in the light of the Double Taxation Avoidance Agreement between Government of India and Government of USA.

The benefit was conferred on the assessees in the form of Stock Appre .....

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cy, the same is liable for taxation in India. - Decided partly in favour of assessee for statistical purposes. - ITA No. 390/Mds/2016, ITA Nos. 335 & 209/Mds/2016 - Dated:- 5-5-2016 - Shri N. R. S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Appellants : Sh. N.V. Balaji, Advocate For the Respondent : Sh. P. Radhakrishnan, JCIT ORDER Per N. R. S. Ganesan, Judicial Member These appeals filed by two different assessees are directed against the respective orders .....

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s Cognizant Technologies India Pvt. Ltd. During the years under consideration, M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA, the parent company of the assessees, promoted an incentive plan for the employees of M/s Cognizant Technologies India Pvt. Ltd. known as 1999 Incentive Compensation Plan . As per this Plan promoted by the parent company, namely, M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA, option was given to the employees of M .....

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fered any security or sweat equity shares. What was given to the assessees is a right for appreciating the value of certain specified number of securities. During the year under consideration, M/s Cognizant Technologies India Pvt. Ltd. deducted tax by treating the Stock Appreciation Rights as a perquisite in the hands of the assessees. Stock Appreciation Rights was also subjected to tax in USA since the parent company, namely, M/s Cognizant Technology Solutions Corporation, a Delaware Corporatio .....

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es, the Stock Appreciation Rights cannot be construed as perquisite in the hands of the assessees. According to the Ld. counsel, Stock Appreciation Rights was granted to the assessees under 1999 Incentive Compensation Plan during the years 2000 and 2002. According to the Ld. counsel, Stock Appreciation Rights was given to the assessees for the service rendered to M/s Cognizant Technologies India Pvt. Ltd. in India during the vesting period. When the right was vested on the assessees, the assesse .....

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loyee relationship between M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA and the assessees. Therefore, whatever amount received by the assessees from M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA by way of Stock Appreciation Rights is not taxable in India either as salary or as perquisite. The Ld.counsel further submitted that the amount realized on Stock Appreciation Rights was subjected to tax in USA, therefore, taxing the same amount .....

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nt price of the shares was taxable as perquisite in the hands of the recipient employees. According to the Ld. D.R., what was paid to the assessees was in lieu of salary, therefore, it is a perquisite in the hands of the assessees. Referring to Section 17(2) of the Income-tax Act, 1961 (in short 'the Act'), the Ld. D.R. submitted that the value of any specified security or sweat equity shares allotted or transferred directly or indirectly by the employer at free of cost or at concessiona .....

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s of the recipient employees. In this case, the assessees were employees of Indian company, which is subsidiary of M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA. The assessees, being employees of the subsidiary company to the parent company, namely, M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA, were allotted Stock Appreciation Rights. Therefore, according to the Ld. D.R., the benefit was conferred on the assessees being employees of In .....

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rtificate from tax authorities of USA for payment of tax in respect of Stock Appreciation Rights which was subject matter of taxation in these appeals. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer. 7. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessees are employees of M/s Cognizant Technologies India Pvt. Ltd., which is a subsidiary comp .....

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ercised over the fair market value of the common stock or other specified valuation. The eligibility condition for participation in the scheme is that the recipients should be employees of the company or non-employee directors and independent contractors. The assessees now claim that they are employees of M/s Cognizant Technologies India Pvt. Ltd. and not of M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA. Therefore, the value of the Stock Appreciation Rights cannot b .....

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ed with M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA. The option was given to the employees who are in association or connected with USA company, either directly or indirectly, so as to motivate the employees to perform their best in their work. Therefore, directly the M/s Cognizant Technologies India Pvt. Ltd. would be benefited and indirectly M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA is also benefited. Therefore, the contention o .....

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ary for the service rendered to M/s Cognizant Technologies India Pvt. Ltd. Therefore, this Tribunal is of the considered opinion that what was received by the assessee is a perquisite in the hands of the assessee-company or benefit in lieu of salary for the services rendered. Hence, the same has to be construed as income in the hands of the assessees. 8. As for the contention of the Ld.counsel for the assessees that what was given to the assessees in the form of Stock Appreciation Rights is a ca .....

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cannot be construed as capital asset. What was conferred on the assessees is only valuation of appreciation for a specified number of stocks. The stock itself was not conferred on the assessees. The stock was retained in the common kit and the appreciation value was given to the assessees. This was given because the assessees were employees of subsidiary company of M/s Cognizant Technology Solutions Corporation, a Delaware Corporation, USA. Since the right to receive the appreciation value alon .....

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essees in the form of Stock Appreciation Rights for the services rendered to the subsidiary company, M/s Cognizant Technologies India Pvt. Ltd. Therefore, merely because the assessees were nonresidents and rendered service outside India during the vesting period that cannot be a reason for claiming that the same was not taxable in India. Admittedly, when the assessees exercised option for Stock Appreciation Rights, they were residents in India. Therefore, when the Stock Appreciation Rights was v .....

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