Summary
For stock appreciation rights redeemed in October 1997, the Supreme Court rejected the Revenue’s attempt to tax the receipt as a salary perquisite under section 17(2)(iii) or as a business benefit under section 28(iv). The specific securities mechanism introduced in section 17(2)(iiia) from 1 April 2000 was prospective, not clarificatory. CBDT Circular 710 concerned discounted shares, not these rights, and could not create a statutory charge. The holding concerns the historical provisions and transaction before the Court.
Issues
- Whether the later securities-perquisite provision applied retrospectively to the 1997 redemption.
- Whether the receipt fell under the alternative salary or business-benefit provisions invoked.
- Whether CBDT Circular 710 supplied the asserted tax liability.
Provisions considered
- Former section 17(2)(iiia), inserted by Finance Act, 1999, Income-tax Act, 1961The provision, proviso and defined computation mechanism operated from 1 April 2000. Their introduction was substantive rather than merely clarificatory and did not cover the earlier redemption. (¶¶ 12, 13, 14, 15, 18)
- Section 28(iv), in the version applied, Income-tax Act, 1961Required a benefit arising from business or profession. The employee’s receipt in this case lacked that business or professional connection. (¶ 17)
Held
- The specific provision and valuation mechanism for specified securities introduced from 1 April 2000 could not be read retrospectively without an express legislative mandate. The Court rejected substitution of section 17(2)(iii) as a basis for taxing the earlier receipt in the circumstances considered. (¶¶ 12, 13, 14, 15, 18)
- The CBDT circular addressed shares issued to employees at less than market price. Stock appreciation rights were different; the circular did not apply and could not introduce a tax charge absent from the statute. (¶ 16)
- The alternative reliance on section 28(iv) failed because the benefit did not arise from the respondent’s business or profession. The respondent acted as a salaried employee. (¶¶ 10, 17)
- The decision resolved the Revenue’s appeals concerning the asserted perquisite and business-benefit bases under the historical law. The judgment separately recorded that consequential capital-gains assessment proceedings had ended in an unchallenged Tribunal decision; it did not expressly set aside that separate order. (¶¶ 3(f), 3(g), 6, 8, 11, 19)
Result
Revenue’s appeals dismissed; parties to bear their own costs. Historical perquisite and alternative business-benefit grounds rejected for the pre-April 2000 redemption.