Facts of the case:
Residential status: On a worksheet submitted by the assessee along with Form-16, the assessee claimed that he comes under the NOR (Not Ordinarily Resident) category for the assessment year 2010-11 based on particulars of the days, in which he stayed in India from 1-4-2002 to 31-3-2009, i.e., for 401 days only which was well within 732 days required for a regular resident.
He was given 5500 stock options, when he joined Google Inc, California, USA, in June 2005. Thereafter, in the year 2008, he left the USA and relocated to India and further joined Google India Private Limited, an Indian company fully owned by the parent company Google Inc. USA.
Accrue and arise of income outside India: During the assessment year 2010-11 under consideration, he sold 900 stock options, and still, he owns 2100 stock options. Hence, the entire 900 options sold in the assessment year 2010-11, clearly came out of the lot of 4583 options that had already vested before his move to India, and transactions were initiated and executed through Smith Barney Inc., based in the USA and the proceeds were wired directly to his old account in the USA bank.
Thus, the amount of Rs. 1,19,49,709/- under “stock options” mentioned in Form-16 pertains to the sale of stock options that were granted in the USA while he was working in Google Inc., USA and vested while he was living in the USA. The same was sold through a US-based company and the cash proceedings were directly sent to his old account in the USA bank.
Analysis of the above facts:
As per Section 5(1) of the Income-tax Act, the assessee comes under the category of NOR assessee and is liable to pay tax only on income earned in India.
Section 5(1) excludes “income which accrues or arises outside India” in the case of Not Ordinarily Resident assessee.
Assessee, in the above case, is a “non-resident”. The word “non-resident” is defined in Section 115C(e) of the Act. It means an individual, being a citizen of India or a person of Indian Origin who is not a “resident”.
Further, the employee acquired asset viz., ‘stock’ from the employer’s stock option scheme, when he was serving abroad in a parent company prior to the assessment year 2010-11 when he was non-resident.
Without considering this fact his employer erroneously treated the sale proceeds of stock options as ‘perquisites’ and included that as income in Form-16.
Whether it is correct to say that based on computation made in form 16 the claim of an employee shall be rejected and income so earned on the sale of stock options shall be treated as income of the employee for AY 2010-11?
It is not correct to say that particulars of income shall be added to the assessment of the employee because the employer has deducted TDS on the same. The NOR status & the purchase of stock option of the assessee is a mixed question of fact & law and because of this fact also, the fact that the employer could not go into the exact residential status of its employee, which involves complicated questions of law viz., interpretation of Section 6(6) (a) and 5(1) (c) of Income-tax Act, as a measure of caution, erroneously deducted income tax for the said exempt income of Rs.1,19,49,709/-. Thus, the same can not be the only ground to add the income in the assessment made by AO.