Bangalore ITAT: Buyback of Unexercised ESOPs Taxable as Capital Gains, Not Salary Perquisite

Pramod Kumar Jain Vs DCIT (ITAT Bangalore)

Bangalore ITAT: Buyback of Unexercised ESOPs Taxable as Capital Gains, Not Salary Perquisite

The Bangalore ITAT held that the consideration received by an employee on the repurchase of vested but unexercised stock options (ESOPs) is taxable as capital gains and not as a salary perquisite under section 17(2)(vi). The Tribunal observed that section 17(2)(vi) is attracted only when the employee exercises the option and the underlying shares are allotted or transferred. Since the assessee’s stock options were never exercised and no shares were allotted, no “specified security” came into existence and, therefore, the provisions relating to perquisites were inapplicable.

The Tribunal further held that a vested stock option is a capital asset, being a right to subscribe to shares in the future. The repurchase of such vested options by the issuing company amounted to a transfer of a capital asset within the meaning of section 2(47), and the resultant gain was rightly offered by the assessee as long-term capital gains. The Tribunal relied on the decisions of the Karnataka High Court in Chittharanjan A. Dasannacharya and the Supreme Court in Dhun Dadabhoy Kapadia while distinguishing the Madras High Court ruling in Nishithkumar Mukeshkumar Mehta on facts.

The Tribunal also clarified that the tax treatment mentioned in the repurchase offer document and the deduction of tax under section 192 reflected in Form 16 are not conclusive of the correct head of income. Tax liability must be determined strictly in accordance with the provisions of the Income-tax Act. Accordingly, the addition made by treating the receipt as salary was deleted and the assessee’s appeal was allowed.

Cases Discussed

• Nishithkumar Mukeshkumar Mehta vs. DCIT, TDS (Madras HC), [2024] 165 taxmann.com 386 (Madras)
• Akash Poddar vs. ACIT (Delhi HC), (2024) 165 taxmann.com 271 (Delhi)
• Sanjay Baweja vs. DCIT (Delhi HC), (2024) 163 taxmann.com 116 (Delhi)
• Chittharanjan A. Dasannacharya vs. CIT, Bangalore (Karnataka HC), [2020] 429 ITR 570 (Karn.)
• CIT vs. B.C. Srinivasa Setty (SC), [1981] 128 ITR 294 (SC)
• Miss Dhun Dadabhoy Kapadia v. CIT (SC), [1967] 63 ITR 651 (SC)

FULL TEXT OF THE ORDER OF ITAT BANGALORE

The assessee has filed the present appeal against the impugned order dated 15.12.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2020-21.

2. In this appeal, the assessee has raised the following grounds: –

“1. That in the facts and circumstances of the case in law, the Ld. CIT(A) erred in sustaining the addition of Rs. 2,43,54,073/- made by the Ld. AO on account of sum received by the Appellant upon repurchase of stock options by Flipkart Pvt. Ltd. as perquisites, taxable under Section 17(2)(vi) of the Act?

2. That the Ld. CIT(A) erred in upholding the tax demand by considering the sum received as perquisites despite the absence of jurisdictional conditions specified in Section 17(2)(vi) of the Act?

3. That the Ld. CIT(A) failed to appreciate that the stock options held by the Appellant were in the nature of ‘capital asset’ and the amount received on account of repurchase of those stock options is liable to be taxed as Long Term Capital Gain (“LTCG”) and cannot be taxed as perquisites by merely relying upon Form 16?

4. That the Ld. CIT(A) failed to appreciate that the deduction of tax under Section 192 of the Act by Flipkart Pvt. Ltd. does not bind the Appellant from re-classifying the amount under the appropriate head of income?

5. That in the facts and circumstances of the case and law, the Ld. CIT(A) erred in holding that the interest is mandatory leviable under Section 234B of the Act?

6. That in the facts and circumstances of the case and law, the Ld. CIT(A) erred in holding that the reassessment proceedings were valid?

7. That in the facts and circumstances of the case and law, penalty is not leviable in the present case?”

3. Grounds no.1-4, raised in assessee’s appeal, pertain to the appropriate head of income under which the amount received by the assessee upon repurchase of vested stock options is taxable.

4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and is an employee of Flipkart Internet Private Ltd. (“FIPL”), which is a company incorporated in India. FIPL is a wholly owned subsidiary of Flipkart Market Place Private Ltd., which is incorporated in Singapore. Further, Flipkart Market Place Private Ltd. is a wholly owned subsidiary of Flipkart Private Limited, Singapore (“FKS”).

During the course of employment with FIPL, the assessee was granted certain stock options under the Flipkart Stock Option Scheme, 2012, by FKS. During the year under consideration, out of the total stock options, i.e. 40536, granted to the assessee, 2653 stock options were repurchased by FKS against payment of a consideration of Rs. 2,33,80,616/- to the assessee. While filing his return of income for the year under consideration, the assessee declared a gross salary of Rs. 1,90,27,343/- and long-term capital gains of Rs. 2,43,54,073/-. Since the consideration received by the assessee from FKS was declared under the head “Capital Gains” instead of “Salaries”, on the basis of the information received under e-Verification Scheme, 2021, which suggested that income of Rs. 2,33,80,616/- is offered to tax at a lesser rate, i.e. 20%, instead of 30%, being the highest slab rate under which the assessee is taxable, proceedings under section 148A of the Act were initiated and thereafter notice under section 148 of the Act was issued to the assessee on 30.03.2024. In response to the said notice, the assessee filed his return of income on 19.04.2024. After considering the submissions of the assessee in response to the notices issued under section 143(2) and section 142(1) of the Act, the Assessing Officer (“AO”), vide order dated 03.03.2025 passed under section 147 r.w.s. Section 144B of the Act noted that, as per Form-16, the amount received by the assessee on the repurchase of the stock option by FKS has been mentioned as perquisite under section 17(2) of the Act under the head “Salaries” and the TDS has also been deducted by the employer. The AO further noted that in the letter of offer for repurchase of vested options, it is clearly mentioned that repurchase of stock options would be taxable under the head “Income from Salaries”, and the same will be reflected in Form-16. Accordingly, the AO held that perquisites of Rs. 2,33,80,616/- on account of repurchase of stock options are covered under the provisions of section 17(2) of the Act, and thus are to be treated as salary income and cannot be treated as long-term capital gains. The AO also rejected the reliance placed by the assessee on the decision of the Hon’ble Delhi High Court in Sanjay Baweja vs. DCIT, reported in (2024) 163 taxmann.com 116 (Delhi) and Akash Poddar vs. ACIT, reported in (2024) 165 taxmann.com 271 (Delhi), on the basis that the facts of these cases are different from the case of the assessee.

5. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that the stock options were received by the assessee as part of the employment of FIPL and the consideration received is on account of the same stock options. Thus, the learned CIT(A) held that the assessee’s contention that no employer-employee relationship exists is misleading and factually incorrect. Further, by referring to the provisions of section 17(2)(vi) of the Act, the learned CIT(A) held that the stock options fall within the purview of specified securities allotted to the assessee, and therefore, the consideration received by the assessee is in the nature of a perquisite taxable under the head “Salaries”. Accordingly, the learned CIT(A) upheld the AO’s findings. Being aggrieved, the assessee is in appeal before us.

6. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the stock options granted to the assessee have admittedly never been exercised to date, and thus, no shares have been allotted to the assessee by FKS. The learned AR submitted that unless the stock options are exercised and shares are allotted to the assessee, the provisions of section 17(2)(vi) relating to “perquisite” are not attracted to the present case. As regards the tax treatment mentioned in the Letter of Offer for the Repurchase of Vested Options, the learned AR submitted that it is merely an indicative summary and does not bind the assessee or determine the nature of the receipt. It was also submitted that in the present case, consideration received upon repurchase of stock options was received from FKS, with whom the assessee does not have any employer-employee relationship. Thus, the question of taxability of the receipt under the head “Salaries” does not arise. As regards the taxability of the receipt under the head “Capital Gains”, the learned AR submitted that the stock options granted to the assessee grant a right to the assessee to subscribe at a future date underlying shares, which is a capital asset in terms of the provisions of section 2(14) of the Act. Thus, it was submitted that the consideration received by the assessee from the repurchase of the stock options is only taxable under the head “Capital Gains”. The learned AR, placing reliance on the decision of the Hon’ble Delhi High Court in Sanjay Baweja (supra), submitted that this issue has already been settled in favour of the assessee. The learned AR further submitted that, since the consideration received by the assessee from the repurchase of vested stock options has been correctly offered to tax under the head “Capital Gains”, no income has escaped assessment. Accordingly, the proceedings initiated under section 147 of the Act are bad in law.

7. On the other hand, the learned Department Representative (“learned DR”) submitted that the stock options were granted to the assessee under the Flipkart Stock Option Scheme, 2012, which was applicable to the entire Flipkart group and since the assessee was an employee of an Indian subsidiary, the assessee was also entitled to receive the stock options, and accordingly, was granted the same by FKS. The learned DR submitted that, therefore, the contention of the assessee that there was no employer-employee relationship between the payer and the assessee was rightly rejected by the lower authorities. Further, by referring to Form-16, the learned DR submitted that the amount was subject to TDS under section 192 of the Act, and the Letter of Offer for the Repurchase of Vested Options also clearly indicates that the consideration for the repurchase shall be taxable under the head “Income from Salary”. As regards the taxability under the head “Capital Gains”, the learned DR submitted that unless the conditions for taxability under the head “Capital Gains” are satisfied, the claim of the assessee that the receipt is not taxable under the head “Salaries” cannot be accepted.

8. We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee is an employee of FIPL, one of Flipkart’s group entities in India. Further, FIPL is a step-down subsidiary of FKS, a company incorporated in Singapore. In the year 2012, FKS introduced the Flipkart Stock Option Plan, 2012 (“FSOP 2012”), with an objective to advance the interest of the stakeholders of the Group by enhancing the Group’s ability to attract, retain and motivate persons who are expected to make important contributions to the Group and providing such persons with equity ownership opportunities and performance-based incentives that are intended to align their interests with those of Group’s stakeholders. From the perusal of the Flipkart Stock Option Scheme, 2012, forming part of the paper book from pages 91-113, under which FSOP 2012 was introduced, it is evident that all the Group’s employees or any other person as approved by the Board were eligible for being considered for the grant of stock options under the FSOP 2012. Accordingly, during the course of his employment with FIPL, the assessee was granted stock options under the FSOP 2012 by FKS. The details of stock options granted to the assessee are as follows: –

9. On 18.08.2019 and 18.09.2019, FKS offered repurchase of vested options. Pursuant thereto, during the year under consideration, out of the total stock options granted to the assessee, 2653 stock options were repurchased by FKS against the payment of Rs.2,33,80,616/-. There is no dispute regarding the aforementioned facts of the present case. It is also an undisputed fact that the stock options granted to the assessee were never exercised, and the consideration was paid by FKS only against the repurchase of vested stock options.

10. As the assessee, in his return of income, considering the stock options as capital asset offered the gains arising from repurchase of vested stock options as long term capital gains instead of salary income, the AO initiated proceedings under section 147 of the Act, on the basis that the income arising from repurchase of vested options was offered to tax at a lesser rate of 20% instead of the higher slab rate under which the assessee is taxable. Thus, as per the Revenue, since the stock options were granted to the assessee pursuant to his employment with one of the group entities of Flipkart, the consideration received by the assessee from FKS upon repurchase of the vested options can only be taxed under the head “Salaries”. In support of its conclusion, the AO not only placed reliance upon Form-16 issued by the employer of the assessee, where under the amount received from FKS upon repurchase of the vested options was mentioned as perquisite under section 17(2) of the Act and the tax was deducted, but also relied upon the Letters of Offer for Repurchase of Vested Options dated 18.08.2019 and 18.09.2019. As per the Revenue, in the aforesaid letters dated 18.08.2019 and 18.09.2019, it is clearly mentioned that the repurchase of vested options would be taxable under the head “Income from Salaries”. Thus, as per the Revenue, the consideration received by the assessee upon repurchase of the vested options is taxable as perquisite under section 17(2) of the Act.

11. On the contrary, as per the assessee, the stock options granted to the assessee under FSOP 2012 were never exercised, and no shares were ever allotted to the assessee under the Flipkart Stock Option Scheme, 2012. Further, as per the assessee, the shares of FKS are also not listed on any recognised stock exchange. Thus, as per the assessee, unless the stock options are exercised and shares are allotted to the assessee, the provisions of section 17(2) of the Act relating to perquisites are not applicable. It is the plea of the assessee that since the stock options vested in the assessee were not exercised, the right to subscribe to the underlying shares remained a “capital asset” in the hands of the assessee, which was sold to FKS during the year under consideration, and thus, the gains arising from the transfer thereof were offered to tax under the head “Capital Gains”.

12. Before proceeding further, it is relevant to understand the various stages from vesting of stock options to the allotment of shares, which are as follows: –

(i) Issuance of stock options

(ii) Vesting of stock options

(iii) Exercise of stock options

(iv) Issuance of shares

(v) Sale of shares

13. From the material placed on record, it is evident that pursuant to the FSOP 2012 under the Flipkart Stock Option Scheme, 2012, FKS issued stock options to the assessee, which were vested in the assessee as per the vesting schedule provided in the aforementioned scheme. Further, as per the Flipkart Stock Option Scheme, 2012, pursuant to the vesting of stock options, the option holder has a right, but not an obligation, to purchase or subscribe at a future date to the shares underlying the options at a predetermined price. However, since the shares of FKS were not listed on any recognised stock exchange, the assessee could never exercise the stock options vested in him. Therefore, in the present case, it is ostensible that only the first two stages could be completed in the entire process mentioned above.

14. Since the entire dispute is confined to the head of income under which the consideration received by the assessee from FKS is taxable, it is pertinent to note the relevant provisions of the Act. Section 15 of the Act deals with the taxability of the income received by the employee from their employer under the head “Salaries”. Section 16 of the Act deals with permissible deductions while computing the income chargeable under the head “Salaries”. Section 17 of the Act defines the terms “salary”, “perquisite” and “profits in lieu of salary”. Section 17(2) of the Act consists of a list of benefits or advantages, which are incidental to the employment and received in excess of salary and taxable as perquisites under the head “Salaries”. Section 17(2)(vi) of the Act under which the consideration received by the assessee from FKS on account of repurchase of vested options was held to be taxable by the AO, read as follows: –

“(vi) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.

Explanation.—For the purposes of this sub-clause,—

(a) “specified security” means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees’ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme;

(b) “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called;

(c) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares;

(d) “fair market value” means the value determined in accordance with the method as may be prescribed;

(e) “option” means a right but not an obligation granted to an employee to apply for the specified security or sweat equity shares at a predetermined price;”

15. From the plain reading of the provisions of section 17(2)(vi) of the Act, we find that the value of any specified security allotted or transferred, directly or indirectly, by the employer or former employer, free of cost or at a concessional rate to the employee, is considered as a perquisite for the purpose of taxation under the head “Salaries”. The term “specified security”, as per Explanation (a) to the aforesaid provision, includes within its definition securities offered under employees’ stock option plan. Further, as per Explanation (c) to the aforesaid provision, the value of the specified security shall be the fair market value of the specified security on the date on which the option is exercised by the assessee, as reduced by the amount actually paid or recovered from the assessee in respect of such security.

16. Therefore, from the careful perusal of the provisions of section 17(2)(vi) of the Act, it is worth noticing that the employees’ stock option by itself is not considered as the “specified security” for the purpose of section 17(2)(vi) of the Act and it is only the security offered under the employees’ stock option plan, which is allotted or transferred by the employer, free of cost or at concessional rate to the employee, that is considered as the “specified security” for the purpose of taxation under the head “Salaries”. This interpretation is further supported by the plain reading of the provisions of the Explanation (c) to section 17(2)(vi) of the Act, which provides that the value of the specified security shall be the fair market value of the same on the date on which the option is exercised by the employee as reduced by the actual amount paid or recovered from the employee in respect of such security. Therefore, we are of the considered view that only after the option granted to the employee under the employees’ stock option plan is exercised, the incidence for taxability under the provisions of section 17(2)(vi) of the Act arises. Until then, it is merely an employee’s stock option, i.e. the option available to the employee to subscribe to the shares underlying the stock option, which cannot be considered to be a “specified security” under the provisions of section 17(2)(vi) of the Act.

17. Further, it is pertinent to note that Explanation (c) to section 17(2)(vi) of the Act provides a mechanism for computing the value of the specified security, which is considered as “perquisite” for the purpose of taxability under the head “Salaries”. Thus, we are of the considered view that till a “specified security” comes into existence upon exercise of the stock option by the employee, no value can be assigned to it. Accordingly, in such a scenario, the question of taxability under the head “Salaries” does not arise. At this stage, it is pertinent to note the well-settled principle laid down by the Hon’ble Supreme Court in CIT vs. B.C. Srinivasa Setty, reported in [1981] 128 ITR 294 (SC), that the charging section and the computation provisions together constitute an integrated Code and when in a case the computation provisions cannot apply, such a case would not fall within the charging section.

18. Accordingly, since in the present case, the stock options granted to the assessee under FSOP 2012 were never exercised, and no shares were ever allotted to the assessee under the Flipkart Stock Option Scheme, 2012, we are of the considered view that “specified security” within the meaning of provisions of section 17(2)(vi) of the Act did not come into existence, and therefore, no value can be assigned to it. Thus, we are of the considered view that the taxability of the consideration received by the assessee, upon repurchase of vested options by the FKS, under the head “Salaries” by considering the same as “perquisite” fails. Therefore, we do not find any merit in the findings of the lower authorities in taxing the consideration received by the assessee from the FKS under the provisions of Section 17(2) of the Act.

19. Since the consideration received by the assessee upon repurchase of vested options by the FKS is not taxable under the head “Salaries”, the question arises under which head of income the same is taxable. As the assessee offered to tax the said consideration under the head “Capital Gains”, we shall now examine the relevant provisions pertaining to taxation under the head “Capital Gains”.

20. In this regard, the first issue that arises for our consideration is whether the stock options vested in the assessee by FKS under FSOP 2012 are capital assets. At this stage, it is pertinent to reiterate that, as per the Flipkart Stock Options Scheme, 2012, pursuant to the vesting of stock options, the option holder has a right, but not an obligation, to purchase or subscribe at a future date to the shares underlying the options at a predetermined price. Thus, the issue arises as to whether the right to subscribe to shares is a capital asset. Section 2(14) of the Act defines the term “capital asset” to mean property of any kind held by the assessee. Further, while defining the term “short-term capital asset” in section 2(42A) of the Act, clause (e) of Explanation-1 to the said section treats the right to subscribe to any financial asset as a capital asset. In this regard, it is pertinent to note the provisions of clause (e) of Explanation-1 to section 2(42A) of the Act, which reads as follows: –

“Explanation 1.—(i) In determining the period for which any capital asset is held by the assessee—

…..

…..

(e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer ;”

21. We find that the Hon’ble Supreme Court in Miss Dhun Dadabhoy Kapadia v. CIT, reported in [1967] 63 ITR 651 (SC), held that for computing capital gains on renunciation of the right to subscribe for additional shares, diminution in the value of original shares would be regarded as the cost of acquisition for such right. Following the aforesaid decision of the Hon’ble Supreme Court, the Jurisdictional Hon’ble Karnataka High Court in Chittharanjan A. Dasannacharya vs. CIT, Bangalore, reported in [2020] 429 ITR 570 (Karn.), held that the stock options and the right to purchase the shares underlying the option are a capital asset in the hands of the assessee under section 2(14) of the Act. The relevant findings of the Hon’ble Karnataka High Court, in the aforesaid decision, are reproduced as follows:-

“8. The Supreme Court in ‘Dhun Dadabhoy Kapadia & Hari Brothers (P.) Ltd. (supra) has held that right to subscribe to shares of a company was treated to be a capital asset under section 2(14) of the Act. The stock option being a right to purchase the shares underlying the options is a capital asset in the hands of the assessee under section 2(14) of the Act, which is also evident from Explanation 1(e) to Section 2(42A) of the Act, which uses the expression ‘in case of a capital asset being a right to subscribe any financial asset’.”

22. Therefore, we are of the considered view that the stock option vested in the assessee by FKS under FSOP 2012 is a capital asset, being the right to subscribe to the shares underlying the options at a future date. Having arrived at the aforesaid conclusion, we find that as per the provisions of section 2(47) of the Act, sale, exchange or relinquishment of the capital asset is considered as a transfer of the capital asset. In the present case, there is no dispute regarding the fact that pursuant to the Letters of Offer for Repurchase of Vested Options dated 18.08.2019 and 18.09.2019, FKS repurchased 2653 stock options vested in the assessee under FSOP 2012. Therefore, we are of the considered view that such a repurchase falls within the definition of “transfer” under section 2(47) of the Act. Since in the present case, gains arose from the transfer of a capital asset, we are of the considered view that the same is taxable under section 45 of the Act, and the assessee rightly offered for taxation the consideration received upon repurchase of the vested stock options by FKS as long-term capital gains.

23. At this stage, we reiterate that stock options granted to the assessee can still be taxed as a perquisite under section 17(2)(vi) of the Act. Provided for the same to apply, the stage (iii), i.e., Exercise of Stock Options, as noted in the foregoing paragraph, must occur. However, in the present case, the transaction did not reach that stage, as the stock options were only issued and vested in the assessee. For completeness, we may also note that when the shares are allotted after the exercise of stock options, the sale of such shares is taxable as “Capital Gains” under section 45 of the Act.

24. From the perusal of the record, we find that in order to arrive at the conclusion that the consideration received by the assessee on account of the repurchase of vested stock options by FKS is taxable as perquisite under the head “Salaries”, the lower authorities, inter-alia, relied upon Letters of Offer for Repurchase of Vested Options dated 18.08.2019 and 18.09.2019, wherein in Schedule-4, it is mentioned that the repurchase of vested options would be taxable under the head “Income from Salaries”. From the perusal of the said Letters, which form part of the paper book from pages 114-151, we find that, as per clause E, the information on taxation considerations contained in Schedule-4 is merely an indicative summary, which is not intended to be a complete discussion. It is further mentioned that the contents of Schedule-4 are not to be construed as tax advice. Further, it is specifically noted that eligible participants are urged to consult their own advisers regarding the legal, tax, regulatory, financial, and accounting consequences of the repurchase. Therefore, we do not find any basis in reliance placed by the Revenue on the declaration made in Schedule-4 of the aforestated Letters of Offer for Repurchase, without considering the specific advice in this regard to the participants. In any case, it is pertinent to note that the arrangement between the parties does not determine the tax liability of any assessee, and the same needs to be ascertained only on the basis of the law.

25. Further, we find that AO also placed reliance upon Form-16 issued by the employer of the assessee, where under the amount received from FKS upon repurchase of the vested options was mentioned as perquisite under section 17(2) of the Act, and the tax was deducted. It is the golden rule of tax, as laid down in Article 265 of the Constitution of India, that no tax can be collected except by authority of law. It is also well established that if the assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate tax dues are collected. Further, it is pertinent to note that the deduction of TDS by the payer is not the ultimate determinative factor on the taxability of income in the hands of the payee, as the deduction of tax at source is only an advance mechanism for the collection of tax and not the final tax liability of the payee. Therefore, we are of the considered view that the Revenue erred in placing reliance on the Form-16 and Form-26AS issued by the employer and deduction of TDS by the employer, i.e. FIPL, to conclude that the consideration received by the assessee on account of the repurchase of vested stock options by FKS is taxable as perquisite under the head “Salaries”.

26. Further, from the perusal of the decision of the Hon’ble Madras High Court in Nishithkumar Mukeshkumar Mehta vs. DCIT, TDS, reported in [2024] 165 taxmann.com 386 (Madras), relied upon by the learned DR, we find that in the facts of the case, the taxpayer, who was also an employee of FIPL, received compensation from FKS in view of the divestment of FKS’s stake in the PhonePe business. The Hon’ble Madras High Court, disagreeing with the contentions of the taxpayer, held that the entire compensation received by the taxpayer qualifies as a perquisite and would be liable to be taxed under the head “Salaries”. From the careful perusal of the aforesaid decision, at the outset, we find that the Hon’ble High Court categorically noted that the taxpayer continued to retain all stock options even after the receipt of compensation. However, in the present case, it is evident that such are not the facts, as out of 40536 stock options granted to the assessee, 2653 stock options were repurchased by FKS against payment of consideration. Further, in the present case, it is evident that the consideration was not paid as compensation in view of the divestment of FKS’s stake in the PhonePe business. Therefore, we are of the considered view that the decision of the Hon’ble Madras High Court has been rendered in a factual matrix which is different from the present case, and thus this decision is not applicable to the present case.

27. Accordingly, Grounds No.1-4 raised in assessee’s appeal are allowed.

28. The issue arising in Ground No.5, raised in assessee’s appeal, pertains to the levy of interest under section 234B of the Act, which is consequential in nature. Therefore, the same needs no separate adjudication.

29. As relief has been granted to the assessee on the grounds raised on merits, Ground No. 6 challenging the validity of reassessment proceedings is left open.

30. Ground no.7, raised in assessee’s appeal, pertains to the initiation of penalty proceedings, which is premature in nature.

31. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 30^thJuly, 2026.