Voluntary Compensation in lieu of ESOP Not Part of Salary: Delhi HC in Flipkart-Phonepe Case

Sanjay Baweja Vs DCIT (Delhi High Court)

In a recent judgment, the Delhi High Court provided clarity on the tax treatment of one-time voluntary payments made in lieu of Employee Stock Option Plans (ESOPs). The case, titled Sanjay Baweja Vs DCIT, involved an ex-employee of Flipkart Internet Private Limited (FIPL) challenging the tax authority’s decision to treat a compensation payment from the employer’s foreign parent company as a part of his salary under the Income Tax Act, 1961.

Background:

Sanjay Baweja, the petitioner, was an employee of Flipkart Internet Private Limited (FIPL), a subsidiary of Flipkart Marketplace Private Limited (FMPL), which, in turn, was a wholly-owned subsidiary of Flipkart Pvt. Ltd., Singapore (FPS). As part of his employment package, Sanjay Baweja was granted stock options under the Flipkart Stock Option Plan (FSOP) by FPS.

In a significant development, FPS announced its decision to divest its wholly-owned subsidiary, PhonePe. This announcement led to a decline in the value of the stock options granted under FSOP, causing concern among option holders like Sanjay Baweja. Responding to this situation, FPS took the initiative to offer a one-time compensation payment to all option holders to mitigate the loss incurred due to the reduced value of their options.

Please become a Premium member. If you are already a Premium member, login here to access the full content.