Sanjay received ₹11.98 crores against his ESOPs and paid zero tax
Tax officer said it was salary/perquisite and demanded ₹3.60 crores as tax
But here is how the Delhi High Court allowed him to pay ZERO tax. 🧵👇
Tax officer said it was salary/perquisite and demanded ₹3.60 crores as tax
But here is how the Delhi High Court allowed him to pay ZERO tax. 🧵👇
[1] Facts of the case
🔶 Sanjay was granted Flipkart ESOPs in 2012.
🔶 After PhonePe’s separation, the value of those ESOPs dropped sharply.
🔶 Flipkart paid employees USD 43.67 per ESOP for the value drop.
🔶 There was no contractual obligation for this.
🔶 Sanjay was granted Flipkart ESOPs in 2012.
🔶 After PhonePe’s separation, the value of those ESOPs dropped sharply.
🔶 Flipkart paid employees USD 43.67 per ESOP for the value drop.
🔶 There was no contractual obligation for this.
[2] Sanjay’s ITR:
🔶 Sanjay had never exercised his ESOPs they were only vested options, not converted into shares.
🔶 Flipkart Singapore proposed to deduct tax on the payout.
🔶 Sanjay had never exercised his ESOPs they were only vested options, not converted into shares.
🔶 Flipkart Singapore proposed to deduct tax on the payout.
🔶 Sanjay applied for Nil TDS certificate, claiming it was not income and not perquisite.
🔶 The tax officer rejected the request and treated the payment as salary.
🔶 The tax officer rejected the request and treated the payment as salary.
[3] What were the core arguments?
🔶 Perquisite tax applies only when ESOPs are exercised.
🔶 Sanjay never exercised his options, so no taxable event arose.
🔶 He said the payout was a one-time voluntary capital receipt, not employment-linked salary.
🔶 Perquisite tax applies only when ESOPs are exercised.
🔶 Sanjay never exercised his options, so no taxable event arose.
🔶 He said the payout was a one-time voluntary capital receipt, not employment-linked salary.
[4] Court’s stand part 1
🔶 The Court examined the affidavit: 33,482 vested ESOPs held, none exercised.
🔶 With no exercise, there is no FMV determination and no perquisite.
🔶 Therefore, Section 17 cannot be triggered.
🔶 The Court examined the affidavit: 33,482 vested ESOPs held, none exercised.
🔶 With no exercise, there is no FMV determination and no perquisite.
🔶 Therefore, Section 17 cannot be triggered.
[5] Court’s stand part 2
🔶 The payout was not given because of employment or service.
🔶 It was not recurring and not a contractual right under the ESOP plan.
🔶 The payout was not given because of employment or service.
🔶 It was not recurring and not a contractual right under the ESOP plan.
🔶 It was provided purely at the company’s discretion, only because of the PhonePe demerger.
🔶 Therefore, it held the character of a capital receipt, not salary.
🔶 Therefore, it held the character of a capital receipt, not salary.
[6] Court’s Conclusion
🔶 Because both conditions were satisfied that ESOP not exercised and voluntary payment.
🔶 The rejection of Nil TDS request was set aside.
🔶 Sanjay was allowed to seek refund of TDS already deducted.
🔶 Because both conditions were satisfied that ESOP not exercised and voluntary payment.
🔶 The rejection of Nil TDS request was set aside.
🔶 Sanjay was allowed to seek refund of TDS already deducted.
[7] Other Important Point:
🔶 The same ESOP compensation issue is pending before the Supreme Court because other High Court have taken the opposite view.
🔶 The Supreme Court’s future decision will determine the final and uniform law for everyone.
🔶 The same ESOP compensation issue is pending before the Supreme Court because other High Court have taken the opposite view.
🔶 The Supreme Court’s future decision will determine the final and uniform law for everyone.
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