My client came to India part way through the vesting period of his options and exercised them here. The Assessing Officer has taxed the whole perquisite. Can he apportion?
Yes, on these facts — and this is stage one, the perquisite on exercise. The Delhi Tribunal upheld the Commissioner (Appeals) in holding that because the assessee had not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as was relatable to the service he rendered in India was taxable in India. The Revenue's appeal was dismissed.
Decided by the ITAT (Shri R.P. Tolani, Judicial Member and Shri J. Sudhakar Reddy, Accountant Member (Income Tax Appellate Tribunal, Delhi Benches 'F')) on 2013-05-24, reported as ITA No. 3452/Del/2011, assessment year 2007-08 (ITAT Delhi); cited in later orders as (2013) 59 SOT 203 (Del). It bears on section 17(2), section 5(2), section 9(1)(ii), section 163(1)(c), section 144 of the Income Tax Act 1961, in Salary & Perquisites, Residence & Treaty Benefit and Assessment & Scrutiny matters.
This is the apportionment line, and it is the point on which an inbound expatriate or a returning Indian employee saves most tax. The logic is that the option is remuneration for the service period the plan requires — here three years of continued employment between grant and vesting — so where only part of that period was spent working in India, only that part of the benefit has an Indian source. The Tribunal took the principle from ACIT v. Ellin D Rozario, that only proportionate salary is taxable in India if part of the activity has no relation to any India specific job or activity, and from DCIT v. Eric Moroux and Ghorayeb Emile, where the contract itself recognised the division of work and the Tribunal refused to infer that work done abroad related to Indian operations. Read this together with Unnikrishnan V S (ITAT Mumbai, 13 January 2021): the two are not in conflict but they run in opposite directions on their facts. Keltz apportions because part of the grant period was served outside India; Unnikrishnan taxes the whole because none of it was. The practical lesson is that the fight is about the GRANT PERIOD and where the employee was during it, and it is won or lost on the contract and the day count, not on residential status in the year of exercise. Note that the assessee here had himself offered the proportionate amount in his return, so the Tribunal was not asked to decide whether the perquisite was taxable at all.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
Mr Robert Arthur Keltz was an employee of United Technologies International Operation, USA, on deputation to its Indian liaison office from 1 April 2006. He was Resident but Not Ordinarily Resident in assessment year 2007-08. He had been granted employee stock options over 34,000 shares on 9 January 2004, with a vesting period of three years conditional on his continuing in employment throughout, so that the options vested on 9 January 2007, after his Indian assignment began. He exercised them on 1 February 2007 while in India. In his return he offered the proportionate ESOP perquisite referable to the days of his Indian assignment. The Assessing Officer, proceeding ex parte under s.144 because the employee had left India, taxed the whole perquisite of Rs 32,09,756, being the difference between the fair market value on exercise and the cost recovered, and determined income at Rs 2,39,34,969; the Indian liaison office was then treated as representative assessee under s.163(1)(c). Before the Commissioner (Appeals) the assessee argued that the shares had been allotted outside India so the receipt was outside India, and alternatively that the options were consideration for services over the three-year grant period so that only the Indian proportion accrued here. The Commissioner (Appeals) applied the Delhi Tribunal's decision in DCIT v. Eric Moroux and Ghorayeb Emile and held only the proportionate amount taxable. The Revenue appealed.
The Revenue's appeal was dismissed (para 17). "In this case it is not in dispute that the assessee was in India only for a short period i.e. 1.4.2006 onwards and that prior to it, he has not done any service connected with any activity in India. Thus applying the propositions laid down in these cases, to the facts of the case on hand, as the assessee has not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as is relatable to the service rendered by the assessee in India is taxable in India" (para 14). Grounds 1 to 3 on the ESOP issue were dismissed, as were grounds 4 and 5 on hypothetical tax and accommodation, which were consequential (paras 14 to 16).
The Tribunal noted that the taxability of the stock option benefit was not in dispute, the assessee having offered it in his return; the only question was the amount assessable in India (para 12). It set out the Commissioner (Appeals)'s reasoning, which had applied the Delhi Tribunal's order in DCIT v. Eric Moroux and Ghorayeb Emile and had held, on the strength of Circular No. 9/2007 dated 20 December 2007, the OECD guidance and the Delhi Tribunal's decisions, that only the proportionate amount of the stock option benefit relating to the period of services rendered in India during the grant period was to be offered to tax in India (para 12). It reproduced paragraph 8 of Eric Moroux, where the contract itself recognised the division of work between India and abroad and the Tribunal declined to infer that services rendered abroad were in respect of Indian operations, and where the Explanation to s.9(1)(ii) was held inapplicable because the issue was not one of rest or leave period (para 13). It then applied the principle of ACIT v. Ellin D Rozario, that only proportionate salary is taxable in India where part of the activity has no relation to any India specific job or activity, to the facts that the assessee was in India only from 1 April 2006 and had done no India-connected service before that (para 14).
as the assessee has not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as is relatable to the service rendered by the assessee in India is taxable in India
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppYes, on these facts — and this is stage one, the perquisite on exercise. The Delhi Tribunal upheld the Commissioner (Appeals) in holding that because the assessee had not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as was relatable to the service he rendered in India was taxable in India. The Revenue's appeal was dismissed. This was decided by the ITAT (Shri R.P. Tolani, Judicial Member and Shri J. Sudhakar Reddy, Accountant Member (Income Tax Appellate Tribunal, Delhi Benches 'F')) and bears on section 17(2), section 5(2), section 9(1)(ii), section 163(1)(c), section 144 of the Income Tax Act 1961. It is reported as ITA No. 3452/Del/2011, assessment year 2007-08 (ITAT Delhi); cited in later orders as (2013) 59 SOT 203 (Del). This is the apportionment line, and it is the point on which an inbound expatriate or a returning Indian employee saves most tax. The logic is that the option is remuneration for the service period the plan requires — here three years of continued employment between grant and vesting — so where only part of that period was spent working in India, only that part of the benefit has an Indian source. The Tribunal took the principle from ACIT v. Ellin D Rozario, that only proportionate salary is taxable in India if part of the activity has no relation to any India specific job or activity, and from DCIT v. Eric Moroux and Ghorayeb Emile, where the contract itself recognised the division of work and the Tribunal refused to infer that work done abroad related to Indian operations. Read this together with Unnikrishnan V S (ITAT Mumbai, 13 January 2021): the two are not in conflict but they run in opposite directions on their facts. Keltz apportions because part of the grant period was served outside India; Unnikrishnan taxes the whole because none of it was. The practical lesson is that the fight is about the GRANT PERIOD and where the employee was during it, and it is won or lost on the contract and the day count, not on residential status in the year of exercise. Note that the assessee here had himself offered the proportionate amount in his return, so the Tribunal was not asked to decide whether the perquisite was taxable at all. If it applies to you, the first step is this: Establish the grant period precisely — grant date, vesting date, and the condition of continued employment that runs between them. Here it was three years, 9 January 2004 to 9 January 2007.
Mr Robert Arthur Keltz was an employee of United Technologies International Operation, USA, on deputation to its Indian liaison office from 1 April 2006. He was Resident but Not Ordinarily Resident in assessment year 2007-08. He had been granted employee stock options over 34,000 shares on 9 January 2004, with a vesting period of three years conditional on his continuing in employment throughout, so that the options vested on 9 January 2007, after his Indian assignment began. He exercised them on 1 February 2007 while in India. In his return he offered the proportionate ESOP perquisite referable to the days of his Indian assignment. The Assessing Officer, proceeding ex parte under s.144 because the employee had left India, taxed the whole perquisite of Rs 32,09,756, being the difference between the fair market value on exercise and the cost recovered, and determined income at Rs 2,39,34,969; the Indian liaison office was then treated as representative assessee under s.163(1)(c). Before the Commissioner (Appeals) the assessee argued that the shares had been allotted outside India so the receipt was outside India, and alternatively that the options were consideration for services over the three-year grant period so that only the Indian proportion accrued here. The Commissioner (Appeals) applied the Delhi Tribunal's decision in DCIT v. Eric Moroux and Ghorayeb Emile and held only the proportionate amount taxable. The Revenue appealed. The matter was decided on 2013-05-24 by the ITAT (Shri R.P. Tolani, Judicial Member and Shri J. Sudhakar Reddy, Accountant Member (Income Tax Appellate Tribunal, Delhi Benches 'F')). On those facts the ITAT held as follows. The Revenue's appeal was dismissed (para 17). "In this case it is not in dispute that the assessee was in India only for a short period i.e. 1.4.2006 onwards and that prior to it, he has not done any service connected with any activity in India. Thus applying the propositions laid down in these cases, to the facts of the case on hand, as the assessee has not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as is relatable to the service rendered by the assessee in India is taxable in India" (para 14). Grounds 1 to 3 on the ESOP issue were dismissed, as were grounds 4 and 5 on hypothetical tax and accommodation, which were consequential (paras 14 to 16).
The Tribunal noted that the taxability of the stock option benefit was not in dispute, the assessee having offered it in his return; the only question was the amount assessable in India (para 12). It set out the Commissioner (Appeals)'s reasoning, which had applied the Delhi Tribunal's order in DCIT v. Eric Moroux and Ghorayeb Emile and had held, on the strength of Circular No. 9/2007 dated 20 December 2007, the OECD guidance and the Delhi Tribunal's decisions, that only the proportionate amount of the stock option benefit relating to the period of services rendered in India during the grant period was to be offered to tax in India (para 12). It reproduced paragraph 8 of Eric Moroux, where the contract itself recognised the division of work between India and abroad and the Tribunal declined to infer that services rendered abroad were in respect of Indian operations, and where the Explanation to s.9(1)(ii) was held inapplicable because the issue was not one of rest or leave period (para 13). It then applied the principle of ACIT v. Ellin D Rozario, that only proportionate salary is taxable in India where part of the activity has no relation to any India specific job or activity, to the facts that the assessee was in India only from 1 April 2006 and had done no India-connected service before that (para 14). In the words reproduced by the source cited on this page: "as the assessee has not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as is relatable to the service rendered by the assessee in India is taxable in India" The decision followed or applied DCIT v. Eric Moroux and Ghorayeb Emile, ITA Nos. 1174 and 1175/Del/2005 (ITAT Delhi, 15 February 2008) — applied; ACIT v. Ellin D Rozario, ITA No. 2918/D/2005 (ITAT Delhi, 5 December 2008) — applied.
It was decided by the ITAT on 2013-05-24 and is reported as ITA No. 3452/Del/2011, assessment year 2007-08 (ITAT Delhi); cited in later orders as (2013) 59 SOT 203 (Del). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 17(2), section 5(2), section 9(1)(ii), section 163(1)(c), section 144, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed (para 17). "In this case it is not in dispute that the assessee was in India only for a short period i.e. 1.4.2006 onwards and that prior to it, he has not done any service connected with any activity in India. Thus applying the propositions laid down in these cases, to the facts of the case on hand, as the assessee has not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as is relatable to the service rendered by the assessee in India is taxable in India" (para 14). Grounds 1 to 3 on the ESOP issue were dismissed, as were grounds 4 and 5 on hypothetical tax and accommodation, which were consequential (paras 14 to 16). It arises in Salary & Perquisites, Residence & Treaty Benefit and Assessment & Scrutiny matters, on section 17(2), section 5(2), section 9(1)(ii), section 163(1)(c), section 144 of the Income Tax Act 1961, and was decided by Shri R.P. Tolani, Judicial Member and Shri J. Sudhakar Reddy, Accountant Member (Income Tax Appellate Tribunal, Delhi Benches 'F'). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Produce the assignment documents and a day count showing where the employee worked during that period, and offer the proportionate amount in the return rather than waiting for the assessment. Show that the options would have lapsed if employment had ended during the grant period. That was the fact that made the benefit referable to the whole grant period rather than to the moment of exercise. Where the employer is abroad and shares are allotted abroad, do not rest on that alone. The argument that the receipt was outside India was made here and the case was decided on apportionment instead. Expect the Revenue to rely on Unnikrishnan V S. Meet it on the facts: apportionment follows only where part of the qualifying service was rendered outside India.
Searched for later treatment; none was found. That is not the same as a source affirming it. The status is that no judicial treatment of this order has been established. No later Tribunal decision applying the proportionate-ESOP approach has been traced to it, and no Delhi High Court or Supreme Court proceeding against it is on record here. The proportionate approach is widely relied on in practice, but that is not the same thing as a decision adopting it as a ground, and the honest label is the weaker one. Two qualifications matter when the entry is used. The order is not self-standing authority: it takes its principle from ACIT v. Ellin D Rozario and from DCIT v. Eric Moroux and Ghorayeb Emile, and if those are displaced this order goes with them. It must also be read with the Mumbai Tribunal's decision in Unnikrishnan V S, which taxes the whole perquisite on facts where no part of the grant period was served outside India; the two are not in conflict, but a reader who cites only one of them will be met with the other. The statutory ground has since moved. This order is on assessment year 2007-08 and decides a source question under s.5(2) and s.9(1)(ii) — how much of the benefit has an Indian source — and says nothing about the valuation machinery in s.17(2)(vi) and Rule 3(8) that now governs the measure of the perquisite. Its continuing use is therefore confined to apportionment. What would displace it is a High Court or Supreme Court ruling on the source of an option benefit earned partly abroad, or an amendment to s.9(1)(ii) or its Explanation. Before relying on the entry for a current year a practitioner should read s.9(1)(ii) and s.17(2)(vi) as they stand for that year, check whether the employee was Resident but Not Ordinarily Resident, and consider whether the treaty article on dependent personal services gives a separate and possibly better answer than apportionment under the Act. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Three cautions about this order. First, the title under which it commonly circulates is wrong in every part: it appears as "Robert Aruther Keltz, New Delhi vs Department Of Income Tax on 29 April, 2011". The order is in ITA No. 3452/Del/2011, it is an appeal BY the Revenue, it was pronounced on 24 May 2013, and its own cause title spells the assessee's name "Robert Arthur Keltz", not "Aruther". The order's own date and cause title are used here, and the spelling "Aruther" should not be carried into any citation. Later orders citing this decision spell it differently again — the Mumbai Tribunal in Unnikrishnan V S writes "Robert Arthur Kultz" — so a name search may have to be run on all three spellings before it can be said that nothing cites it. Second, the order runs to seventeen numbered paragraphs and ends with the disposal at paragraph 17; the operative holding is at paragraph 14. Paragraph 11 sets out the Departmental Representative's reliance on the Special Bench decision in Sumit Bhattacharya and the Tribunal's summary of what that Special Bench held, including a valuation measured by the market price ON THE DATE OF GRANT. That is a description of another decision under earlier law and must NOT be read as this Tribunal's own view of how a perquisite is valued under s.17(2)(vi) and Rule 3(8). Paragraph 12 reproduces the Commissioner (Appeals)'s findings and paragraph 13 reproduces the Eric Moroux order; both are quoted texts, not holdings of this Bench. Grounds 4 and 5, on hypothetical tax and on accommodation, were disposed of separately and are not part of the ESOP holding. Third, the assessment year is 2007-08, which precedes the current s.17(2)(vi) machinery, so what this order supplies is the apportionment principle and not any valuation rule. Three things it does not decide: whether the perquisite was chargeable at all, the assessee having offered it himself; what the fraction should be where the grant period cannot be tied to a day count; and whether a treaty article on dependent personal services would have given the same or a wider answer. Note also that the assessment was made ex parte under s.144 because the employee had left India and the Indian liaison office was then treated as representative assessee under s.163(1)(c) — a route the Department uses often once the expatriate has gone, and one the Indian office should expect. For his own year a practitioner should keep the grant letter, the vesting condition, the assignment letter and the travel record, because the fraction is arithmetic over the grant period and is won or lost on those four documents. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed (para 17). "In this case it is not in dispute that the assessee was in India only for a short period i.e. 1.4.2006 onwards and that prior to it, he has not done any service connected with any activity in India. Thus applying the propositions laid down in these cases, to the facts of the case on hand, as the assessee has not rendered service in India for the whole grant period, only such proportion of the ESOP perquisite as is relatable to the service rendered by the assessee in India is taxable in India" (para 14). Grounds 1 to 3 on the ESOP issue were dismissed, as were grounds 4 and 5 on hypothetical tax and accommodation, which were consequential (paras 14 to 16).
TaxSphere, “ACIT v Robert Arthur Keltz — where the employee did not render service in India for the whole grant period, only the proportion of the ESOP perquisite relatable to Indian service is taxable in India”, https://taxnotice.vittsphere.com/caselaw/case/acit-v-robert-arthur-keltz-only-the-india-related-proportion-of-the-esop-perquisite-is-taxable/ (validity last checked 2026-09-09)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
My foreign employees work on rigs in India for a month and then spend a month on standby at home. Is the salary for the off period taxable in India for years before 2000-01?
My client is a non-resident now. He exercised options granted years ago while he worked in India, and his employer deducted tax. Can he claim the perquisite did not accrue in India, or take treaty protection?
The TDS officer says I under-deducted under s.192. If my estimate was made honestly, does that answer the demand, the interest and the penalty?
My employer valued my unlisted sweat equity shares through a merchant banker, but the Assessing Officer says the company sold shares to a foreign investor a month later at a far higher price and has taxed me on the difference. Can he do that?
