My employee exercised his options in one year but the shares were only allotted in the next, after he satisfied conditions in his separation agreement. In which year was I obliged to deduct tax under s.192?
This is stage one — the perquisite on exercise — and the Tribunal drew a line between valuing it and withholding on it. It held that the amended s.17(2)(vi) is only to determine the VALUE of the ESOP transaction, and that the obligation to withhold under s.192 accrues only when the shares are ALLOTTED after the person who exercised the option has completed his commitments; a mere exercise is only acceptance of a general proposal. The assessee's appeal against a short-deduction order was allowed.
Decided by the ITAT (Smt. P. Madhavi Devi, Judicial Member and Shri S. Rifaur Rahman, Accountant Member (Income Tax Appellate Tribunal, Hyderabad Bench 'A')) on 2018-08-03, reported as ITA No. 237/Hyd/2017, assessment year 2012-13 (ITAT Hyderabad). It bears on section 192, section 17(2)(vi), section 201(1), section 201(1A), section 133A of the Income Tax Act 1961, in TDS Defaults, Salary & Perquisites and Demand, Recovery & Stay matters.
The two-stage charge has a third practical date buried inside stage one, and this order is the only decision found that separates the three. The VALUATION date is the date of exercise, because Explanation (c) to s.17(2)(vi) and Rule 3(8) say so. The DEDUCTION date, on this order, is the date of allotment, because s.192 operates on payment and not on accrual, and until the shares are allotted nothing has been paid. That matters most where exercise and allotment straddle a year end, or where allotment is conditional — here on non-disposal undertakings and on the employee first funding the withholding tax. Two cautions. First, the reasoning is fact-specific: the Tribunal relied on the separation agreement's conditions and on the company's need to protect itself by not allotting until the price and the withholding tax had been received. An unconditional plan where allotment follows exercise automatically may not attract the same analysis. Second, the order does not decide the employee's own year of chargeability under s.15 or s.17; it decides only when the employer's withholding duty arose. A practitioner arguing this point should be clear which question he is on, and should note that in Unnikrishnan V S (ITAT Mumbai, 13 January 2021) a different bench said that s.17(2)(vi) "decides the timing of an income" — the two statements can be reconciled, but only by keeping the valuation, chargeability and withholding questions apart.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Following a survey under s.133A, the Assessing Officer (TDS) held the company in default for failing to deduct tax on an ESOP perquisite. An ex-employee, Mr. Vikram, had exercised his option under the company's 2007 scheme on 13 October 2011, which fell in the financial year relevant to assessment year 2012-13. The shares were not allotted to him then. They were allotted on 4 May 2012, after he satisfied conditions imposed by his separation agreement, which the Tribunal set out: non-disposal agreements restricting the sale of the shares to be allotted under the 2007 scheme, and receipt by the company of the withholding tax on the allotment. Non-compete fees were payable on the fulfilment of those commitments. The Commissioner (Appeals) upheld the Assessing Officer, taking the view that a separation agreement should not be used to defer tax liability. The company appealed.
The appeal was allowed. "Therefore, the amended provision as per section 17(2)(vi) is only to determine the value of ESOP transaction and the obligation for withholding tax accrues only when the shares are allotted after completion of commitments on the part of the person who exercised the option. Mere exercise of acceptance is only acceptance of general proposal" (para 9.4). The value of the perquisite could be determined under s.17(2)(vi), but it was taxable only when the assessee made the payment, which in this case was the allotment of shares (para 9.1).
The Tribunal took the exercise of an option to be only the acceptance of a proposal made under the scheme, an acceptance that itself came with obligations: once the option is exercised the allotting company has obligations of its own to protect its interest, and allotment cannot be completed without receiving the full price of the shares, which here meant the exercise price together with the withholding tax (para 9.1). The transaction comes to an end only when the person exercising the option completes his part of the commitment, so the goalpost of acceptance shifts until the commitment is complete; mere exercise is not enough (para 9.1). Accepting the assessee's submission that s.192 applies on a payment and not an accrual basis, the Tribunal held that the value of the perquisite may be determined under s.17(2)(vi) but is taxable only when payment is made, here on allotment (para 9.1). It added that on the Commissioner (Appeals)'s view the company would have to allot the shares and pay the withholding tax without receiving full consideration, and would be unable to cancel the allotment if the employee then failed to comply with the separation agreement, so the company was entitled to protect its interest first (para 9.2). The separate contention about withholding on the non-compete fee failed because that fee had not accrued in the year, which was also the Commissioner (Appeals)'s finding (para 9.3).
Therefore, the amended provision as per section 17(2)(vi) is only to determine the value of ESOP transaction and the obligation for withholding tax accrues only when the shares are allotted after completion of commitments on the part of the person who exercised the option.
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Handle my notice → Ask a CA on WhatsAppThis is stage one — the perquisite on exercise — and the Tribunal drew a line between valuing it and withholding on it. It held that the amended s.17(2)(vi) is only to determine the VALUE of the ESOP transaction, and that the obligation to withhold under s.192 accrues only when the shares are ALLOTTED after the person who exercised the option has completed his commitments; a mere exercise is only acceptance of a general proposal. The assessee's appeal against a short-deduction order was allowed. This was decided by the ITAT (Smt. P. Madhavi Devi, Judicial Member and Shri S. Rifaur Rahman, Accountant Member (Income Tax Appellate Tribunal, Hyderabad Bench 'A')) and bears on section 192, section 17(2)(vi), section 201(1), section 201(1A), section 133A of the Income Tax Act 1961. It is reported as ITA No. 237/Hyd/2017, assessment year 2012-13 (ITAT Hyderabad). The two-stage charge has a third practical date buried inside stage one, and this order is the only decision found that separates the three. The VALUATION date is the date of exercise, because Explanation (c) to s.17(2)(vi) and Rule 3(8) say so. The DEDUCTION date, on this order, is the date of allotment, because s.192 operates on payment and not on accrual, and until the shares are allotted nothing has been paid. That matters most where exercise and allotment straddle a year end, or where allotment is conditional — here on non-disposal undertakings and on the employee first funding the withholding tax. Two cautions. First, the reasoning is fact-specific: the Tribunal relied on the separation agreement's conditions and on the company's need to protect itself by not allotting until the price and the withholding tax had been received. An unconditional plan where allotment follows exercise automatically may not attract the same analysis. Second, the order does not decide the employee's own year of chargeability under s.15 or s.17; it decides only when the employer's withholding duty arose. A practitioner arguing this point should be clear which question he is on, and should note that in Unnikrishnan V S (ITAT Mumbai, 13 January 2021) a different bench said that s.17(2)(vi) "decides the timing of an income" — the two statements can be reconciled, but only by keeping the valuation, chargeability and withholding questions apart. If it applies to you, the first step is this: Fix three dates from the plan and the correspondence: exercise, satisfaction of any conditions, and allotment. They may fall in different financial years and they do different work.
Following a survey under s.133A, the Assessing Officer (TDS) held the company in default for failing to deduct tax on an ESOP perquisite. An ex-employee, Mr. Vikram, had exercised his option under the company's 2007 scheme on 13 October 2011, which fell in the financial year relevant to assessment year 2012-13. The shares were not allotted to him then. They were allotted on 4 May 2012, after he satisfied conditions imposed by his separation agreement, which the Tribunal set out: non-disposal agreements restricting the sale of the shares to be allotted under the 2007 scheme, and receipt by the company of the withholding tax on the allotment. Non-compete fees were payable on the fulfilment of those commitments. The Commissioner (Appeals) upheld the Assessing Officer, taking the view that a separation agreement should not be used to defer tax liability. The company appealed. The matter was decided on 2018-08-03 by the ITAT (Smt. P. Madhavi Devi, Judicial Member and Shri S. Rifaur Rahman, Accountant Member (Income Tax Appellate Tribunal, Hyderabad Bench 'A')). On those facts the ITAT held as follows. The appeal was allowed. "Therefore, the amended provision as per section 17(2)(vi) is only to determine the value of ESOP transaction and the obligation for withholding tax accrues only when the shares are allotted after completion of commitments on the part of the person who exercised the option. Mere exercise of acceptance is only acceptance of general proposal" (para 9.4). The value of the perquisite could be determined under s.17(2)(vi), but it was taxable only when the assessee made the payment, which in this case was the allotment of shares (para 9.1).
The Tribunal took the exercise of an option to be only the acceptance of a proposal made under the scheme, an acceptance that itself came with obligations: once the option is exercised the allotting company has obligations of its own to protect its interest, and allotment cannot be completed without receiving the full price of the shares, which here meant the exercise price together with the withholding tax (para 9.1). The transaction comes to an end only when the person exercising the option completes his part of the commitment, so the goalpost of acceptance shifts until the commitment is complete; mere exercise is not enough (para 9.1). Accepting the assessee's submission that s.192 applies on a payment and not an accrual basis, the Tribunal held that the value of the perquisite may be determined under s.17(2)(vi) but is taxable only when payment is made, here on allotment (para 9.1). It added that on the Commissioner (Appeals)'s view the company would have to allot the shares and pay the withholding tax without receiving full consideration, and would be unable to cancel the allotment if the employee then failed to comply with the separation agreement, so the company was entitled to protect its interest first (para 9.2). The separate contention about withholding on the non-compete fee failed because that fee had not accrued in the year, which was also the Commissioner (Appeals)'s finding (para 9.3). In the words reproduced by the source cited on this page: "Therefore, the amended provision as per section 17(2)(vi) is only to determine the value of ESOP transaction and the obligation for withholding tax accrues only when the shares are allotted after completion of commitments on the part of the person who exercised the option."
It was decided by the ITAT on 2018-08-03 and is reported as ITA No. 237/Hyd/2017, assessment year 2012-13 (ITAT Hyderabad). 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 192, section 17(2)(vi), section 201(1), section 201(1A), section 133A, 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 appeal was allowed. "Therefore, the amended provision as per section 17(2)(vi) is only to determine the value of ESOP transaction and the obligation for withholding tax accrues only when the shares are allotted after completion of commitments on the part of the person who exercised the option. Mere exercise of acceptance is only acceptance of general proposal" (para 9.4). The value of the perquisite could be determined under s.17(2)(vi), but it was taxable only when the assessee made the payment, which in this case was the allotment of shares (para 9.1). It arises in TDS Defaults, Salary & Perquisites and Demand, Recovery & Stay matters, on section 192, section 17(2)(vi), section 201(1), section 201(1A), section 133A of the Income Tax Act 1961, and was decided by Smt. P. Madhavi Devi, Judicial Member and Shri S. Rifaur Rahman, Accountant Member (Income Tax Appellate Tribunal, Hyderabad Bench 'A'). 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. Value the perquisite on the EXERCISE date under Rule 3(8) whatever you conclude about withholding — this order does not disturb that. Where allotment was withheld pending conditions, put the conditions in evidence: this order turned on non-disposal undertakings and on receipt of the withholding tax before allotment. In a s.201 proceeding, take the point that s.192 operates on payment and not on accrual, and identify the payment relied on. Do not extend the order to an unconditional plan where shares issue automatically on exercise, and do not use it to argue that the employee's own liability shifts years — that question was not decided.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later decision has been found that cites this 2018 order, and no appeal from it to the Telangana High Court has been traced. Citation counts attached to this order are misleading, and the reason is worth knowing before a count is relied on. Every later decision examined cites the EARLIER Hyderabad Bench decision of the same company under its former name — SKS Micro Finance Ltd v DCIT, 145 ITD 111 / (2013) 37 taxmann.com 192 — and not this order: so in Vistaar Financial Services (ITAT Bangalore, 22 July 2019), Dabur India (ITAT Delhi, 18 February 2021), Signode India (ITAT Hyderabad, 24 February 2021 and 31 May 2024) and Gilbarco Veeder (ITAT Mumbai, 7 September 2018). Signode India of 24 February 2021 in fact records that the SKS line is 'distinguishable'. A separate check under the current name, against s.17(2)(vi), turns up nothing citing this order. So the position is that the holding stands unchallenged and also untested. Nothing doubts or overrules it; equally, no High Court has considered whether the withholding obligation under s.192 can be postponed to allotment where the option has already been exercised, and a Departmental Representative is entitled to say the question is open. What would displace it: a High Court holding that the perquisite under s.17(2)(vi) is received on exercise, so that s.192 bites in the year of exercise whatever the allotment conditions; a decision reading the words 'at the time of payment' in s.192(1) as satisfied by the crediting of a vested entitlement; or a case on an unconditional plan, where the company has no interest of its own to protect by withholding allotment and the reasoning at paragraph 9.2 has nothing to work on. None of these has been located, and the last of them is the likeliest limit on the order in practice. 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.
The order carries a numbering defect: two consecutive paragraphs are both numbered 2.3 ('The AO completed the proceedings by...' and 'The reasons for passing the order...'), so a citation to 'paragraph 2.3' in this order is ambiguous and should be made by the opening words instead. This entry cites only paragraphs 9 to 10, which run from the Tribunal's own analysis to the pronouncement line. Nothing is said here about the earlier paragraphs beyond what is needed to state the facts, and a proposition attributed to this order outside that stretch does not come from this entry. The operative sentence in paragraph 9.4 — that the amended s.17(2)(vi) is only to determine the value of the ESOP transaction and that the withholding obligation accrues only on allotment after completion of the commitments — has been confirmed a second time, independently, because it is the sentence the entry turns on. Two things the order leaves thin. It records the ex-employee only as 'Mr. Vikram', without more, so nothing can be said about his own assessment or about how the perquisite was ultimately taxed in his hands. And the non-compete fee point at paragraph 9.3 is disposed of on the separate ground that the fee had not accrued in the year, which the Commissioner (Appeals) had also found; it is not a holding that non-compete fees fall outside s.192, and it should not be cited as one. The order was passed for assessment year 2012-13 and speaks throughout of 'the amended provision as per section 17(2)(vi)'. The amending Act and the date from which the amendment took effect have not been established, and none is stated here. A practitioner working on a year close to the amendment will have to fix that date himself, because the order's reasoning presupposes the amended valuation rule and says nothing about how the position stood before it. One further limit. The proceeding was one under s.201(1) and s.201(1A) against the employer, begun after a survey under s.133A. The order therefore decides the employer's default and the interest that follows it; it does not decide, and could not decide, the year in which the employee was liable. Nor does it say what happens to a company that has already deducted on exercise: the order holds the deduction premature, not the tax wrongly collected, and the route back for an employer in that position — a correction statement, a refund claim, or nothing at all — is not addressed anywhere in it. 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 appeal was allowed. "Therefore, the amended provision as per section 17(2)(vi) is only to determine the value of ESOP transaction and the obligation for withholding tax accrues only when the shares are allotted after completion of commitments on the part of the person who exercised the option. Mere exercise of acceptance is only acceptance of general proposal" (para 9.4). The value of the perquisite could be determined under s.17(2)(vi), but it was taxable only when the assessee made the payment, which in this case was the allotment of shares (para 9.1).
TaxSphere, “Bharat Financial Inclusion Ltd v DCIT (TDS) — s.17(2)(vi) fixes only the VALUE of the ESOP perquisite; the s.192 withholding obligation arises when the shares are actually allotted”, https://taxnotice.vittsphere.com/caselaw/case/bharat-financial-inclusion-esop-192-withholding-arises-on-allotment-not-on-exercise/ (validity last checked 2026-09-09)
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