My employer paid me for the fall in value of options I never exercised. Is that a perquisite?
No, on this decision. The Delhi High Court held that a one-time voluntary payment made to holders of unexercised stock options after a group disinvestment was not a perquisite under s.17(2)(vi), because the value of specified securities depends on the exercise of the option and no option had been exercised. The refusal of a nil-deduction certificate under s.197 was set aside.
Decided by the High Court (Delhi High Court - Yashwant Varma and Purushaindra Kumar Kaurav, JJ.; judgment authored by Purushaindra Kumar Kaurav J) on 2024-05-30, reported as [2024] 163 taxmann.com 116 / 299 Taxman 313 / [2025] 474 ITR 376 (Delhi); W.P.(C) No. 11155 of 2023 [assessment year 2023-24]. It bears on section 17(2)(vi), section 17(2), section 197, section 192, section 15, section 5 of the Income Tax Act 1961, in Salary & Perquisites, TDS Defaults and Capital Gains Exemptions matters.
It is the taxpayer-side authority in a three-way High Court split on the same Flipkart stock option plan: the Madras High Court in Nishithkumar Mukeshkumar Mehta held the same receipt taxable as a perquisite, and the Karnataka High Court in Manjeet Singh Chawla treated it as a capital receipt outside every head. Which decision you cite decides whether the employer withholds at slab rates, at capital gains rates, or not at all.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The petitioner is a former employee of Flipkart Internet Private Limited, a wholly owned subsidiary of Flipkart Marketplace Private Limited, itself a wholly owned subsidiary of Flipkart Private Limited, Singapore. Under the Flipkart Stock Option Plan 2012 he was granted 1,27,552 options between 1 November 2014 and 31 November 2016 on a four-year vesting schedule; after cancellation on termination of employment in 2016 and two repurchases by Walmart in 2017 and 2018, he held 33,482 options on the record date of 23 December 2022. On that date the Singapore parent announced the disinvestment of PhonePe, and the value of the options fell. On 21 April 2023 it told option holders that as a one-time measure it would pay USD 43.67 per option as compensation for the loss in value, and would withhold tax; the petitioner's entitlement worked out to Rs 11,98,97,033. He applied under s.197 on 29 April 2023, and again on 23 May 2023, for a nil deduction certificate. By order of 15 July 2023 the Assessing Officer rejected the application, treating the payment as a perquisite under s.17(2)(vi). The transaction was completed on 31 July 2023, before the writ petition was decided.
The writ petition was allowed. For a receipt to fall within the inclusive definition of perquisite in s.17(2)(vi) it must be generated from the exercise of the option by the employee: the value of a specified security under Explanation (c) can be computed only once the option is exercised, and the petitioner had not exercised his options, so none of the contingencies in the clause had occurred and the receipt was not chargeable as a perquisite (para 25). The payment was in any event a one-time voluntary payment made to all option holders on the disinvestment of PhonePe, made without any legal or contractual obligation under the plan, and did not arise out of any transfer of stock options by the employer, so it was not linked to the employment (paras 26 and 27). The reasoning of the impugned order could not be countenanced in law (para 28). The Court set aside the order of 15 July 2023 but, because the transaction had already taken place on 31 July 2023, did not direct a refund: it gave the petitioner liberty to apply to the revenue for refund of the tax deducted and directed the revenue to consider that application in the light of its observations and the extant regulations (para 29).
The Court read s.17(2)(vi) as taxing the value of a specified security allotted or transferred by the employer free of cost or at a concessional rate, the crucial ingredient being a determinable value received by way of allotment or transfer; and Explanation (c) fixes that value as the difference between the fair market value on the date the option is exercised and the amount paid, so on a literal reading the value depends on the exercise of the option (para 25). It then dealt with the revenue's procedural point, that the facts about exercise had not been placed before the Assessing Officer, holding that the s.197 application of 29 April 2023 did set out the plan details and that the officer had never asked for any clarification (paras 22 and 23); on that footing National Petroleum Construction was distinguished. It rejected the officer's reliance on the payer's intention to withhold: the manner or nature of payment as understood by the deductor does not determine taxability, since it is the quality of the payment that determines its character and not the mode of payment, and unless the charging section makes a receipt chargeable the revenue cannot charge it on that basis — a proposition the Court took from Empire Jute (para 24). Finally it recorded the payer's own position that there was no legal or contractual right under the plan to compensate for loss in current value or for future accretion, and that it had estimated USD 43.67 per option on its own discretion (para 26).
Therefore, for an income to be included in the inclusive definition of 'perquisite', it is essential that it is generated from the exercise of options, by the employee.
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 WhatsAppNo, on this decision. The Delhi High Court held that a one-time voluntary payment made to holders of unexercised stock options after a group disinvestment was not a perquisite under s.17(2)(vi), because the value of specified securities depends on the exercise of the option and no option had been exercised. The refusal of a nil-deduction certificate under s.197 was set aside. This was decided by the High Court (Delhi High Court - Yashwant Varma and Purushaindra Kumar Kaurav, JJ.; judgment authored by Purushaindra Kumar Kaurav J) and bears on section 17(2)(vi), section 17(2), section 197, section 192, section 15, section 5 of the Income Tax Act 1961. It is reported as [2024] 163 taxmann.com 116 / 299 Taxman 313 / [2025] 474 ITR 376 (Delhi); W.P.(C) No. 11155 of 2023 [assessment year 2023-24]. It is the taxpayer-side authority in a three-way High Court split on the same Flipkart stock option plan: the Madras High Court in Nishithkumar Mukeshkumar Mehta held the same receipt taxable as a perquisite, and the Karnataka High Court in Manjeet Singh Chawla treated it as a capital receipt outside every head. Which decision you cite decides whether the employer withholds at slab rates, at capital gains rates, or not at all. If it applies to you, the first step is this: Establish, on the plan documents, that the options were never exercised and no security was ever allotted - that is the fact the decision turns on.
The petitioner is a former employee of Flipkart Internet Private Limited, a wholly owned subsidiary of Flipkart Marketplace Private Limited, itself a wholly owned subsidiary of Flipkart Private Limited, Singapore. Under the Flipkart Stock Option Plan 2012 he was granted 1,27,552 options between 1 November 2014 and 31 November 2016 on a four-year vesting schedule; after cancellation on termination of employment in 2016 and two repurchases by Walmart in 2017 and 2018, he held 33,482 options on the record date of 23 December 2022. On that date the Singapore parent announced the disinvestment of PhonePe, and the value of the options fell. On 21 April 2023 it told option holders that as a one-time measure it would pay USD 43.67 per option as compensation for the loss in value, and would withhold tax; the petitioner's entitlement worked out to Rs 11,98,97,033. He applied under s.197 on 29 April 2023, and again on 23 May 2023, for a nil deduction certificate. By order of 15 July 2023 the Assessing Officer rejected the application, treating the payment as a perquisite under s.17(2)(vi). The transaction was completed on 31 July 2023, before the writ petition was decided. The matter was decided on 2024-05-30 by the High Court (Delhi High Court - Yashwant Varma and Purushaindra Kumar Kaurav, JJ.; judgment authored by Purushaindra Kumar Kaurav J). On those facts the High Court held as follows. The writ petition was allowed. For a receipt to fall within the inclusive definition of perquisite in s.17(2)(vi) it must be generated from the exercise of the option by the employee: the value of a specified security under Explanation (c) can be computed only once the option is exercised, and the petitioner had not exercised his options, so none of the contingencies in the clause had occurred and the receipt was not chargeable as a perquisite (para 25). The payment was in any event a one-time voluntary payment made to all option holders on the disinvestment of PhonePe, made without any legal or contractual obligation under the plan, and did not arise out of any transfer of stock options by the employer, so it was not linked to the employment (paras 26 and 27). The reasoning of the impugned order could not be countenanced in law (para 28). The Court set aside the order of 15 July 2023 but, because the transaction had already taken place on 31 July 2023, did not direct a refund: it gave the petitioner liberty to apply to the revenue for refund of the tax deducted and directed the revenue to consider that application in the light of its observations and the extant regulations (para 29).
The Court read s.17(2)(vi) as taxing the value of a specified security allotted or transferred by the employer free of cost or at a concessional rate, the crucial ingredient being a determinable value received by way of allotment or transfer; and Explanation (c) fixes that value as the difference between the fair market value on the date the option is exercised and the amount paid, so on a literal reading the value depends on the exercise of the option (para 25). It then dealt with the revenue's procedural point, that the facts about exercise had not been placed before the Assessing Officer, holding that the s.197 application of 29 April 2023 did set out the plan details and that the officer had never asked for any clarification (paras 22 and 23); on that footing National Petroleum Construction was distinguished. It rejected the officer's reliance on the payer's intention to withhold: the manner or nature of payment as understood by the deductor does not determine taxability, since it is the quality of the payment that determines its character and not the mode of payment, and unless the charging section makes a receipt chargeable the revenue cannot charge it on that basis — a proposition the Court took from Empire Jute (para 24). Finally it recorded the payer's own position that there was no legal or contractual right under the plan to compensate for loss in current value or for future accretion, and that it had estimated USD 43.67 per option on its own discretion (para 26). In the words reproduced by the source cited on this page: "Therefore, for an income to be included in the inclusive definition of 'perquisite', it is essential that it is generated from the exercise of options, by the employee."
It was decided by the High Court on 2024-05-30 and is reported as [2024] 163 taxmann.com 116 / 299 Taxman 313 / [2025] 474 ITR 376 (Delhi); W.P.(C) No. 11155 of 2023 [assessment year 2023-24]. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 17(2)(vi), section 17(2), section 197, section 192, section 15, section 5, 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 writ petition was allowed. For a receipt to fall within the inclusive definition of perquisite in s.17(2)(vi) it must be generated from the exercise of the option by the employee: the value of a specified security under Explanation (c) can be computed only once the option is exercised, and the petitioner had not exercised his options, so none of the contingencies in the clause had occurred and the receipt was not chargeable as a perquisite (para 25). The payment was in any event a one-time voluntary payment made to all option holders on the disinvestment of PhonePe, made without any legal or contractual obligation under the plan, and did not arise out of any transfer of stock options by the employer, so it was not linked to the employment (paras 26 and 27). The reasoning of the impugned order could not be countenanced in law (para 28). The Court set aside the order of 15 July 2023 but, because the transaction had already taken place on 31 July 2023, did not direct a refund: it gave the petitioner liberty to apply to the revenue for refund of the tax deducted and directed the revenue to consider that application in the light of its observations and the extant regulations (para 29). It arises in Salary & Perquisites, TDS Defaults and Capital Gains Exemptions matters, on section 17(2)(vi), section 17(2), section 197, section 192, section 15, section 5 of the Income Tax Act 1961, and was decided by Delhi High Court - Yashwant Varma and Purushaindra Kumar Kaurav, JJ.; judgment authored by Purushaindra Kumar Kaurav J. 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. Move under s.197 before the employer withholds rather than fighting for a refund afterwards, which is the route taken here. Check which High Court binds the employee, since the Madras High Court reached the opposite result on the same payment. Keep the payment's voluntary character on the file: the Court treated it as a one-time voluntary payment rather than anything the employer was bound to make.
High Courts differ on this point. Followed by another High Court. In Manjeet Singh Chawla v. Dy. CIT (TDS) [2025] 175 taxmann.com 778 (Karnataka), decided 2 June 2025 by S.R. Krishna Kumar J, this judgment was followed on the identical plan and the identical payment, the Court holding at para 7(vii) that its reasoning squarely applies. That Court also recorded at para 7(viii)(a), on the petitioner's submission, that this judgment was not challenged by the revenue and has attained finality and become binding on it. The point is not settled across High Courts. In Nishithkumar Mukeshkumar Mehta v. Dy. CIT (TDS) [2024] 165 taxmann.com 386 / [2025] 475 ITR 614 (Madras), 31 July 2024, Senthilkumar Ramamoorthy J held the same receipt taxable as a perquisite and said in terms at his para 40 that the opinion of the Delhi High Court in this case could not be endorsed. That judgment is under appeal before a Division Bench of the Madras High Court, as the Karnataka Court recorded at para 7(viii)(b) and (d). 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 judgment was given in a writ against the rejection of a s.197 application, so it decides what the payer had to withhold, not an assessment, and it does not decide the treatment of a payment made after options are exercised. Two things the digests obscure. The Court set aside the rejection order but did not direct a refund: because the transaction had already been completed on 31 July 2023, it gave liberty to apply for refund and directed the revenue to consider the application. And the decision has two independent limbs — that s.17(2)(vi) has no application before exercise, and that the payment was voluntary and not linked to employment. The bench is Yashwant Varma and Purushaindra Kumar Kaurav JJ, the judgment authored by Kaurav J, reserved on 13 May 2024 and pronounced on 30 May 2024 in W.P.(C) No. 11155 of 2023, for assessment year 2023-24. That, and the terms of the operative order at paras 29 and 30, are taken from the judgment itself. The petitioner held 33,482 of his original 1,27,552 options on the record date, the rest having been cancelled on termination or repurchased by Walmart in 2017 and 2018. The judgment has now been read in full. It does not decide the position where options have been exercised and shares allotted, and it does not decide an assessment — only whether the payer had to withhold. Nor does it consider whether the receipt is chargeable under any head other than salaries; the Madras High Court, taking the other view, reasoned through s.2(14) and s.45 as well. 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 writ petition was allowed. For a receipt to fall within the inclusive definition of perquisite in s.17(2)(vi) it must be generated from the exercise of the option by the employee: the value of a specified security under Explanation (c) can be computed only once the option is exercised, and the petitioner had not exercised his options, so none of the contingencies in the clause had occurred and the receipt was not chargeable as a perquisite (para 25). The payment was in any event a one-time voluntary payment made to all option holders on the disinvestment of PhonePe, made without any legal or contractual obligation under the plan, and did not arise out of any transfer of stock options by the employer, so it was not linked to the employment (paras 26 and 27). The reasoning of the impugned order could not be countenanced in law (para 28). The Court set aside the order of 15 July 2023 but, because the transaction had already taken place on 31 July 2023, did not direct a refund: it gave the petitioner liberty to apply to the revenue for refund of the tax deducted and directed the revenue to consider that application in the light of its observations and the extant regulations (para 29).
TaxSphere, “Sanjay Baweja v Dy CIT”, https://taxnotice.vittsphere.com/caselaw/case/sanjay-baweja-v-dcit-esop-one-time-payment/ (validity last checked 2026-09-05)
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 employer put a large ESOP figure in my Form 16 in the year I exercised my options, even though I have not sold a single share. On what provision is that being taxed, and how is the amount worked out?
Is compensation for the fall in value of stock options taxable as salary if I keep the options?
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?
The Dispute Resolution Panel says that because ESOP expenditure is allowable to the employer at vesting, the perquisite must be taxable in the employee's hands at vesting too, and has disallowed our stock compensation cost because we deducted only on exercise. Is there authority on that?
