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?
No, on these facts — and this is stage one, the perquisite on exercise under s.17(2)(vi). The Tribunal held that the benefit accrued and arose in India at the time the options were GRANTED, in consideration of services rendered in India, even though s.17(2)(vi) brings it to tax only in the year of exercise. Article 15 of the India-UAE treaty gave no protection because the employment to which the benefit related was exercised in India, and the taxpayer's own authorities pointed the other way. Both appeals were dismissed.
Decided by the ITAT (Shri Pramod Kumar, Vice President and Shri Saktijit Dey, Judicial Member (Income Tax Appellate Tribunal, Mumbai Bench 'I')) on 2021-01-13, reported as ITA Nos. 1200 and 1201/Mum/2018, assessment years 2013-14 and 2014-15 (ITAT Mumbai). It bears on section 17(2)(vi), section 5(2), section 9(1)(ii), section 90, section 192, section 244A of the Income Tax Act 1961, in Salary & Perquisites, Residence & Treaty Benefit, How Tax Law Is Read and Refunds, Interest & Condonation matters.
This is the mirror image of the apportionment cases and it is the outcome the Revenue wins. The Tribunal's central proposition is that s.17(2)(vi) fixes the TIMING of the charge and nothing else: it does not change the fact that the benefit arose earlier, when the options were granted for services already rendered. From that follows the source rule the Tribunal applied both under s.5(2) and under Article 15 — the benefit belongs to the jurisdiction in which the qualifying services were rendered. The Tribunal was explicit that this cuts both ways: an employee who earns options for service in the UAE and exercises them after returning to India still has treaty protection for that income; conversely, an employee who earned them for service in India cannot escape by being non-resident in the year of exercise. The decision is also useful for what it does to the taxpayer's own authorities. The Tribunal read Robert Arthur Keltz and Anil Bhansali as apportionment cases that were AGAINST this assessee, because in each of them the proportion referable to Indian service was taxed in India. Practitioners should note that the analysis leans on the United Nations Model Convention commentary and an OECD Centre for Tax Policy publication for the proposition that a stock option relates to the service period required for vesting, and that the exercise is only a timing event.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is an employee of HDFC Bank Limited, Mumbai, on deputation to the bank's representative office in Dubai, where he had been working since 1 October 2007. He was a non-resident in the assessment years in question. HDFC Bank had granted him options on 27 June 2007 over 18,500 shares, vesting as to fifty per cent on 27 June 2008 and fifty per cent on 27 June 2009, at a grant price of Rs 219.74 per share. He exercised them in the relevant financial period, when the market price ranged from Rs 507.40 to Rs 659, producing a perquisite value of Rs 72,77,320 on which the bank deducted tax of Rs 22,48,685. He returned total income of Rs 78,50,010, claimed a refund of Rs 21,46,410 and claimed relief of Rs 20,44,855 under s.90, contending that the ESOP perquisite was not taxable in India at all under s.5(2) because it related to services rendered in the UAE, and alternatively that Article 15 of the India-UAE treaty confined taxation to the UAE. The Assessing Officer rejected both contentions on the footing that the options had been granted in 2007 for services rendered in India when the assessee was resident here, and the Commissioner (Appeals) upheld him.
Both appeals were dismissed and the orders of the authorities below approved (paras 10 and 11). The ESOP benefit accrued and arose in India at the point of time when the ESOP rights were granted, in consideration of services rendered in India before the grant, even though the taxability arises in the year of exercise on account of s.17(2)(vi); "All that section 17(2)(vi) decides is the timing of an income, but it does not dilute or negate the fact that the benefit, in which is being sought to be taxed, had arisen much earlier i.e. at the point of time when the ESOP rights were granted" (para 8). The claim to treaty protection under Article 15 of the India-UAE treaty was rejected because the employment to which the benefit related was exercised in India, and the coordinate bench decisions relied on by the assessee did not support him (para 9).
The Tribunal began from s.5(2) and from the Supreme Court's exposition in E. D. Sassoon & Co. Ltd. v. CIT of the difference between income accruing, arising and being received, quoting the passage from Rogers Pyatt Shellac & Co. approved there, that accrual and arising "represent a state anterior to the point of time when the income becomes receivable" (para 7). Applying that, it held that although the income arose to the assessee in the year of exercise, the rights had been granted in 2007 in consideration of services rendered in India up to then; the character of the income may have been inchoate at that stage, but the benefit had accrued in India (para 8). It supported that with the United Nations Model Convention commentary, that as a general rule an employee stock option should not be considered to relate to services rendered after the period of employment required as a condition for acquiring the right to exercise it, and with an OECD Centre for Tax Policy and Administration publication treating the grant as part of remuneration; from that the Tribunal concluded that the benefit accrues in the jurisdiction in which the qualifying services are rendered and cannot be viewed as accruing when the options are exercised, the exercise determining only the timing of taxability and that by legal fiction (para 8). On the treaty, it read Article 15(1) of the India-UAE treaty and the parallel Article 14 of the United Nations Model Convention with the commentary at paragraphs 12 to 12.2, and held that Article 15 permits taxation of the option benefit in the jurisdiction in which the related employment is exercised; the principle works both ways, so an employee who earns options for UAE service keeps treaty protection on exercising them after returning to India, and conversely one who earns them for Indian service cannot claim it (para 9). It further held that Robert Arthur Keltz and Anil Bhansali, on which the assessee relied, were apportionment decisions taxing in India the proportion of the option benefit relatable to service rendered in India, and so were against him (para 9).
All that section 17(2)(vi) decides is the timing of an income, but it does not dilute or negate the fact that the benefit, in which is being sought to be taxed, had arisen much earlier i.e. at the point of time when the ESOP rights were granted.
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Handle my notice → Ask a CA on WhatsAppNo, on these facts — and this is stage one, the perquisite on exercise under s.17(2)(vi). The Tribunal held that the benefit accrued and arose in India at the time the options were GRANTED, in consideration of services rendered in India, even though s.17(2)(vi) brings it to tax only in the year of exercise. Article 15 of the India-UAE treaty gave no protection because the employment to which the benefit related was exercised in India, and the taxpayer's own authorities pointed the other way. Both appeals were dismissed. This was decided by the ITAT (Shri Pramod Kumar, Vice President and Shri Saktijit Dey, Judicial Member (Income Tax Appellate Tribunal, Mumbai Bench 'I')) and bears on section 17(2)(vi), section 5(2), section 9(1)(ii), section 90, section 192, section 244A of the Income Tax Act 1961. It is reported as ITA Nos. 1200 and 1201/Mum/2018, assessment years 2013-14 and 2014-15 (ITAT Mumbai). This is the mirror image of the apportionment cases and it is the outcome the Revenue wins. The Tribunal's central proposition is that s.17(2)(vi) fixes the TIMING of the charge and nothing else: it does not change the fact that the benefit arose earlier, when the options were granted for services already rendered. From that follows the source rule the Tribunal applied both under s.5(2) and under Article 15 — the benefit belongs to the jurisdiction in which the qualifying services were rendered. The Tribunal was explicit that this cuts both ways: an employee who earns options for service in the UAE and exercises them after returning to India still has treaty protection for that income; conversely, an employee who earned them for service in India cannot escape by being non-resident in the year of exercise. The decision is also useful for what it does to the taxpayer's own authorities. The Tribunal read Robert Arthur Keltz and Anil Bhansali as apportionment cases that were AGAINST this assessee, because in each of them the proportion referable to Indian service was taxed in India. Practitioners should note that the analysis leans on the United Nations Model Convention commentary and an OECD Centre for Tax Policy publication for the proposition that a stock option relates to the service period required for vesting, and that the exercise is only a timing event. If it applies to you, the first step is this: Map the grant date, the vesting conditions and the place where the employee was working during the period the plan required him to serve. That period, not the year of exercise, is what decides source.
The assessee is an employee of HDFC Bank Limited, Mumbai, on deputation to the bank's representative office in Dubai, where he had been working since 1 October 2007. He was a non-resident in the assessment years in question. HDFC Bank had granted him options on 27 June 2007 over 18,500 shares, vesting as to fifty per cent on 27 June 2008 and fifty per cent on 27 June 2009, at a grant price of Rs 219.74 per share. He exercised them in the relevant financial period, when the market price ranged from Rs 507.40 to Rs 659, producing a perquisite value of Rs 72,77,320 on which the bank deducted tax of Rs 22,48,685. He returned total income of Rs 78,50,010, claimed a refund of Rs 21,46,410 and claimed relief of Rs 20,44,855 under s.90, contending that the ESOP perquisite was not taxable in India at all under s.5(2) because it related to services rendered in the UAE, and alternatively that Article 15 of the India-UAE treaty confined taxation to the UAE. The Assessing Officer rejected both contentions on the footing that the options had been granted in 2007 for services rendered in India when the assessee was resident here, and the Commissioner (Appeals) upheld him. The matter was decided on 2021-01-13 by the ITAT (Shri Pramod Kumar, Vice President and Shri Saktijit Dey, Judicial Member (Income Tax Appellate Tribunal, Mumbai Bench 'I')). On those facts the ITAT held as follows. Both appeals were dismissed and the orders of the authorities below approved (paras 10 and 11). The ESOP benefit accrued and arose in India at the point of time when the ESOP rights were granted, in consideration of services rendered in India before the grant, even though the taxability arises in the year of exercise on account of s.17(2)(vi); "All that section 17(2)(vi) decides is the timing of an income, but it does not dilute or negate the fact that the benefit, in which is being sought to be taxed, had arisen much earlier i.e. at the point of time when the ESOP rights were granted" (para 8). The claim to treaty protection under Article 15 of the India-UAE treaty was rejected because the employment to which the benefit related was exercised in India, and the coordinate bench decisions relied on by the assessee did not support him (para 9).
The Tribunal began from s.5(2) and from the Supreme Court's exposition in E. D. Sassoon & Co. Ltd. v. CIT of the difference between income accruing, arising and being received, quoting the passage from Rogers Pyatt Shellac & Co. approved there, that accrual and arising "represent a state anterior to the point of time when the income becomes receivable" (para 7). Applying that, it held that although the income arose to the assessee in the year of exercise, the rights had been granted in 2007 in consideration of services rendered in India up to then; the character of the income may have been inchoate at that stage, but the benefit had accrued in India (para 8). It supported that with the United Nations Model Convention commentary, that as a general rule an employee stock option should not be considered to relate to services rendered after the period of employment required as a condition for acquiring the right to exercise it, and with an OECD Centre for Tax Policy and Administration publication treating the grant as part of remuneration; from that the Tribunal concluded that the benefit accrues in the jurisdiction in which the qualifying services are rendered and cannot be viewed as accruing when the options are exercised, the exercise determining only the timing of taxability and that by legal fiction (para 8). On the treaty, it read Article 15(1) of the India-UAE treaty and the parallel Article 14 of the United Nations Model Convention with the commentary at paragraphs 12 to 12.2, and held that Article 15 permits taxation of the option benefit in the jurisdiction in which the related employment is exercised; the principle works both ways, so an employee who earns options for UAE service keeps treaty protection on exercising them after returning to India, and conversely one who earns them for Indian service cannot claim it (para 9). It further held that Robert Arthur Keltz and Anil Bhansali, on which the assessee relied, were apportionment decisions taxing in India the proportion of the option benefit relatable to service rendered in India, and so were against him (para 9). In the words reproduced by the source cited on this page: "All that section 17(2)(vi) decides is the timing of an income, but it does not dilute or negate the fact that the benefit, in which is being sought to be taxed, had arisen much earlier i.e. at the point of time when the ESOP rights were granted." The decision followed or applied E. D. Sassoon & Co. Ltd. v. C.I.T. [(1954) 26 I.T.R. 27 (S.C.)] — applied; ACIT v. Robert Arthur Kultz [(2013) 59 SOT 203 (Del)] — distinguished, and read as being in favour of the Revenue; Anil Bhansali v. ITO [(2015) 53 taxmann.com 367 (Hyd)] — distinguished on the same footing.
It was decided by the ITAT on 2021-01-13 and is reported as ITA Nos. 1200 and 1201/Mum/2018, assessment years 2013-14 and 2014-15 (ITAT Mumbai). 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)(vi), section 5(2), section 9(1)(ii), section 90, section 192, section 244A, 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Both appeals were dismissed and the orders of the authorities below approved (paras 10 and 11). The ESOP benefit accrued and arose in India at the point of time when the ESOP rights were granted, in consideration of services rendered in India before the grant, even though the taxability arises in the year of exercise on account of s.17(2)(vi); "All that section 17(2)(vi) decides is the timing of an income, but it does not dilute or negate the fact that the benefit, in which is being sought to be taxed, had arisen much earlier i.e. at the point of time when the ESOP rights were granted" (para 8). The claim to treaty protection under Article 15 of the India-UAE treaty was rejected because the employment to which the benefit related was exercised in India, and the coordinate bench decisions relied on by the assessee did not support him (para 9). It arises in Salary & Perquisites, Residence & Treaty Benefit, How Tax Law Is Read and Refunds, Interest & Condonation matters, on section 17(2)(vi), section 5(2), section 9(1)(ii), section 90, section 192, section 244A of the Income Tax Act 1961, and was decided by Shri Pramod Kumar, Vice President and Shri Saktijit Dey, Judicial Member (Income Tax Appellate Tribunal, Mumbai Bench 'I'). 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. Do not argue that a non-resident status in the year of exercise defeats the charge. The Tribunal held the benefit accrued in India when the options were granted, and it approved bringing it to tax on exercise. If part of the qualifying service was rendered abroad, plead APPORTIONMENT rather than exemption, and support it with the contract, the assignment letters and the day count. That is what succeeded in Keltz and Anil Bhansali. For treaty relief under an Article 15 equivalent, prove the nexus between the option benefit and employment EXERCISED in the other State. The Tribunal accepted that the same reasoning protects an employee who earned the options abroad and exercised them after returning to India. Check whether s.9(1)(ii) and its Explanation are being relied on separately, and keep the s.5(2) accrual question distinct from the deeming provision. Read this order together with the s.192 timing point in Bharat Financial Inclusion; the two are not on the same question.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing and no later Bench has cited the order. What the searches do show is that the assessee tried to have it recalled and failed: a miscellaneous application under section 254(2) was dismissed by the same Bench on 21 October 2022, the Tribunal holding that complaints about the characterisation of facts, the use of OECD material and the alleged non-consideration of evidence are errors of judgment and not mistakes apparent on the record ('we reject the rectification petition filed by the assessee'). The order therefore stands and is no longer open to recall, but a dismissed rectification petition is not an affirmance of the reasoning, and no High Court appeal was traced. 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 runs to eleven numbered paragraphs and ends with the disposal at paragraph 11; I transcribed the opening words of every one before citing any. Paragraphs 3 and 4 are almost entirely the ASSESSEE'S submissions reproduced from the assessment order, including his numbered sub-paragraphs 9 to 14 and his reliance on Keltz and Anil Bhansali; those are counsel's words and are not findings, and I have not used them as such. The Tribunal's own reasoning is at paragraphs 7 to 9 and its conclusion at paragraph 10. Within paragraph 8 the Tribunal quotes the United Nations Model Convention commentary and an OECD Centre for Tax Policy and Administration publication; those quotations are the commentaries speaking, not the Tribunal. The order spells the coordinate bench decision as "Robert Arthur Kultz" at paragraph 9 and as "Robert Arthur Keltz" in the assessee's submission at paragraph 3, and cites it as (2013) 59 SOT 203 (Del); the cause title of that Delhi Tribunal order is itself "Robert Arthur Keltz", although indiankanoon files it under the page title "Robert Aruther Keltz". Note also for findability that indiankanoon files THIS order under the party name "Shri Unni Krishnan Vadakkedath", which is why a title search on "Unnikrishnan" returns nothing. The assessee's submission refers to a Delhi High Court appeal, ITA No. 57/2014 dated 23 July 2014; I could NOT locate or read any such High Court judgment, and nothing in this entry rests on it. Paragraph 3 records the grant date as 27 June 2007 while the assessee's submission at paragraph 4 speaks of an option "granted to the employee on 9.1.2006" in a passage that appears to have been carried over from another case; I have used 27 June 2007, which is the Tribunal's own recital. 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.
Both appeals were dismissed and the orders of the authorities below approved (paras 10 and 11). The ESOP benefit accrued and arose in India at the point of time when the ESOP rights were granted, in consideration of services rendered in India before the grant, even though the taxability arises in the year of exercise on account of s.17(2)(vi); "All that section 17(2)(vi) decides is the timing of an income, but it does not dilute or negate the fact that the benefit, in which is being sought to be taxed, had arisen much earlier i.e. at the point of time when the ESOP rights were granted" (para 8). The claim to treaty protection under Article 15 of the India-UAE treaty was rejected because the employment to which the benefit related was exercised in India, and the coordinate bench decisions relied on by the assessee did not support him (para 9).
TaxSphere, “Unnikrishnan V S v ITO (International Taxation) — an ESOP benefit accrues where the qualifying services were rendered, so a non-resident who was granted options for work done in India is taxed here on exercise”, https://taxnotice.vittsphere.com/caselaw/case/unnikrishnan-vs-esop-perquisite-of-a-non-resident-accrues-where-the-services-were-rendered/ (validity last checked 2026-09-09)
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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 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?
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 paid me for the fall in value of options I never exercised. Is that a perquisite?
