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HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE

Commissioner of Income Tax, Bangalore v. Infosys Technologies Ltd.

Civil Appeal No. 3725 of 2007 / Civil Appeal No. 17 of 2008 (arising from SLP(C) No. 16926 of 2007)
[2008] 1 SCR 136 ·
17(2)(iii) · 17(2)(iiia) (then later insertion considered) · 192 · 201(1) · 201(1A)

Reasoned final decisionAssessee employer
Download AKHB noteFive-part research note
Sources & disclosures includedDownload original judgment / order

Two-judge bench · S.H. Kapadia, J. · B. Sudershan Reddy, J.

Assessment years: 1997-98, 1998-99, 1999-2000

01 · Facts of the case

Infosys implemented its employee stock-option scheme through a welfare trust holding warrants. An eligible employee paid Re 1 for a warrant, could exercise after a twelve-month minimum period by paying the remaining Rs 99, and received a share subject to five-year restrictions. Custody remained with the trust, transfer and pledge were barred, and departure from employment required retransfer for Rs 100. The stock exchange was notified of non-transferability (paragraph 2).

For the three assessment years, the AO treated market value on exercise less employee payments as a taxable perquisite and imposed salary-withholding default and interest consequences. The principal illustration used an approximately Rs 165 crore perquisite and Rs 49.52 crore withholding amount for AY 1999-2000. CIT(A) agreed; the Tribunal and High Court accepted the company’s challenge. Revenue brought the two appeals (paragraphs 3–5).

Source: See the proposition-specific paragraph and PDF-page references below.

02 · Discussion by the Hon’ble Court

The Court focused on valuation under the provisions then in force. A warrant was a right without an obligation to buy; grant and vesting did not guarantee exercise. At exercise the lock-in, trust custody, retransfer condition and inability to realise or pledge the shares made the alleged benefit notional and its value unascertainable on the method Revenue used. The AO could not simply ignore these restrictions and use an unrestricted quoted-market difference (paragraphs 6–11 and 16–18).

The Court rejected retrospective use of former section 17(2)(iiia), inserted with effect from 1 April 2000. That provision introduced specified-security, cost and value definitions and an exercise-linked mechanism; it was not treated as a mere clarification of the earlier years. The judgment also noted the clause’s later deletion from 1 April 2001. The charge and computation framework had to support the levy in the actual years (paragraphs 12–15).

On the particular facts there was no basis to treat the employer as a section 192 defaulter, so sections 201(1) and 201(1A) did not apply as invoked. The Court explicitly withheld opinion on the law after 1 April 2000 beyond the aspects it discussed. Its recognition of no cash inflow in this scheme does not establish that all non-cash employment benefits escape tax (paragraphs 16–19).

Source: See the proposition-specific paragraph and PDF-page references below.

03 · Judicial decision

Both Revenue appeals were dismissed without costs. The employer’s withholding-default and consequential interest treatment for the identified historical scheme and years was rejected. No general adjudication of every employee’s later share sale, later statutory ESOP regime or employer compensation deduction was made (paragraphs 18–20).

Source: See the proposition-specific paragraph and PDF-page references below.

04 · Outcome / in whose favour

In whose favour: Assessee employer

Both Revenue appeals dismissed; no order as to costs

Final on the disputed historical section 192/201 treatment for the restricted scheme

Pre-1 April 2000 years and specific restrictions/valuation deficiency. Not a present ESOP exemption, a cash-realisation condition for all perquisites, or an employer section 37 deduction ruling.

Source: See the proposition-specific paragraph and PDF-page references below.

05 · AKHB REVIEW POINT

Build a year-specific chronology of grant, vesting, exercise, allotment, restrictions and release. This decision turned on the actual restrictions and missing valuation mechanism in the earlier statutory scheme, not simply on the ESOP label. Keep employer withholding, employee perquisite charge, eventual capital gains and the employer’s deduction question separate.

The later regime cannot be assumed unchanged. A bounded read of official CBDT Circular 5/2010 paragraph 42.2(a) records the later section 17(2)(vi) provision for employer-provided specified securities, using exercise-date fair market value less the amount paid or recovered, with paragraph 42.3 identifying AY 2010-11 applicability. This note does not audit all later valuation rules, startup deferrals or current/2025 provisions. That checked later explanation reinforces the judgment’s express temporal limit.

Source: See the proposition-specific paragraph and PDF-page references below.

Proposition-specific source paragraphs and PDF pages

  • topic
    Identity and scheme
    source url
    Open cited source
    pdf pages
    1; 5; 6
    paragraphs
    Cover; connected appeal; 1–2
    source role
    reported metadata and judicial text
  • topic
    Restrictions and procedural result
    source url
    Open cited source
    pdf pages
    6; 7
    paragraphs
    2–5
    source role
    judicial text
  • topic
    Valuation issue and historic provisions
    source url
    Open cited source
    pdf pages
    8; 9; 10; 11
    paragraphs
    6–11
    source role
    judicial text
  • topic
    Non-retrospectivity and legislative mechanism
    source url
    Open cited source
    pdf pages
    11; 12; 13
    paragraphs
    12–16
    source role
    judicial text
  • topic
    Default consequence, express temporal reservation and dismissal
    source url
    Open cited source
    pdf pages
    14
    paragraphs
    17–20
    source role
    judicial text
  • topic
    Bounded later statutory explanation
    source url
    Open cited source
    pdf pages
    44
    paragraphs
    42.2(a) and 42.3
    source role
    official CBDT explanatory circular

Judicial authorship and separate opinions

S.H. Kapadia, J.

Act identified in the reviewed source

Income-tax Act, 1961

Source & verification

Download original judgment / order · Open cited source rendition

Identified source rendition: 14 PDF pages; SHA-256 32952673a057e701d8b633bdab62465d124580aacb19e5428e7fc5002b3a15b1. Original bytes preserved. Complete judicial paragraphs 1–20, physical pages 6–14/SCR 141–149; preceding report/headnote excluded. No adjacent judgment.

  • Two civil appeals are printed; the frozen metadata contains only the lead one. Three assessment years are narrated without an individual appeal-to-year allocation.; Paragraph 3 states employee payments of Rs 6.64 crore; paragraph 9 states Rs 6.46 crore. The market/perquisite/withholding figures are approximate and not arithmetically reconciled here.; Paragraph 8 says the appeal concerns value, not taxability; later paragraphs discuss the absence of the then legislative charge/computation. The note reports both in their historical setting rather than creating a timeless exemption.; The source uses both allotted shares and a later statement that shares could not be obtained before the lock-in ended. The factual restrictions on custody, transfer and retransfer are stated without inventing an ownership-date holding.; The headnote’s opening section 20 reference is not an independently adjudicated section; the judicial default provisions are 201(1) and 201(1A).

Statutory scope

Current statutory equivalence and 2025 Act applicability have not been verified.

Later treatment

Source checked 2026-10-04. Comprehensive subsequent judicial and statutory treatment has not been verified. Only the expressly identified bounded comparisons have been checked. No current-law or Income-tax Act, 2025 mapping is certified.

Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.

Identified source links

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