DIRECT TAXES
| Is stock option received from a holding company taxable Mon, 22 Nov 2010 |
| The Hindu Is stock option received from a holding company taxable? QUESTION: Shares in a holding company are given to employees of subsidiary companies by way of stock option at less than fair market value. Is the difference between market value and the option price on exercise of such option taxable? If so, what is the provision in law under which it can be brought to tax? ANSWER: Valuation of perquisites in the hands of the employee has to be made with reference to Clause (vi) of Explanation 4 to Sec. 17(2). It includes stock option given by an employer “directly or indirectly”. There is no reason for a holding company to reward the employees of a subsidiary company except for the benefit of the subsidiary company, so that it is an indirect benefit obtained by virtue of employment in the subsidiary company. The benefit is received by the employee as the employee of the subsidiary company, so that there is liability even independently of the aforesaid clause in view of Rule 3(7)(ix), which is a blanket provision requiring arm's length price to be adopted for any benefit not covered by other sub-rules, arising out of employment. There is no escape from liability under this sub-rule. |
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