The Income Tax department on Monday moved the Supreme Court challenging the Karnataka High Court order holding that IT major Infosys Technologies was not liable to deduct tax at source on employees stock option plan.

A bench of Justice S H Kapadia tagged the matter with another similar petition pending before it.

According to the department, the high court, which upheld the Income Tax Appellate Tribunal's order, was wrong in holding that Infosys was not liable to deduct TDS on the stock option plan extended to its employees.

It has sought the apex court's directions as to whether a stock option scheme, which had been exempted since 2000 onward can be treated as having exempted even in earlier assessment year of 1999-2000.

According to petition, stock option provided a benefit as the shares were allotted at a reduced rate to the employees. "It is nothing but a concession or benefit granted to an employee and would certainly amount to perquisite to an employee...", it added.

The ITAT had rejected the department's contention that Section 17(2)(iiia) of the Income Tax Act was classificatory in nature and not applicable to the assessment years.

It further held Infosys cannot be treated as a defaulter not deducting TDS under Section 192 of the Act in regard to issue of shares to its employees at a concessional rate as the same could not be treated as perquisite (salary).

Infosys had formulated Employees Stock Option Plan in 1999 under which shares were transferred to a trust which would in turn transfer shares to respective employees.

The company had challenged department's show cause notice proposing to treat it as defaulter for failing to deduct TDS in shares issued to its employees.