Educomp Solutions Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 833/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7319 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 21-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDER KAUR
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH B BB B : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND PRESIDENT AND PRESIDENT AND PRESIDENT AND SHRI SHRI SHRI SHRI H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU, JUDICIAL , JUDICIAL , JUDICIAL , JUDICIAL MEMBER MEMBER MEMBER MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 833/DEL/2012 833/DEL/2012 833/DEL/2012 833/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2008 2008 2008 2008 - -- - 09 0909 09 M/S EDUCOMP SOLUTIONS M/S EDUCOMP SOLUTIONS M/S EDUCOMP SOLUTIONS M/S EDUCOMP SOLUTIONS LIMITED, LIMITED, LIMITED, LIMITED, 1211, PADMA TOWER 1, 1211, PADMA TOWER 1, 1211, PADMA TOWER 1, 1211, PADMA TOWER 1, 5, RAJEN 5, RAJEN 5, RAJEN 5, RAJENDRA PLACE, DRA PLACE, DRA PLACE, DRA PLACE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 008. 110 008. 110 008. 110 008. PAN : AAACE2983M. PAN : AAACE2983M. PAN : AAACE2983M. PAN : AAACE2983M. VS. VS. VS. VS. ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, RANGE RANGE RANGE RANGE- -- -11, 11, 11, 11, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GAURAV JAIN, ADVOCATE AND MS. SHAILY GUPTA, CA. RESPONDENT BY : SMT. PARMINDER KAUR, SR.DR. ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED CIT(A)-XIII, NEW DELHI DATED 21 ST NOVEMBER, 2011 FOR THE AY 2008-09. 2. GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDE R:- IN THE FACTS AND CIRCUMSTANCES OF LAW, THE LD.CIT( A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN MA KING AN ADDITION OF RS.8,27,17,775/- BY DISALLOWING THE EXP ENDITURE DEBITED TO P&L ACCOUNT ON ACCOUNT OF AMOUNT AMORTIZ ED UNDER THE EMPLOYEES STOCK OPTION SCHEME (ESOP) WITH OUT APPRECIATING THE FACTS OF THE CASE. 3. THE OTHER GROUNDS ARE ONLY ARGUMENTS IN SUPPORT OF ABOVE GROUND NO.1. ITA-833/DEL/2012 2 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILE D THE RETURN DECLARING TOTAL INCOME AT `57,45,70,490/- WHICH WAS SUBSEQUENTLY REVISED TO `52,42,84,150/-. IN THE RETURN OF INCOM E, THE ASSESSEE HAD CLAIMED THE DEDUCTION AMOUNTING TO `8,27,17,775/- U NDER THE HEAD EMPLOYEE STOCK OPTION SCHEME (ESOP). DURING THE AC COUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , THE ASSESSEE COMPANY BROUGHT TWO SCHEMES FOR ISSUE OF ESOP. THE DEDUCTION CLAIMED AT `8,27,17,775/- WAS WORKED OUT AS UNDER:- ESOP SCHEME DATE OF GRANT MARKET PRICE RS. PER SHARE EX ERCISE PRICE RS. PER SHARE INTRINSIC VALUE TOTAL NO. OF OPTIONS NO. OF EFFECTIVE OPTIONS TOTAL COST AMORTIZED IN F.Y. 2007-08 1 2 3 4 5 6 7 8 9 ESOP 2006 01.04.07 959 125 833.60 387250 311788 259908867 37129552 ESOP 2006 01.04.07 959 125 834 237750 237 750 198283500 39656700 ESOP 2007 23.11.07 3333 1023 2310 30385 49365 114034333 5813296 ESOP 2207 23.11.07 3333 3333 - 1500 1500 - - ESOP 2007 04.01.08 4495 1023 3472 1000 1000 3472000 118226 657885 601403 575696700 82717775 5. THE ASSESSING OFFICER DISALLOWED THE SAME HOLDIN G THAT THERE WAS NO ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE. ON APPEAL, LEARNED CIT(A) SUSTAINED THE ORDER OF THE ASSESSING OFFICER . HENCE, THIS APPEAL BY THE ASSESSEE. 6. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE SPECIAL BE NCH OF ITAT IN THE CASE OF BIOCON LTD. VS. DCIT [2013] 144 ITD 21. H E STATED THAT THE SPECIAL BENCH OF ITAT HAS CONSIDERED THE IDENTICAL ISSUE AND HAS EXAMINED EVERY ASPECT, I.E., WHETHER THE DEDUCTION IS ALLOWABLE ON ISSUE OF EMPLOYEES STOCK OPTIONS AND HOW TO COMPUT E THE DEDUCTION AND HAS ALSO CONSIDERED WHETHER ANY ADJUSTMENT IS R EQUIRED TO BE ITA-833/DEL/2012 3 MADE IN THE SUBSEQUENT YEAR IF ANY OPTION REMAINED UNEXERCISED OR LAPSED AT THE END OF THE EXERCISE PERIOD. THE ITAT ARRIVED AT THE CONCLUSION THAT THE DEDUCTION IS ALLOWABLE AND THE METHOD PROVIDED BY THE ITAT FOR COMPUTING THE DEDUCTION IS SIMILAR TO THE DEDUCTION WORKED OUT BY THE ASSESSEE. HE, THEREFORE, SUBMITT ED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO ALLOW THE DEDU CTION CLAIMED AT `8,27,17,775/- ON ACCOUNT OF ISSUE OF ESOP. 7. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF AUTHORITIES BELOW AND SHE FURTHER STATED THAT IF TH E BENCH INTENDS TO FOLLOW THE DECISION OF THE SPECIAL BENCH OF ITAT, T HEN, THE MATTER NEEDS TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICE R FOR RE-EXAMINATION OF THE FACTS IN THE LIGHT OF THE FINDING OF THE SPECIA L BENCH OF ITAT. 8. IN THE REJOINDER, LEARNED COUNSEL REITERATED THA T THE WORKING OF DEDUCTION BY THE ASSESSEE IS IN CONFORMITY WITH THE METHOD PRESCRIBED BY THE ITAT FOR ASCERTAINING THE QUANTUM OF DEDUCTI ON. HOWEVER, HE HAS NO OBJECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE QUANTUM OF DEDUCTIO N. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. WE FIND THAT THE ISSUE UNDER APPEAL BEFORE US IS SQUARELY COVERED BY THE D ECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF BIOCON LTD. (S UPRA). IN THE AFORESAID DECISION, THE SPECIAL BENCH OF ITAT FIRST DISCUSSED WHETHER THE DEDUCTION IS ALLOWABLE IN RESPECT OF DISCOUNT O N SHARES ISSUED UNDER THE ESOP. THE FINDING OF THE ITAT IS AS UNDE R:- WHETHER DEDUCTION IS ALLOWABLE. ALSO, IT IS DISCERNIBLE FROM THE ABOVE PROVISIONS O F FRINGE BENEFIT TAX THAT THE LEGISLATURE ITSELF CONTEMPLATE S THE DISCOUNT ON PREMIUM UNDER ESOP AS A BENEFIT PROVIDE D BY ITA-833/DEL/2012 4 THE EMPLOYER TO ITS EMPLOYEES DURING THE COURSE OF SERVICE. IF THE LEGISLATURE CONSIDERS SUCH DISCOUNTED PREMIU M TO THE EMPLOYEES AS A FRINGE BENEFIT OR ANY CONSIDERATION FOR EMPLOYMENT, IT IS NOT OPEN TO ARGUE CONTRARY. ONC E IT IS HELD AS A CONSIDERATION FOR EMPLOYMENT, THE NATURAL COROLLARY WHICH FOLLOWS IS THAT SUCH DISCOUNT I) IS AN EXPENDITURE; II) SUCH EXPENDITURE IS ON ACCOUNT OF AN ASCERTAINED (NOT CONTINGENT) LIABILITY; AND III) IT CANNOT BE TREATED AS A SHORT CAPITAL RECEIPT. THEREFORE, DIS COUNT ON SHARES UNDER THE ESOP IS AN ALLOWABLE DEDUCTION. (EMPHASIS BY UNDERLINING PROVIDED BY US) 10. THUS, THE SPECIAL BENCH OF ITAT CLEARLY HELD TH AT DISCOUNT ON SHARES UNDER THE ESOP IS AN ALLOWABLE DEDUCTION. I N VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCT ION FOR DISCOUNT ON SHARES UNDER THE ESOP. THE ITAT ALSO PRESCRIBED TH E METHOD FOR COMPUTING THE QUANTUM OF DEDUCTION WHICH READS AS U NDER:- QUANTUM OF DEDUCTION. AN EMPLOYEE BECOMES ENTITLED TO THE SHARES AT A DISCOUNTED PREMIUM OVER THE VESTING PERIOD DEPENDIN G UPON THE LENGTH OF SERVICE PROVIDED BY HIM TO THE COMPANY. IN ALL SUCH SCHEMES, IT IS AT THE END OF THE VESTING PERIOD THAT OPTION IS EXERCISABLE ALBEIT TH E PROPORTIONATE RIGHT TO OPTION IS ACQUIRED BY RENDER ING SERVICE AT THE END OF EACH YEAR. SIMILAR IS THE POSITION FROM THE STAND POINT OF THE COMPANY. AN OBLIGATION FALLS UPON THE COMPANY TO A LLOT SHARES AT THE TIME OF EXERCISE OF OPTION DEPENDING UPON THE LENGTH OF SERVICE RENDERED BY THE EMPLOYEE DURI NG THE VESTING PERIOD. THE INCURRING OF LIABILITY TOWARDS THE DISCOUNTED PREMIUM, BEING COMPENSATION TO EMPLOYEE, IS DIRECTLY LINKED WITH THE SPAN OF SERVICE PUT IN BY THE EMPLOYEE. IT, THEREFORE, TRANSPIRES THAT A COMPANY , UNDER THE MERCANTILE SYSTEM CAN LAWFULLY CLAIM DEDUCTION FOR TOTAL DISCOUNTED PREMIUM REPRESENTING THE EMPLOYEES COST OVER THE VESTING PERIOD AT THE RATE AT WHICH THERE IS VESTING OF OPTIONS IN THE EMPLOYEES. THEREFORE, IT IS APPARENT THAT THE COMPANY INCURS LIABILITY TO ISSUE SHARES AT THE DISCOUNTED PREMIUM ONLY DURING THE VESTING PERIOD. THE LIABILITY IS NEITHE R INCURRED ITA-833/DEL/2012 5 AT THE STAGE OF THE GRANT OF OPTIONS NOR WHEN SUCH OPTIONS ARE EXERCISED. CONSIDERING THE QUESTIONS OF WHEN AND HOW MUCH OF DEDUCTION FOR DISCOUNT ON OPTIONS IS TO BE GRANTED, IT IS HELD THAT THE LIABILITY TO PAY THE DISCOUNTED PREMIUM IS INCURRED DURING THE VESTING PERIOD AND THE AMOUNT OF SUCH DEDUCTION IS TO BE FOUND OUT AS PER THE TERMS OF TH E ESOP SCHEME BY CONSIDERING THE PERIOD AND PERCENTAGE OF VESTING DURING SUCH PERIOD. THEREFORE, DEDUCTION O F THE DISCOUNTED PREMIUM IS TO BE ALLOWED DURING THE YEAR S OF VESTING ON A STRAIGHT LINE BASIS. 11. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CLAIME D THAT THE DISCOUNT WORKED OUT BY THE ASSESSEE, THOUGH NAMED A S AMORTIZATION, IS SIMILAR TO THE METHOD PRESCRIBED BY THE SPECIAL BENCH FOR COMPUTING DEDUCTION. LEARNED DR HAD SUGGESTED THAT THE MATTE R MAY BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE QUANTUM OF DEDUCTION. AFTER CONSIDERING THE FACTS OF THE CASE , WE AGREE WITH THE CONTENTION OF THE LEARNED DR AND DIRECT THE ASSESSI NG OFFICER TO VERIFY THE QUANTUM OF DEDUCTION CLAIMED BY THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE O F BIOCON LTD. (SUPRA) AND ALLOW THE DEDUCTION FOR DISCOUNT ON SHARES UNDE R THE ESOP AS PER THE DECISION OF SPECIAL BENCH OF ITAT. NEEDLESS TO MENTION THAT ASSESSING OFFICER WILL ALLOW ADEQUATE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DE EMED TO BE ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2014. SD/- SD/- ( (( ( H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU ) )) ) (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 26.09.2014 VK. ITA-833/DEL/2012 6 COPY FORWARDED TO: - 1. APPELLANT : M/S EDUCOMP SOLUTIONS LIMITED, M/S EDUCOMP SOLUTIONS LIMITED, M/S EDUCOMP SOLUTIONS LIMITED, M/S EDUCOMP SOLUTIONS LIMITED, 1211, PADMA TOWER 1, 1211, PADMA TOWER 1, 1211, PADMA TOWER 1, 1211, PADMA TOWER 1, 5, RAJENDRA PLACE, NEW DELHI 5, RAJENDRA PLACE, NEW DELHI 5, RAJENDRA PLACE, NEW DELHI 5, RAJENDRA PLACE, NEW DELHI 110 008. 110 008. 110 008. 110 008. 2. RESPONDENT : ADDITIONAL COMMISSIONER OF INCOME T AX, ADDITIONAL COMMISSIONER OF INCOME TAX, ADDITIONAL COMMISSIONER OF INCOME TAX, ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE RANGE RANGE RANGE- -- -11, NEW DELHI. 11, NEW DELHI. 11, NEW DELHI. 11, NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR