DCIT 26(2), MUMBAI V. RAJESH MAKHIJA, MUMBAI

ITA 8696/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75898 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 06-02-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 23-12-2011
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIYA
• Assessee Lawyers: DR K SHIVARAM; PARAS S SAVIA
• Keywords: Capital asset; Date of conversion

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 8696/MUM/2011 ASSESSMENT YEAR. 2004-05 DCIT 26(2) THE ACIT-26(2) ABOVE SMT. K.G. MITTAL AYURVED HOSPITAL BUILDING, NEAR CHARNI ROAD STATION, MARINE DRIVE, MUMBAI 400 002. VS. RAJESH MAKHIJA I-B, 603, WHISPERING PALMS, LOKHANDWALAL COMPLEX, AKRUTI ROAD, KANDIVALI (EAST) MUMBAI 400066. PAN:- AADPM0676M APPELLANT RESPONDENT REVENUE BY SHRI DEEPAK SUTARIYA ASSESSEE BY DR. K. SHIVARAM AND SHRI PARAS S. SAVIA. ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 20.10.2011, FOR ASSESSMENT YEAR 2004-05. THE REVENU E HAS RAISED THE ONLY GROUND AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE HAS B EEN HOLDING THE 2000 SHARES OF HIS EMPLOYER COMPANY M/S I-FLEX SOLUTION S LTD. AS LEGAL OWNER FOR MORE THAN ONE YEAR AND HENCE, IT WAS LON G TERM CAPITAL ASSET 2. THE ASSESSEE IS AN EMPLOYEE OF I-FLEX SOLUTIONS LTD. THE ASSESSEE DERIVED GAIN OF RS. 15,71,870/- ON SALE OF 2,000 SHARES OF I-FLEX SOLUTIONS LTD. RECEIVED BY DATE OF HEARING 06 .02.2014 DATE OF PRONOUNCEMENT 14 - 03 - 2014 2 HIM UNDER EMPLOYEES STOCK OPTION (ESOP) 1998 SCEHEM E. THE ASSESSEE CLAIMED THE SAID GAIN AS LONG TERM CAPITAL GAIN ON TRANSFER OF SHARES. THE AO NOTED THAT THE ASSESSEE BECAME FULL OWNER OF THE SHARES ONLY O N 01.01.2003 AND THE SHARES HAVE BEEN SOLD ON 28.11.2003 AND 12.12.2003 RESPECT IVELY. THEREFORE, THE ASSESSEE HAS EARNED A SHORT TERM CAPITAL GAIN NOT L ONG TERM CAPITAL GAIN, ACCORDINGLY THE AO ASSESSED THE GAIN AS SHORT TERM CAPITAL GAIN. 3. ON APPEAL CIT(A) NOTED THAT THE ASSESSEE BECAME THE LEGAL OWNER OF SHARES IN QUESTION ON 01 ST JANUARY 1999 AND 01 ST JANUARY 2000 RESPECTIVELY. THEREFORE, THE SALE OF 2000 SHARES ON 28.11.2003 AND 12.12.200 3 OUT OF THE TOTAL NUMBER OF SHARES OF 5600 OF WHICH LEGAL OWNERSHIP ACQUIRED BY THE ASSESSEE IN THE YEAR 1999 AND 2000 WOULD RESULT INTO LONG TERM CAPITAL G AIN AND NOT SHORT TERM CAPITAL GAIN. THE CIT(A) APPLIED THE PRINCIPLE OF FIRST IN AND FIRST OUT (FIFO) IN HOLDING THAT IN 2000 SHARES SOLD BY THE ASSESSEE ARE FROM FIRST LO T OF THE SHARE ON WHICH THE ASSESSEE ACQUIRED LEGAL OWNERSHIP IN THE YEAR 1999, 2000 AND 2001. 4. BEFORE US, THE LD DR HAS RELIED UPON THE ORDER O F AO AND SUBMITTED THAT AS PER THE SCHEME, THE ASSESSEE ACQUIRED FULL LEGAL OW NERSHIP OF THE ENTIRE EOSP SHARES ALLOTTED UNDER SCHEME ONLY ON 01 ST JANUARY 2003 AND, THEREFORE, THE SHARE SOLD IN THE MONTH OF NOV AND DECEMBER 2003 RESULTIN G SHORT TERM CAPITAL GAIN AND NOT LONG TERM CAPITAL GAIN. 5. ON THE OTHER HAND LD. AR OF THE ASSESSEE HAS REF ERRED THE SCHEME IN WHICH THE SHARES WERE ALLOTTED UNDER THE EMPLOYEES STOCK OPTION (ESOP) 1998 SCHEME, AND SUBMITTED THAT THE BENEFICIARY OWNERSHIP WAS CO NVERETED IN THE FULL LEGAL OWNERSHIP IN A PHASED MANNER AND UP TO JANUARY 2001 , 45% OF THE TOAL SHARES WERE CONVERTED INTO FULL LEGAL OWNERSHIP OF HE ASSE SSEE. THEREFORE, AFTER CONSIDERING THE BONUS SHARES AND SPLITTING OF SHARE S, THE ASSESSEE GOT THE FULL LEGAL OWNERSHIP OF 11,600 SHARES UPTO 01 ST JANUARY 2001 OUT OF WHICH THE ASSESEE SOLD 2000 SHARES 1,000 EACH ON 28.11.2003AND 12.12.2003 RESPECTIVELY AFTER A GAP OF MORE THAN A YEAR, ACCORDINGLY THE GAIN ARISING FROM THE SALE OF SHARES IS A LONG TERM CAPITAL GAIN. HE HA SUPPORTED THE IMPUGNED ORD ER OF CIT(A). 3 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND RELE VANT MATERIAL ON RECORD WE NOTE THAT UNDER THE SCHEME OF ESOP 1998, THE ASSESS EE WAS GIVEN THE RIGHT TO RECEIVE 2000 SHARES OF THE COMPANY. SUBSEQUENTLY, T HERE WAS BONUS ISSUE TWICE 1:1 IN THE YEAR 1999 AND 2000 AND FURTHER THERE WAS A SPLIT OF SHARE OF RS. 10 INTO 2 SHARES OF RS. 5 IN THE YEAR 2002. THE CIT(A) HAS CONSIDERED THE SCHEME AND CONVERSION OF FULL LEGAL OWNERSHIP IN THE PHASED MA NNER UNDER THE SCHEME AS REPRODUCED IN PARA 3.1 AS UNDER:- 3.1 BEFORE THIS ISSUE IS DECIDED, IT IS RELEVANT TO APPRECIATE THE SCHEME OF ESOP'98 BY VIRTUE OF WHICH THE ASSESSEE RECEIVED 2000 SHARES I N 1998 (BEFORE THE ISSUE OF THE BONUS IN THE YEAR 1999 AND 2000 AND SPLIT OF THE SHARES IN TWO OF RS.5/ - EACH). THE RELEVANT PORTION OF THE SCHEME AS TO HOW THE ESOP WORKS AND WHAT IS THE MEANING OF BENEFICIARY OWNERSHIP AND FULL LEGAL OWNERSHIP ETC. .ARE EXPLAINED AS UNDER : 2. HOW WILL THE ESOP WORK? ADDITIONAL EQUITY SHARES, SPECIFICALLY EARMARKED FOR THE ESOP LHAVE BEEN ISSUED BY THE COMPANY, (IS APPROVED BY THE GENERAL BODY OF CITI L SHAREHOLDERS. A TRUST NAMED 'CITIL EMPLOYEE STOCK OPTION TRUST' HAS BEEN FORMED, WHICH WILL HOLD THESE HOLD THESE ESOP CLLLLITY SHARES UNTIL LEGAL OWNERSHIP IS ACTUALLY TRANSFERRED TO EMPLOYEES A PARTICULAR NO. OF SHARES (MENTIONED IN YOUR LETTER OF OFFER) HAS BEEN ALLOCATED TO YOU, AT AS STRIKE PRICE OF RS.400/- PER SHARE. YOU WILL BECOME THE BENEFICIARY OWNER OF THESE SHARES AS STATED IN HYOUR LETTER OF OFFER, WITH IMMEDIATE EFFECT. THIS BENEFICIARY OWNERSHIP WILL BE CONVERTED INTO FULL LEGAL OWNERSHIP IN A PHASED MANNER, AS YOUR EMPLOYMENT ASSOCIATION WITH CITIL PROGRESSES IN FUTURE. THE MILESTONES FOR SUCH CONVERSION ARE AS FALLOWS: ON JAN 1, 1999 : 10% OF SHARES MENTIONED IN YOUR LE TTER ON JAN1, 2000 : 15% OF SHARES MENTIONED IN YOUR LET TER ON JAN1, 2001 : 20% OF SHARES MENTIONED IN YOUR LET TER ON JAN1, 2001 : 25% OF SHARES MENTIONED IN YOUR LET TER ON JAN 1,2002 : 30% OF SHARES MENTIONED IN YOUR LE TTER THUS, ON JAN 1, 2003, YOU CAN ACQUIRE FULL LEGAL OW NERSHIP OF THE ENTIRE ESOP SHARES ALLOCATED TO YOU UNDER ESOP 1998, PROVIDED YOU CON TINUE TO BE IN THE EMPLOYMENT OF THE COMPANY AT THAT TIME AND EXERCISE THE OPTION B Y PAYING THE STRIKE PRICE. 3. WHAT IS THE MEANING OF BENEFICIARY OWNERSHIP? HOW IS IT DIFFERENT FROM FULL LEGAL OWNERSHIP./ BENEFICIARY OWNERSHIP MEANS THAT THE SHARES HAVE BE EN ALLOCATED TO YOU UNDER CERTAIN CONDITIONS, AND ARE BEING HELD BY THE TRUST ON YOUR BEHALF. HOWEVER, YOU DO NOT HAVE THE FULL OWNERSHIP OF HE SHARES AS YET, AND YOU CANNOT SELL OR USE THEM AS SECURITY, OR PLACE A 4 LIEN ON THE. YOU WILL, HOWEVER, BE ENTITLED TO RECE IVE THE DIVIDENDS (NET OF ALL TAXES, COSTS ETC. IF ANY) THAT MAY BE DECLARED BY THE COMPANY IN ITS EQUITY SHARES FROM TIME TO TIME, EVEN WHILE YOU HAVE ONLY BENEFICIARY OWNERSHIP. ONCE YOU ACQUIRE FULL LEGAL OWNERSHIP, YOU MAY SELL THE SHARES, PLACE A LIEN ON THEM, ETC., PROVIDED YOU HAVE ACTUALLY EXERCISED YOUR OPTION BY PURCHASING THESE SHARES FROM THE TRUST BY PAYING THE STRIKE PRICE. 4. DO I NEED TO PAY FOR THE SHARES?WHEN? INITIALLY, KWHEN THE SHARES ARE ALLOCATED TO YOU AS BENEFICIAL OWNER, YOU NEED NOT PAY ANYTHING. YOU WILL RECEIVE THE DIVIDENDS THAT MAY BE DECLARED ON THOSE SHARES, EVEN THOUGH YOU HAVE NOT AS YET PAID ANYTHING TOWARDS PU RCHASE OF THE SHARES. WHEN YOU BECOME ENTITLED TO FULL LEGAL OWNERSHIP OF THE SHA RES (E.G.) TO 10% OF THE SHARES ON JAN, 1999), YOU HAVE 3 OPTIONS: YOU CAN PAY THE STRIKE PRICE AND PURCHASE THAT PORT ION OF THE SHARES FROM THE TRUST OUTRIGHT. YOU CAN REQUEST THE TRUST TO DISPOSE OF THE SHARES AT THE BEST POSSIBLE PRICE THAT THE TRUST CAN GET AND PAY YOU THE DIFFERENCE BETWEE N THE PRICE AT WHICH THE SALE TAKES PLACE AND THE STRIKE PRICE. THE TRUSTEES DE CISION ON SUCH SALE WILL BE FINAL AND BINDING. (THIS FACILITY WILL BE AVAILABLE ONLY TO ESOP PARTICIPANTS, AND NOT TO OTHER SHAREHOLDERS). YOU CAN THUS GET THE ADVANTAG E OF THE APPRECIATION IN SHARE VALUE, WITHOUT HAVING TO INVEST ANY AMOUNT FROM YOU R SIDE. YOU CAN LET THE TRUST CONTINUE TO HOLD THE SHARES O N YOUR BEHALF UNTIL YOU ARE IN A POSITION TO PAY FOR THEM. HOWEVER, THIS OPTION IS A VAILABLE TO YOU ONLY FOR A MAXIMUM PERIOD OF 10 YEARS I.E, BEFORE JAN,1 2009 , AT THE LATEST, YOU MUST PAY FOR THE SHARES AND ACQUIRE THEM OUTRIGHT FROM THE T RUST. IF NOT, THE TRUST WILL AT ITS SOLE DISCRETION, DISPOSE OF THE SHARES, AND PAY OUT THE DIFFERENCE, IF ANY, BETWEEN THE DISPOSAL VALUE AND THE STRIKE PRICE. TH E TRUSTEES DECISION ON SUCH SALES WILL BE FINAL AND BINDING. 7. IT IS CLEAR FROM THE SCHEME THAT INITIALLY THE A SSESSEE WAS ONLY A BENEFICIARY OWNER OF THE SHARES TO BE ALLOTTED UNDER SCHEME UP TO THE DATE ON WHICH THE BENEFICIARY OWNERSHIP WILL BE CONVERTED INTO FULL LEGAL OWNERSHIP IN A PHASED MANNER. EVEN ON THE DATE OF FULL OWNERSHIP, THE ASS ESSEE WAS HAVING TWO OPTIONS VIZ. (I) BY MAKING THE PAYMENT OF STRIKE PRICE AND PURCHASE THE PORTION OF THE SHARES FROM THE TRUST OUTRIGHT (II) THE ASSESEE COU LD REQUEST THE TRUST TO RETAIN THE SHARES AND DISPOSE OFF AT THE BEST POSSIBLE PRICE A ND PAY THE DIFFERENCE BETWEEN THE PRICE AT WHICH THE SALE TAKE PLACE AND STRIKE P RICE TO THE ASSESSEE OR THE ASSESSEE COULD TAKE THE ADVANTAGE OF THE APPRECIATI ON IN THE SHARE VALUE BY LETTING THE TRUST CONTINUE TO HOLD THE SHARES FOR A MAXIMUM PERIOD OF TEN YEARS I.E. BEFORE 01 ST JANUARY 2009 AND ON SALE, RECEIVED THE DIFFERENCE BETWEEN THE 5 SALE PRICE AND STRIKE PRICE. THUS THE SCHEME UNDER CONSIDERATION GAVE THE BENEFICIARY RIGHT OF 2000 SHARES AT THE STRIKE PRIC E OF RS. 400 PER SHARES. THE SHARES WERE TO BE HELD BY THE TRUST UP TO THE DATE ON WHICH THE BENEFICIARY RIGHT/OWNERSHIP WERE CONVERTED INTO FULL LEGAL OWNE RSHIP. EVEN AFTER THE DATE OF CONVERSION OF BENECIFIARY OWNERSHIP TO THE FULL LEG AL OWNERSHIP THE ASSESSEE HAD AN OPTION NOT TO PAY THE PRICE AND ACQUIRE THE SHAR ES BUT ALLOW THE TRUST TO RETAIN THE SHARE AND DISPOSE OFF. THE ASSESSEE OPTED THE S ECOND OPTION UNDER WHICH ALLOWED THE TRUST TO DISPOSE OFF THE SHARES AT THE BEST POSSIBLE PRICE AND RECEIVE THE DIFFERENCE OF THE SALE PRICE AND THE STRIKE PRI CE. IT IS MANIFEST FROM THE SCHEME OF ESOP, IN QUESTION THAT AN EMPLOYEE COULD AVAIL O R REAP THE BENEFIT OF APPRECIATION IN THE VALUE OF SHARES OVER THE YEARS WITHOUT PAYING ANY COST. THE ASSESSEE CHOSE TO REAP THE BENEFIT OF APPRECIATION IN THE VALUE OF SHARES WITHOUT PAYING THE STRIKE PRICE FOR ACQUIRING THE SHARES IN HIS NAME. THEREFORE, UNDER THE SCHEME WHAT WAS AWARDED BY THE COMPANY TO THE ASSES SEE WAS STOCK APPRECIATION RIGHT UNDER WHICH THE ASSESSEE WAS ENT ITLED TO RECEIVED THE REDUMPTION BENEFICIAL FOR STOCK APPRECIATION RIGHT I.E. DIFFERENCE BETWEEN THE SALE PRICE AND THE STRIKE PRICE WITHOUT ACTUAL TRANSFER OF THE SHARES IN THE NAME OF THE ASSESSEE. SINCE THE ASSESSEE HAS NOT PAID ANY PRICE AND ONLY RECEIVED THE APPRECIATION IN THE VALUE OF SHARES, THEREFORE, WHA T THE ASSESSEE HAS GOT UNDER THE SCHEME WAS STOCK APPRECIATION RIGHT WHICH IS DI FFERENT FROM STOCK OPTION SCHEME IN TRUE SENSE, WHERE AN EMPLOYEE ACQUIRES TH E STOCK UNDER THE SCHEME EITHER FREE OF COST OR ON CONCESSIONAL PRICE. THERE FORE, THE BENEFIT AVAILED BY THE ASSESSEE UNDER THE SCHEME FALLS UNDER THE AMBIT OF PERQUISITE IN TERMS OF SECTION 17(2)(IIIA) AS EXIST AT THE RELEVANT POINT OF THE I NCOME TAX ACT. HOWEVER IN THE CASE OF THE ASSESSEE, THE AO HIMSELF HAS TREATED TH E DIFFERENCES ON ACCOUNT OF STOCK APPRECIATION RIGHT AS SHORT TERM CAPITAL GAIN , THEREFORE, THE SAID ISSUE DOES NOT ARISE FROM THE IMPUGNED ORDERS OF THE AUTHORITI ES BELOW. THEREFORE, WE DO NOT PROPOSE TO GO INTO THE ISSUE OF PERQUISITE U/S 17(2)(IIIA) AS THE SAME IS ASSESSABLE TO TAX UN THE YEAR WHEN THE ASSESSEE HAS EXERCISED ITS OPTION AND THE BENEFICIARY OWNERSHIP IS CONVERTED INTO FULL LEGAL OWNERSHIP. 8. SO FAR AS THE QUESTION OF SHORT TERM CAPITAL GAI N IS CONCERNED, IT IS CLEAR FROM THE FACTS AND DETAILS EXAMINED BY THE CIT(A) T HAT 2000 SHARES SOLD BY THE TRUST WERE CONVERTED INTO FULL LEGAL OWNERSHIP OF T HE ASSESSEE IN TERMS OF THE SCHEME MORE THAN 1 YEAR PRIOR TO THE DATE OF SALE. THE CIT(A) HAS DISCUSSED THE FACTS AND DECIDED THE ISSUE IN PARA 3.2 AND 3.3 AS UNDER:- 6 3.2 IN VIEW OF THE ABOVE FACTS, IT IS APPARENT THAT ASSESSEE GOT 200 SHARES AS ON 01.01.1999 AS 'LEGAL OWNER'. FURTHER, 200 SHARES BE CAME 400 SHARES ON ACCOUNT OF BONUS SHARES ISSUED IN 1999. IN THE FOLLOWING YEAR, I.E. AS ON 01.01.2000, THE ASSESSEE BECAME LEGAL OWNER OF ANOTHER 600 SHARES ( 15 % OF THE SHARES OFFERED + 1:1 BONUS). FOLLOWING OTHER ROUND OF 1:1 BONUS IN THE Y EAR 2000, THE ASSESSEE BECAME LEGAL OWNER OF TOTAL 2000 SHARES. IN THE YEA R 2001, ASSESSEE BECAME LEGAL OWNER OF ADDITIONAL 1600 SHARES (20% OF 2000 WHICH AFTER TWO 1:1 BONUS IN 1999 AND 2000 BECAME 1600 SHARES) IN ADDITION TO 2000 SHARES HE H AD HELD AS FULL LEGAL OWNER AS ON 01.01.2000. AS ON 01.01.2002, THE ASSESSEE BECAME F ULL LEGAL OWNER OF ANOTHER 25% OF SHARES ORIGINALLY OFFERED WHICH AFTERWARDS BECAME 2 000 SHARES AFTER TWO 1:1 BONUSES IN 1999 & 2000. THERE WAS SPLIT IN THE YEAR 2002 AND PAID UP SHARES OF RS.I0J - WAS SPLIT INTO TWO SHARES OF RS.5J -. IN THAT YEAR, PURSUANT TO SPLIT, ASSESSEE BECAME FULL LEGAL OWNER OF 4000 SHARES AS ON 31.12.2002. AS ON 01.01. 2003, ASSESSEE BECAME LEGAL OWNER OF OTHER 30% OF SHARES ORIGINALLY OFFERED OF WHICH AFTER TWO 1:1 BONUSES IN 1999&2000 AND SPLIT IT BECAME 4800 SHARES. AS ON 01.01.2003, ASSESSEEE BECAME FULL LEGAL OWNER OF 16000 SHARES. THE OWNERSHIP CAN BE PUT IN THE TABUL AR FORM AS UNDER:- ORIGINAL NO. SHARES OF LEGAL OWNERSHIP THE YEAR OF LEGAL OWNERSHIP BONUS SHARES ISSUED IN 1999 IN THE RATIO 1:1 BONUS SHARES ISSUED IN 2000 IN RATIO 1:1 TOTAL NO. OF SHARES AFTER THE BONUS TOTAL NO. OF SHARES AFTER THE SPLIT TOTAL NO. OF SHARES 200 1999 200 400 800 1600 1600 300 2000 300 600 1200 2400 4000 400 2001 400 800 1600 3200 7200 500 2002 500 1000 2000 4000 11200 600 2003 600 1200 2400 4800 16000 3.3 THE ASSESSEE HAD SOLD 1000 SHARES ON 28.11.200 3 AND OTHER 1000 SHARES ON 12.12.2003 12.12.2003. IF WE EXCLUDE THE SHARES RECEIVED DURIN G 2003, THE ASSESSEE HAD ALREADY ACQUIRED 11200 SHARES AS ON 01 .01.200'_. THE SALE OF 2000 SHARES ON 28.11.2003 AND 12.12.2003 OUT OF 112 00 SHARES ACQUIRED BY THE ASSESSEE AS ON 01.01.2002 WOULD RESULT IN LONG TERM CAPITAL GAINS AND NOT SHORT TERM CAPITAL GAINS. THE ASSUMPTION AS PER LAW IS FOR FIFO (FIRST IN FIRST OUT) AND NOT UFO (LAST IN FIRST OUT). IN VIEW OF TH IS, THE STAND OF THE AO IS NOT AS PER LAW. THE FACT THAT ASSESSEE WAS GIVEN ONLY T HE PROFIT AFTER DEDUCTING THE COST @ RS.-L:OO PER SHARE (WHICH AFTER BONUS AND SPLIT BECAME RS.2S J - EACH SHARE) DOES NOT MEAN THAT ASSESSEE BECAME OWNER OF THE SHARES IN 2003 ONLY WHEN HE EXERCISED OPTION TO SELL. THE INFERENCE DRA WN BY THE AO IS NOT CORRECT. AS EXPLAINED IN THE ESOP SCHEME, THE ASSESSEE BECAM E OWNER OF 10% OF THE 7 SHARES OFFERED AS PER ESOP SCHEME 1998 BY 01.01.199 9, 25% OF THE SHARES OFFERED AS PER ESOP SCHEME 1998 AS ON 01.01.2000, 4 5% OF THE SHARES OFFERED AS PER ESOP SCHEME 1998 AS ON 01.01.2001 AND 70% OF THE SHARES OFFERED AS PER ESOP SCHEME 1998 AS ON 01.01.2002, AND BECAME 1 00% OWNER OF THE SHARES OFFERED AS PER ESOP SCHEME 1998 AS ON 01.01. 2003. THE CONTENTION OF THE ASSESSEE THAT HE SHOULD BE ASSESSED ONLY FOR LO NG TERM CAPITAL GAINS IN RESPECT OF 2000 SHARES SOLD BY HIM DURING THE YEAR 2003 OUT OF 11200 SHARES OF WHICH HE BECAME LEGAL OWNER AS ON 01.0-1.2002 IS ACCEPTED. 9. THE FINDINGS OF CIT(A) ARE BASED ON THE FACTS WH EREIN THE DATES ON WHICH THE ASSESSEE ACQUIRED THE RIGHT IN THE SHARES UNDER ESOP SCHEME, HOWEVER SINCE THE ASSESSEE HAS DERIVED THE BENEFIT BY WAY OF DIFF ERENCE IN THE PRE-DETERMINED PRICE AND THE MARKET PRICE AND NOT BY ACQUIRING AND SELLING OF THE SHARES, THEREFORE, IT IS NOT A CASE OF TRANSFER OF LONG TER M CAPITAL ASSET BEING AN EQUITY SHARE BUT ONLY A TRANSFER OF RIGHT IN THE EQUITY S HARE I.E. TO ACQUIRE EQUITY SHARES IN A COMPANY INCLUDING ACCRETIONS THERETO, AT DEFIN ED (PRE DEFINED) PRICE/S. THEREFORE, THE PERIOD FOR THE PURPOSE OF LONG TERM CAPITAL ASSET OR SHORT TERM CAPITAL ASSET HAS TO BE THREE YEARS AND NOT ONE YEA R. ACCORDINGLY FOR THIS LIMITED PURPOSE WE DIRECT THE AO TO RECOMPUTED THE CAPITAL GAIN AFTER CONSIDERING THE RECKONING DATE AS THE DATE OF LEGAL OWNERSHIP CONVE RTED IN THE FAVOUR OF THE ASSESSE AND THE DIFFERENCE BETWEEN THE MARKET PRICE ON THE DATE WHEN THE BENEFICIARY RIGHT WAS CONVERTED INTO FULL LEGAL OWN ERSHIP AND THE SALE PRICE OF THE SHARES WOULD BE CONSIDERED AS CAPITAL GAIN. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISPOSED OFF IN ABOVE TERMS ORDER PRONOUNCED IN THE OPEN COURT ON 14/03/2 014 SD/- SD/- (SANJAY ARORA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 14/03/2014 SKS SR. P.S 8 COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, D BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI