DCIT 26(2), MUMBAI V. LAXMANAN SHANKAR, MUMBAI

ITA 8697/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84401 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Capital asset
• Section: 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI R.C. SHARMA, (AM) AND SANJAY GARG, (JM) . . , , , ./I.T.A. NO.8697/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) ASSTT.COMMISSIONER OF INCOME TAX -26(2), ABOVE SMT. K.G.MITTAL AYURVED HOSPITAL BUILDING, NEAR CHARNI ROAD STATION, MARIND DRIVE, MUMBAI-400002. / VS. LAXMANAN SHANKAR, A-316, RAJAT RAKHA SOCIETY, 142/6, JAYAPRAKASHA ROAD, SEVEN BUNGLOWS, ANDHERI (W), MUMBAI. ( / APPELLANT) .. ( ! / RESPONDENT) ./ ' ./PAN/GIR NO. : AAOPS6731J # / APPELLANT BY SHRI ASGHAR ZAIN ! $ # /RESPONDENT BY S/SHRI K SHIVRAM AND RAHUL SARDA % & $ '( / DATE OF HEARING : 26.11.2014 )* $ '( /DATE OF PRONOUNCEMENT : 5.12.2014 / O R D E R PER R.C. SHARMA, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 25.10.2011 FOR THE ASSESSMENT YEAR 2007-08. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE : '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 SOLUTIONS LTD AS LEGAL OWNER FOR MORE THAN ONE YEAR AND HENCE, IT WAS LON G TERM CAPITAL ASSET 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND F OUND FROM THE RECORD THAT DURING THE YEAR THE ASSESSEE SOLD 2000 SHARES OF M/ S I.FLEX SOLUTIONS LTD. THE I.T.A. NO.8697/MUM/2011 2 AO OBSERVED THAT THE ASSESSEE HAS PURCHASES THESE S HARES ON 18.12.2006 WHICH WAS SOLD ON 20.12.2006. ACCORDINGLY, THE L ONG TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE WAS TREATED BY AO SHORT T ERM CAPITAL GAINS. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) TREATED I T AS LONG TERM CAPITAL GAINS BY OBSERVING AS UNDER: 3.2 THE ASSESSEE GOT 250 SHARES AS ON 01.04.20 00 AS 'LEGAL OWNER'. FURTHER, 250 SHARES BECAME 500 SHARES ON AC COUNT OF 1:1 BONUS SHARES ISSUED IN OCTOBER 2000. THERE WAS SPLIT IN T HE YEAR 2002 AND PAID UP SHARES OF RS.10/- WAS SPLIT INTO TWO SHARES OF R S.5/-. IN THAT YEAR PURSUANT TO SPLIT, ASSESSEE BECAME FULL LEGAL OWNER OF 1000 SHARES AS ON 31.12.2002. FOLLOWING ANOTHER ROUND OF 1:1 BONUS IN 2003, ASSESSEE BECAME LEGAL OWNER OF 2000 SHARES. THUS, AS ON 01.0 1.2005, ASSESSEE BECAME FULL LEGAL OWNER' 2000 SHARES. 3.3 THE ASSESSEE HAD SOLD 2000 SHARES ON 20.12.200 6. THE SALE OF 2000 SHARES ON 20.12.2006 ACQUIRED BY THE ASSESSEE AS ON 01.01.2005 WOULD RESULT IN LA TERM CAPITAL GAINS AN D NOT SHORT TERM CAPITAL GAINS . THE ASSUMPTION AS PER LAW IS FOR FIFO ((FIRST IN FIRST OUT) AND NOT LIFO (LAST IN FIRST OUT). IN VIEW OF THIS STAND OF THE AO IS N OT AS PER LAW. THE FACT THAT ASSESSEE WAS GIVEN ONLY PROF IT AFTER DEDUCTING THE COST @ RS.900 PER SHARE (WHICH AFTER BONUS AND SPLI T BECAME RS.112.50 FOR EACH SHARE) DOES NOT MEAN THAT ASSESSEE BECAME OWNER OF THE SHARES IN 2006 ONLY WHEN HE EXERCISED OPTION TO SEL L. THE INFERENCE DRAWN THE AO IS NOT CORRECT. AS EXPLAINED IN THE ESOP SCH EME, THE ASSESSEE BECAME OWNER OF 10% OF THE SHARES OFFERED AS PER FS OP SCHEME 2000 BY 01.01.2001,25% OF THE SHARES OFFERED AS PER ES OP SCHEME 2000 AS ON 1.1.2002, 45% OF THE SHARES OFFERED AS PER ESOP SCHEME 2000 AS ON 1.1.2003 AND 70% OF THE SHARES OFFERED AS PER ESOP SCHEME 2000 AS ON 1.1.2004, AND BECAME 100% OWNER OF THE SHARES OFFER ED AS PER ESOOP SCHEME 2000 AS ON 1.1.2005. THE CONTENTION OF THE ASSESSEE THAT HE SHOULD BE ASSESSED ONLY FOR LONG TERM CAPITAL GAIN S IN RESPECT OF 2000 SHARES SOLD BY HIM IN DECEMBER 2006 OF WHICH HE BE CAME LEGAL OWNER AS ON 1.1.2005 IS ACCEPTED. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT THE ASSESSEE HAS GOT THESE SHARES UNDER A SCHEME O F ESOP WHEREIN THE ASSESSEE RECEIVED 250 SHARES IN APRIL 2000 (BEFORE THE ISSUE OF THE BONUS IN OCTOBER 2000 AND SEPTEMBER 2003 AND SPLIT OF THE S HARES IN TWO OF RS.5/- EACH). HOWEVER, NO BASIS HAS BEEN GIVEN BY THE AO FOR HOLDING THAT THE SHARES WERE PURCHASED ON 18.12.2006. HOWEVER, LD. CIT(A) HAS RECORDED, FINDING TO THE EFFECT THAT THE SHARES WERE ALLOTTED TO THE ASS ESSEE UNDER ESOP SCHEME IN THE YEAR 2000 AND THEREAFTER BONUS SHARES WERE ISSU ED AND THERE WAS A SPLIT OF I.T.A. NO.8697/MUM/2011 3 SHARES WHICH RESULTED IN TOTAL NUMBER OF SHARES AT 2000, ACCORDINGLY TREATED THE SAME AS LONG TERM CAPITAL ASSETS. AT NO POINT OF T IME, THE LD. DR CONTROVERTED THE FINDING OF CIT(A), BY BRINGING ANY POSITIVE MATERI AL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A ) FOR ALLOWING THE ASSESSEES CLAIM OF LONG TERM CAPITAL GAINS. THE ISSUE IS ALS O SQUARELY COVERED BY THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CAS E OF ABHIRAM SETH V/S JCIT (2013) 79 DTR 63 AND THE DECISION OF HYDERABAD BEN CH OF THE TRIBUNAL IN THE CASE OF ACIT V/S DR.DHURJATI GUPTA (2010) 33 DTR (HYD) (TRIB) 287. THE SHARES ALLOTTED IN THE VERY SAME SCHEME BY THE VERY SAME EMPLOYER HAS BEEN DEALT WITH BY THE TRIBUNAL IN THE CASE OF MUTHUS WAMY RAVIKUMAR V/S ACIT (2009) 120 ITD 444 (BANG) (TRIB) AND THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER : IT IS THE DATE OF GRANT OF THE STOCK OPTION IN FAVOUR OF THE ASSESSEE THAT IS MATERIAL FOR DETERMINING THE PERIOD OF HOLDING THE ASSET IN QUESTION, AND NOT THE DATE ON WHICH THE OPTION WAS EXERCISED AND STOCK OPTIONS WERE CONVERTED INTO SHARES. CAPITAL GAINS ARISING OUT OF THE SALE OF SHARES ACQUIRED THROUGH ESOPS HAVE TO BE ASSESSED AS LONG- TERM CAPITAL GAINS WITH CONSEQUENTIAL BENEFITS OF INDEXATION AND EXE MPTION UNDER S. 54 RESPECTFULLY FOLLOWING THE ORDER OF TRIBUNAL, WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) FOR ALLOWING THE CLAIM OF LONG TERM CAPITAL GAINS. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 5TH DEC , 2014. )* % + , - 5 TH DEC , 2014 * $ & 5 SD SD ( / SANJAY GARG) ( . . ,/ R.C. SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % 7& MUMBAI 5TH DEC,2014. . . ./ SRL , SR. PS I.T.A. NO.8697/MUM/2011 4 !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. % 8' ( ) / THE CIT(A)- CONCERNED 4. % 8' / CIT CONCERNED 5. 9: '; , ( ; , % 7& / DR, ITAT, MUMBAI CONCERNED 6. < =& / GUARD FILE. % / BY ORDER, TRUE COPY > (ASSTT. REGISTRAR) ( ; , % 7& /ITAT, MUMBAI