2013 (7) TMI 944 - HC - Income Tax

Capital gain - LTCG OR STCG - dates of acquisition of the shares for determining capital gain - Held that - The assessee had given the dates of allotment, but this had to be verified by the Assessing Officer. For the purpose of verification, the matter was remanded. It was directed that if the dates of allotment of shares were found to be correct, the Assessing Officer would accept the claim of the assessee relating to long term capital gain and pass consequential order. Thus, what was to be verified and examined were the dates of allotment of shares. While examining the said aspect, the Assessing Officer had to go into the question as to when the shares were actually allotted as per the stock option plan. It cannot be said here that hands of the Assessing Officer were tied and he could not have gone into the question of date of allotment and should have been treated the date of vesting as the date of allotment. There is no such observation or finding by the tribunal. In view of the concession made by the both sides, tribunal had not examined and answered any aspect on merits. The Assessing Officer has specifically gone into the question as to when the allotment has taken place i.e. the date of allotment as per the stock option plan. He had made observations in this regard and recorded his findings. The first appellate authority and tribunal have not gone into the said aspect and merits. We answer the question of law in favour of the appellant-Revenue and against the respondent-assessee, but with an order of remand to the tribunal for deciding whether the findings recorded by the Assessing Officer on the question of date of allotment are correct or not

Summary

Issues:
1. Determination of long term or short term capital gain from the sale of shares based on the date of acquisition.
2. Admissibility of additional evidence in violation of Rule 46A(3) of Income Tax Rules.

Analysis:
1. The primary issue in this case revolved around the classification of capital gain as long term or short term based on the date of acquisition of shares. The respondent, an individual and former employee of Microsoft Corporation, declared income for the assessment year 2004-05, including gains from the sale of shares acquired under a Stock Option Plan. The Assessing Officer disputed the classification of the gain as long term capital gain, instead treating it as short term capital gain, resulting in an addition to the income. The CIT (Appeals) initially accepted the assessee's claim, but on appeal by the Revenue, the matter was remanded to the Assessing Officer for verification of the dates of acquisition of bonus shares to determine the nature of the capital gain.

2. During the remand process, the Assessing Officer found that the vesting date of shares differed from the date of allotment, concluding that the sale transactions constituted short term capital gain. The Assessing Officer emphasized that the vesting schedule did not equate to the date of allotment, supporting the taxation of the gain as short term capital gain. The first appellate authority sided with the assessee, asserting that the remand order was solely for verifying the dates of vesting and not for determining the date of allotment, leading to a decision in favor of long term capital gain.

3. The Revenue appealed once more, contending that the tribunal misunderstood the purpose of the remand order, which was to verify the dates of allotment of shares. The tribunal upheld the CIT (Appeals) decision, emphasizing that the remand was specific to the verification of dates and did not delve into the merits of the case. The High Court, however, disagreed with the tribunal's interpretation, asserting that the Assessing Officer was required to examine the date of allotment as per the stock option plan to determine the nature of the gain accurately. Consequently, the High Court ruled in favor of the Revenue, remanding the case back to the tribunal to ascertain the correctness of the Assessing Officer's findings on the date of allotment.

In conclusion, the High Court's judgment clarified the Assessing Officer's duty to verify the date of allotment of shares for accurate classification of capital gain, overturning the previous decisions in favor of the assessee and remanding the case for further examination.