2018 (3) TMI 1529 - HC - Income Tax

Nature of expenses - discount given in respect of the SAR (Stock Appreciation Rights) similar to Employee Stock Option (ESO) offered by the employer to the work force - revenue or capital - Held that - In PVP Ventures Ltd.case 2012 (7) TMI 696 - MADRAS HIGH COURT held the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction - the expenditure on issue of shares under the Employees Stock Option could be allowed as staff welfare expenditure - Decided in favour of assessee.

Summary

Issues:
1. Allowance of capital expense related to Stock Appreciation Rights (SAR) by the Income Tax Appellate Tribunal (ITAT).
2. Interpretation of Staff Welfare expenditure in relation to Employees Stock Option Plan and Employees Staff Purchase Scheme Guidelines.

Analysis:
1. The Revenue appealed under Section 260A of the Income Tax Act, challenging the ITAT's decision to allow `2,09,63,780/- as a capital expense related to SAR. The ITAT justified its decision by referring to its previous ruling and citing judgments from the Delhi High Court and Madras High Court. The Madras High Court, in a separate case, discussed the treatment of Staff Welfare expenditure, emphasizing that the difference between the market value and the value at which shares were allotted to employees should be considered as an expenditure. The Commissioner of Income Tax held that this difference did not qualify as an expenditure, leading to the revision of the assessment. Ultimately, the Court upheld the ITAT's decision, stating that no question of law arose, and dismissed the appeal.

2. The second issue pertained to the interpretation of Staff Welfare expenditure in relation to the Employees Stock Option Plan. The Tribunal noted that shares were issued to employees to benefit the business and comply with SEBI regulations. The Tribunal emphasized that the difference in market prices and the exercise price by employees should be debited as an expenditure. It was clarified that this expenditure was not notional or contingent but an ascertained liability in line with SEBI guidelines. The Tribunal concluded that the expenditure incurred as per SEBI guidelines could not be deemed erroneous, and the relief granted by the Assessing Authority for the expenditure was justified. Consequently, the Court found no infirmity in the Tribunal's order and dismissed the appeal.

In summary, the judgment addressed the allowance of capital expenses related to SAR and the interpretation of Staff Welfare expenditure concerning the Employees Stock Option Plan. The Court upheld the ITAT's decision, emphasizing compliance with SEBI guidelines and dismissing the appeal as no question of law arose.