2013 (11) TMI 567 - AT - Income Tax

Sale of ESOP Determination of Period of holding - Date of acquisition Whether sale of ESOP constitutes long term (LTCG) or short term capital gains (STCG) Held that - Date of acquisition of ESOP is to be taken as the date when the option was given to the assesse, relying upon the decision in the case of ACIT vs. Sh. Param Paul Uberoi 2013 (11) TMI 566 - ITAT DELHI and Abhiram Seth vs. JCIT 2011 (9) TMI 186 - ITAT, New Delhi - Date of acquisition of ESOP is to be taken as the date when the option was given to the assesse. In other words the Tribunal in these decisions has held that the assesse acquired a valuable right on the date of grant and this valuable right, which is capital asset, when sold after 3 years, was liable to be taxed under the head Long term capital Gain . The valuable right which is a capital asset is held for more than 36 months by the assessee making it a long term capital asset In the present case, directed the AO to tax the gain in question under the head long term capital gain Decided in favor of Assessee.

Summary

Issues involved:
Validity of reopening of assessment, classification of capital gains as short term or long term

Validity of reopening of assessment:
The appeal was against the order of the Ld.CIT(A)-XXX, New Delhi dated 05.02.2010 for the Assessment Year 2007-08. The assessee, an individual with income from various sources, filed a revised return declaring income from the sale of stock options under a cashless scheme. The AO issued a notice under section 148 for reassessment, which the assessee objected to. The Ld. Counsel argued that there was no new material for the reopening and cited relevant case law. The reasons for reopening did not provide any fresh information beyond what the assessee had disclosed. The Tribunal held that the reopening lacked tangible material and was therefore bad in law, following the decision in a similar case.

Classification of capital gains as short term or long term:
The dispute revolved around whether the capital gains from the sale of ESOPs were short term or long term. The assessee contended that as the stock options were granted for more than 36 months before being sold, they should be treated as long term capital gains. The Ld. DR argued for short term classification based on the information from the employer. The Tribunal examined various case laws and held that the date of acquisition of ESOP should be considered as the date of grant, making the gain a long term capital asset if held for more than 36 months. Relying on precedents, the Tribunal directed the AO to tax the gain as long term capital gain. The appeal was allowed in favor of the assessee.

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