Employee unit option scheme - SEBI Ready Reckoner - SEBI

As per regulation 2(1)(la) of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 , unless the context otherwise requires,- employee unit option scheme means- a scheme under which the manager grants unit options to its employees through an employee benefit trust. Explanation. - For the above purpose, employees of the manager shall include all directors of the manager except independent directors. SHRIRAM TRANSPORT FINANCE COMPANY LIMITED- [ 2022 (6) TMI 1428 - MADRAS HIGH COURT] As per the notification No. 323/2001 (F.No. 142/48/2001-TPL) dated 11.10.2001 issued by CBDT, the assessee companies have to follow the SEBI guidelines. As per the SEBI guidelines 1999, the accounting value of options shall be treated as another form of employees compensation and in the financial statements, the assessee companies treated the difference between the exercise price of share and the market rates as employees compensation. The ESOP expenditure is a compensation paid to the employees for their work and is in the nature of perquisite, which aspect has been recognised in the provisions relating to salary and Fringe Benefit Tax under the Act. The ESOP scheme is an employee welfare measure and the income referable to the employees effort is recognised in the profit and loss account under the head personnel expenses . The grant of ESOP stimulates the employees to put their best effort, which will increase the output and profit of the company. Therefore, the ESOP expenditure is commercial expediency. In this context, the CIT(A) referred to the decision of the Hon ble supreme court in SA Builders Ltd [288 ITR 1]. The orders of the ITAT, Chandigarh in ACIT Versus Spray Engineering Devices Ltd. - 2012 (7) TMI 587 - ITAT CHANDIGARH , wherein, it was held that the value of shares allotted to the employees under the sweat equity scheme is allowable , and ITAT, in S.S.I. Limited Versus Deputy CIT - 2004 (12) TMI 680 - ITAT CHENNAI , in which, it was held that the ESOP discount is a revenue and allowable business expenditure ; and the order of this court in CIT Versus M/s. PVP Ventures Limited - 2012 (7) TMI 696 - MADRAS HIGH COURT , were relied upon by the CIT(A). ESOP scheme is a voluntary scheme launched by the employer to issue shares to their employees, with an intent to give a stake to the employees in the organisation as incentives for performing better. Such an expenditure is incurred to facilitate and promote the business and there is no enduring benefit or advantage or creation of asset to the company, rather it is to earn more revenue and the expenses incurred for such purpose is nothing but revenue expenditure. It is a general principle that any expenditure incurred for the purpose of business is a deductible expenditure and the amount spent by an assessee for labour / employees welfare, would be deductible as revenue expenditure. In the decision of the Karnataka High Court in The CIT, The Dy. CIT Versus M/s. Biocon Ltd. - 2020 (11) TMI 779 - KARNATAKA HIGH COURT , the question as to whether the expenditure towards ESOP is allowable as deduction under section 37(1) of the Act, was considered and was ultimately decided that the same amounted to definite legal liability, which has to be allowed as deduction, after considering the definition of employees stock option under section 2(15A) of the Companies Act, 1956. The new provision under section 2(37) of the Companies Act, 2013 also is in similar lines.