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TMI Blog2011 (9) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... ability. - The right of shares constitute capital assets and the gains should be taxed as “Long Term Capital Gains” as the holding period is more than 3 years. - Decided in favor of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... 27-1-2000 4963 34.00 25-2-2004 52.00 89076 4052958 14966315 27-7-1995 2783 21.54 59946 25-7-1996 2514 29.84 75018 23-9-1999 5056 32.25 163056 27-01-2000 4963 34.00 168742 - Sale of Shares (valuable right) on 25-2-2004 15316 USD $ 796432 - Cost of shares sold (as per chart above) USD $ 466742 - Gain USD $ 328930 - Gain converted @ 45.50 per USD ($) INR ₹ 14966315 The gains were claimed as Long term capital gains as the asset held the rights for a period of more than three years by the assessee. Besides, assesseeclaimed deduction u/s 54F against these gains by way of investment in residential house. 4.1. The return was accepted u/s 143(1)(a). Thereafter notice u/s 147 was issued on 10-2-2009 as AO was of the view that the shares were never transferred to the assessee. The shares were actually held by a trustee i.e. Barry Group at USA. The assessee actually received the differential amount between gross sale consideration and the cost price. In reassessment AO held that the issue date or date of grant was immaterial in this case. The shares were allotted to the assessee and sold by him on the same date, therefore, they were liable to tax as short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th sides. We find that the issue in the present case is squarely covered by the Tribunal decision rendered in the case of Alok Kumar (supra). In that case also, the employer company was the same company i.e. Cadence Design Systems (India) Pvt. Ltd. and the ESOP shares were of the same USA company. In that case, it was held by the Tribunal that when the option is exercised by the employee that date will be the date of acquisition of shares for the purpose of determining whether the shares were long term or short term capital asset. After holding so matter was restored back by the Tribunal to the files of the assessing officer in that case for a fresh decision after examining the date of acquisition. In the present case the date of exercising of option is not in dispute as the option was exercised in the present case on the date of sale of shares and hence as per Tribunal decision, the capital gain in question is short term capital gain only. It is the claim of the assessee that this Tribunal decision put in by RBI for not making payment for purchase of shares from India. We are of the considered opinion that for this reason alone, it cannot be said that the shares were acquired by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the official ESOP trustees viz Barry group of Merrill Lynch. Reasons for separate agreements and signing of these agreements on various dates was to ensure firm commitments on these dates from employees and also ensure equity of purchase price of share amongst these employees on respective date of their eligibility at prevailing market rates. (ii) Appellant entered into various agreements and accepted following offers and prices for ESOP stock, which was commensurate to US markets: Date of offer Nos. Issue price 27-7-1995 2783 21.54 25-7-1996 2514 29.84 23-9-1999 5056 32.25 27-01-2000 4963 34.00 (iii) These shares as per scheme were offered on the dates mentioned above and were encashable in a period of ten years after elapse of initial period of three years from the date of acceptance of ESOP stock offer. (iv) All employees were given the option on the date of their eligbility to sign and own it on the date they are eligible and keep the same till they reach their optimum time in the eyes of employee to sell/liquidate. It is important to note that shares are never issued by Pepsico Inc in the name of the employee but in the name of designated trust or acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat CIT(A) has not disputed these facts on page 44 of his order has appreciated only the conflicting decisions of the ITAT on this issue. This clearly indicates that there are cases which are in favour of the assessee also. CIT(A) ignoring the favourable decision has preferred to rely on the case of ACIT Vs. Shri Jaswinder Singh Ahuja (ITA no. 185 & 186.Del/09), whose facts are clearly distinguishable. 5.2. Learned counsel then relied on ITAT judgment in the case of ACIT Vs. Dr. Dhurjati Gupta (2010) 127 TTJ (Hyd) 356. It is pleaded that in the similar facts and circumstances Hyderabad Bench of the ITAT, after considering various ITAT and High Courts judgments in a group of cases, held as under: "With regard to the question as to the nature of the capital gains, viz., long-term or short-term capital gains, we are of the considered opinion that 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 option were converted into shares. As already noted above, Mumbai Benches of this Tribunal in the cases cited above, specifically con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on record in the paper book establish that the assessee becomes the owner of the shares pursuant to the acceptance of the ESOP from the WOC and subsequent sale of shares giving rise to long-term capital gains. Our considered view is that once the grant of option is conferred, such right becomes a right in the nature of the property. And such stock option grants given to the assessee by WLC represented such property which were valuable and inheritable and hence were capital asset. Our view is fortified by the decision of the Delhi Bench of the Pubjab High Court in the case of Hari Bros. (P) Ltd. Vs. ITO (1964) 52 ITR 399 (Punj), wherein it was held that right to subscribe for shares of a company is also a capital assets. On exercising the option, the assessee gets shares, which is only conversion of one capital asset into another capital asset. It is evident from the details of the date of acquisition of such right by the assessee, as submitted in the paper book, the shares were held by the assessee for a period more than twelve months and hence the resultant gains must be computed as long-term capital gains." 5.3. It is pleaded that this case clinches the issue and unequivocally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income." 5.6. Learned counsel thus contends that in assessee's case it is admitted that there was an ascertained value to the allotment of ESOPs as per prevalent US market. The price was thus definite and ascertainable; only non-payment of purchase consideration by assessee cannot deny the fact of acquisition of rights. The assessee has rightly offered the gains as long term capital gains. The ITAT Mumbai Bench in the case of Bomi S. Billimoria (supra) has held the cost of acquisition to be unascertainable as the ESOPs were allotted on the basis of a cashless scheme whereas in assessee's case there is a corresponding cost of undistinctive but ascertained quantity of shares allotted in 1995-96 to 1999-2000 as per the US market value. Therefore, the assessee is not raising the plea of unascertainable cost. Sine the cost of acquisiton is apparent and not disputed the gains ae liable as long term capital gains. 5.7. If the logic adopted by lower authorities is taken, then the assessee's right to distinctive shares was acquired on the same day when it is sold, then there will be no capital gains as the right on such shaes accrued on the same day and the cost will be same. 6. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then there will be no capital gain; if the date of allotment of share and sale thereof is the same, the price of purchase of shares cannot be the price paid for right which is not held as purchase, which becomes unascertainable. According to AO, the earlier right of allotment does not constitute a purchase of shares and thus leads to a presumptive situation. In that case, as rightly observed by the ITAT in the case of Bomi S. Billimoria (supra), the purchase price will be unascertainable. If we apply the case of Dhurjati Gupta (supra), then allotment constitutes new right of purchase and the price will be same as the sale consideration. In both situations there will be no taxability. 7.2. In our view, these propositions are of no avail insofar as we have held that the assessee acquired a valuable and transferable right on these shares as on the respective dates in 1995-96 to 1999-2000, as mentioned above. The cases of Bomi S. Billimoria (supra) and Dhurjati Gupta (supra), are squarely applicable in favour of assessee. The right of shares constitute capital assets and the gains should be taxed as "Long Term Capital Gains" as the holding period is more than 3 years. We reverse the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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