9911796707
TMI Blog2014 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ndra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Smt. K. Harita For the Respondent : Sri B. Satyanarayan Murthy ORDER Per Chandra Poojari, AM: This appeal by the Revenue is directed against the order of the CIT(A)-II, Hyderabad dated 5.10.2011 for assessment year 2008-09. 2. The Revenue raised the following grounds: (1) The learned Commissioner of Income-tax(Appeals) erred in granting relief to the assessee with regard to the taxation of capital gains relating to share transactions (ESOPs). (2) The Commissioner of Income-tax (Appeals) erred applying provisions of section 49(2AB) r.w.s. 115WC(1)(ba) of the Income-tax Act, 1961 and giving relief on the shares that vested on 31/03/2007 on the assessee ignoring the fact that these provisions apply only w.e.f. 01/04/2008 i.e. AY 2008- 09. (3) The Commissioner of Income-tax (Appeals) erred in granting relief with respect to the first instalment of shares that vested on the assessee on 31/03/2007 and earlier ignoring the fact that no benefit is admissible to assessee u/s. 115WB(1)(d) Circular No. 9 of 2007. (4) The Commissioner of Income-tax (Appeals) ought to have noticed that assessee has not pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee claimed short term capital loss on ESOPs amounting to Rs. 1,15,98,800/- to set off against the short term capital gain on account of transactions made other than ESOPs. He found that the assessee has not invested any amount on the acquisition of ESOPs, the loss arrived is only due the fair market value as on the date of vesting of the transaction which is deemed cost of acquisition and thereby it is a notional loss but not a physical loss. He observed that the assessee gained a profit on this transaction and, therefore, the loss incurred by the assessee is disallowed on sale of ESOPs. 5. On appeal the CIT(A) observed that there was an amendment to Sec. 49(2AB) and the sub-section (2AB) has been inserted w.e.f. 1.4.2008 which says as under: "Where the capital gain arises from the transfer of specified security or sweat equity shares, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account while computing the value of fringe benefits under clause (ba) of sub-section 1 of Section 115WC". Section l1SWC speaks of valuation of fringe benefits and clause (ba) of sub-section 1 reads as below : "the fair market value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -B Where, A = the fair market value (FMV) of the specified security or sweat equity shares on the date of vesting of the option; and B= the amount, if any, actually paid by, or recovered from the employee. 7. The CIT(A) observed that this new sub-section provides that the cost of acquisition of specified security or sweat equity shares shall be the fair market value which has been taken into account while computing the value of fringe benefit under the new clause (ba) of sub-section (1) of Section 115WC. From this it is very clear that the Fair Market Value of the ESOPs need to be taken as on the date of vesting of the shares in the employee and the employer is obliged to pay tax at the prevailing rate which was at that time 30% plus surcharge plus Education Cess, the employer Ivy Comptech Pvt. Ltd has paid tax on the Fringe Benefit adopting the FMV as on the date of vesting of the shares in the assessee and filed the return as required by the Income Tax Act. The employer has given a certificate confirming the payment of FBT in respect of ESOPs granted to the assessee. As per the provisions of Sec. 49(2AB) the FMV adopted by the employer becomes the cost of acquisition for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, is liable to pay Fringe Benefit Tax (FBT) in respect of the fringe benefits provided or deemed to have been provided by it to its employees, directly or indirectly, during the previous year. With a view to bring grant of stock options by employers to employees within the purview of FBT, Finance Act, 2007 has inserted a new clause (d) in sub-section (1) of section 115WB. The salient features of this provision are:- (i) FBT shall apply in all cases where any specified security or sweat equity shares has been allotted or transferred by the employer to his employees; (ii) FBT shall be payable in the previous year in which such allotment or transfer has taken place; (iii) the provisions of this new clause shall apply even if the allotment or transfer is directly or indirectly; (iv) the provisions of this new clause shall apply even if the allotment or transfer is free of cost or at concessional rate; (v) the provisions of this new clause shall apply even if the allotment or transfer is to current or former employee or employees; (vi) the provisions of this new clause shall apply in cases where the allotment or transfer is on or after 1st day of April, 2007. The ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the fair market value shall be,- (a) the closing price of the share on any recognised stock exchange on a date closest to the date of vesting of the option and immediately preceding such date; or (b) the closing price of the share on a recognised stock exchange, which records the highest volume of trading in such share, if the closing price, as on the date closest to the date of vesting of the option and immediately preceding such date, is recorded on more than one recognized stock exchange. (iv) In a case where, on the date of vesting of the option, the share in the company is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company, as determined by a Category 1 Merchant Banker registered with the Security and Exchange Board of India, on the specified date. (v) The specified date has been defined as to mean,- (i) the date of vesting of the option; or (ii) any date earlier than the date of the vesting of the option, not being a date which is more than 180 days earlier than the date of the vesting. Determination of the cost of acquisition for capital gains purposes 3. Consequent to insertion of clause (ba) in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
