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TMI Blog2012 (10) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(42A) of the IT Act, 1961 as against the AO holding that the gain from sale of ESOP was chargeable as short-term capital gain ignoring the fact that as per ruling in the case of Girdhar Kirshna M. v. Asstt. CIT (2008) 117 TTJ (Bang.) 965 with regard to the capital gain, date of grant and vesting are irrelevant because they do not result in any share acquisition." 2. The facts of the case are as brought out in the AO's order as follows : "In this case, assessee was given ESOP by Gillette Co. In his submissions and ESOP plan it has been observed that these ESOPs are cashless. Assessee has to pay nothing on exercise of ESOP. The assessee has been granted ESOP in earlier years without any cost. On the date of exercise the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * On Rs. 19,16,656 taxes at the maximum tax rate @ 33.66 per cent has been paid by considering it as short-term capital gain. * On Rs. 8,81,907 taxes at the maximum tax rate @ 22.44 per cent has been paid by considering it as long-term capital gain." 3. The AO after giving an opportunity to the assessee concluded as follows : "In the present case assessee is not transferring the rights, he is transferring the shares allotted by the company to him. The purchaser of these shares has not to exercise options. He has already got shares on point of sale by assessee. Accordingly, assessee cannot claim that he has transferred options and accordingly he cannot take the plea that for the purposes of calculating the time period for capital gain, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried the matter in appeal. 5. The first appellate authority concluded that the rights which were relinquished by the assessee to earn income of Rs. 88,19,071 were held by the assessee for more than 3 years and therefore taxable as long-term capital gain. 6. Aggrieved the Revenue is in appeal before us. 7. Mr. Pirthi Lal, learned senior Departmental Representative submitted mat assessee acquired a right only on the date of exercising of option and not before that. He contends that, as the date of exercising of option is the same as the date of surrender of right, the gain in question is held for less than 36 months and hence it is a short-term capital gain. He relied on the following case law : (i) Giridhar Krishna M. v. Asstt. CIT (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentions heard. On a careful consideration of the facts and circumstances of the case, material on record and various case laws cited, we hold as follows : The undisputed fact is that the assessee acquired the right in the form of employees stock option plan (ESOP) from Gillette Co. ESOPs are cashless. The assessee surrendered these rights and obtained certain amount, being the difference of the price of shares between the date of grant and the date of surrender. On these facts, in our opinion the issues are covered in favour of assessee by the decision of the Delhi Bench of the Tribunal in the case of Abhiram Seth (supra) wherein at para 7 it was held as follows : "7. We have heard rival submissions and gone through the entire material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of sale of shares. There was no trustee whereas in assessee's case there was a fixed price of allotment of rights to fixed quantity of shares and the indistinctive shares were held by a trust on behalf of assessee. Non-allotment of distinctive number of shares by trust cannot be detremental to the proposition that assessee's valuable right of claiming shares was held in trust and stood sold by Pepsico. Therefore, there was a definite, valuable and transferable right which can be termed as a capital asset in favour of the assessee. 7.1 In our view, the assessee's claim of taxability of gains on the transfer of such rights under the head 'Long-term capital gains' is justified and deserves to be accepted. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exercised the option to purchase shares on 7th Nov., 2002 and thereafter transferred these shares so acquired in April, 2003. In these circumstances the Tribunal has held that the right conferred by means of a grant and indicating the period within which the employee could subscribe to the shares are indicators of the fact that the assessee could exercise the option within the specific period and to the extent indicated in that period. On the expiry of the period, the option automatically lapses unless the employee agrees to extend the period. It held that the dates of grant and vesting are relevant because they do not result in any share acquisition and that acquisition of shares happens only when the assessee exercises his option and is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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