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TMI Blog2018 (12) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... e of vesting is not relevant as the options were transferred without any exercise in the case on hand. The capital gain arising from the transfer of 3750 options should be considered as LTCG. AO is accordingly directed. Consequently, grounds 1.2 to 1.6 are allowed. Deduction u/s 54EC - There is no dispute in the matter that the deduction claimed u/s 54EC is to be allowed to the assessee as the AO in the original order of assessment for Assessment Year 2007-08 passed u/s 143(3) of the Act vide order dated 31.12.2009 on page 2 at para 5 thereof has recorded that the Assessee’s claim for deduction u/s 54EC is to be allowed. Charging of Interest u/s 234B and 234D - Held that:- The assessee denies itself liable to be charged interest u/s 234B and 234D of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld in the case of Anjum H. Ghaswala ([2001 (10) TMI 4 - SUPREME COURT) and therefore uphold the AO’s action in charging the same. The AO is however directed to re-compute the interest chargeable u/s 234B and 234D of the Act, if any, while giving effect to this order. - ITA No.2348/Bang/2018 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustaining the addition made by the learned assessing officer. The order passed by the lower income tax authorities are bad in law and liable to be quashed. 1.2 The learned Assistant Commissioner of Income tax, Circle 3(3)(1), Bengaluru has erred in (i) Treating 3750 options transferred to Infosys Technologies Limited as 'short term capital asset' instead of 'long term capital asset' as declared by the appellant in his return of income; (ii) Assuming that the options were exercised ; (iii) Construing date of transfer of options as the date of exercise of options; (iv) Treating long term capital gains of ₹ 20,41,672 from transfer of options as short term capital gains; and (v) Denying exemption claimed under section 54EC in respect of long term capital gains of ₹ 20,41,672. The learned Commissioner of Income tax (Appeals)-3, Bengaluru has erred in confirming the aforesaid treatment. 1.3 The learned Assistant Commissioner of Income tax, Circle 3(3)(1), Bengaluru and Commissioner of Income tax (Appeals) -3, Bengaluru have erred in not appreciating that (i) The options transferred to Infosys Technologies Ltd were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains (ii) Exemption under section 54EC be allowed: and (iii) Interest under section 234B and 234D be deleted. 4.0 Ground Nos. 1.2 to 1.6 4.1 The learned AR for the assessee submitted that the issues for consideration in the aforesaid grounds (supra) relate to the treatment by the authorities below of LTCG on transfer of ESOP options amounting to ₹ 20,41,672/- as STCG and consequent denial of deduction claimed by the assessee u/s 54EC amounting to ₹ 20,41672/-. Referring to Table 4 at Page 12 of the impugned order of the CIT(A), it was submitted by the learned AR that 6000 ESOP options were transferred to Infosys Technologies Ltd., out of which 3750 options were long term and 2250 options were short term in nature and the dispute in this appeal is in respect of 3750 options; out of which 1250 options were granted on 28.02.2003 and another 2500 options were granted on 02.02.2004. These 3750 options were transferred to Infosys Technologies Ltd., vide Option Transfer Agreement dated 07.03.2007. According to the learned AR, since the holding period for these 3750 options were more than 3 years, the gains are long term in nature and consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LTCG and claimed exemption u/s 54EC of the Act. The AO, however, held that the options have no value without their exercise and the gains derived by the assessee by transfer thereof, essentially represents the exercise by the assessee of the rights that the options had rendered to him. The CIT(A) held that as prior to the date of vesting the assessee himself could not have exercised right, the gains were short term in nature i.e., STCG . It is seen that both the authorities below have ignored the important fact that 3750 options were sold to Infosys Technologies Ltd., without any exercise of option. If ESOP options had been exercised, and the shares allotted thereby would have been sold after their allotment, then undisputedly the gains arising therefrom would have to be treated as STCG. In the case on hand, however, the 3750 options have been transferred as such, without any exercise of options. In the absence of exercise of options, no shares were allotted to the assessee. It is a case of buy back of ESOP options by Infosys Technologies Ltd., with Infosys BPO Ltd., the assessee s employer, as a confirming party. It is not in dispute that ESOP options provided valuable right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of conflicting ITAT judgements has preferred to rely on only favourable to revenue ie Jaswinder Singh Ahuja (supra), overlooking others and without commenting about the relevant facts. It has not been dealt on that acquisition of valuable rights in a property amounts to a capital asset. In case of Jaswinder Singh (supra), the shares were of the same company, whereas in this case there are group companies held through trustee and there were certain RBI guidelines about non payment of price of shares and the option being exercised by assessee 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 detr4imental 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 transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exercises his option and is allotted the specific number of shares. In the case on hand the assessee has not been allotted any shares nor has he acquired them. He had surrendered the right to exercise the option for purchase of shares. Thus the case law is not applicable. 11. In the case of Vijay Jindal (supra), the assessee was issued equity warrant certificates and the assessee made payments for acquiring of shares in lieu of warrants. The same is not the position in the case on hand. The Fist Appellate authority has in an Annexure to his order analysed the period of holding. We uphold the findings based on this analysis and dismiss the appeal to the Revenue. 4.4.3 Similarly, in the case of Gopi G. Nambiar Vs. JCIT, the ITAT Delhi in its order in ITA No. 1083/Del/2010 dated 26.07.2013, at paras 9 and 10 thereof has held as under: 10. On merits the date of grant of stock options was 11.02.2002 and 17.12.2002 respectively and these stock options were sold by the assessee on 13.04.2006 and 02.02.2007 respectively. The issue is whether the gain in question is a short term capital gain or long term capital gain. The Tribunal in the case of Mr. Purwez Rusi Patel (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round is allowed. 10. Respectfully following the same we allow this ground of the asssessee and direct the AO to tax the gain in question under the head long term capital gain . 4.4.4 In view of the facts and circumstances of the case, as discussed above, I hold that the capital gain arising from the transfer of 3750 options amounting to ₹ 20,41,672/- should be considered as LTCG. The AO is accordingly directed. Consequently, grounds 1.2 to 1.6 are allowed. 5. Ground No. 1.7 - Deduction u/s 54EC of the Act 5.1 This ground is raised in respect of the assesee s claim for deduction u/s 54EC of the Act. There is no dispute in the matter that the deduction claimed u/s 54EC of the Act is to be allowed to the assessee as the AO in the original order of assessment for Assessment Year 2007-08 passed u/s 143(3) of the Act vide order dated 31.12.2009 on page 2 at para 5 thereof has recorded that the Assessee s claim for deduction u/s 54EC of the Act is to be allowed. The relevant portion at para 5 of the order of assessment is extracted hereunder: 05 . He has claimed exemption u/s 54EC and the same is accepted as the requisite proof for investment in RE ..... X X X X Extracts X X X X X X X X Extracts X X X X
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