Abhiram Seth, New Delhi v. JCIT, New Delhi

ITA 2302/DEL/2010 | 2004-2005
Pronouncement Date: 30-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 230220114 RSA 2010
Assessee PAN AASPS0522R
Bench Delhi
Appeal Number ITA 2302/DEL/2010
Duration Of Justice 1 year(s) 4 month(s) 16 day(s)
Appellant Abhiram Seth, New Delhi
Respondent JCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-09-2011
Date Of Final Hearing 04-08-2011
Next Hearing Date 04-08-2011
Assessment Year 2004-2005
Appeal Filed On 14-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 2302/DEL/2010 ASSTT. YRS: 2004-05 ABHIRAM SETH VS. JCIT RANGE-47 C/0 GUPRA RANJAN K & CO. CAS NEW DELHI. 208 ANSALS LAXMI DEEP LAXMI NAGAR DISTT. CENTRE DELHI-110092. PAN/GIR NO. AASPS0522R ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : DR. RAKESH GUPTA; SH. ASHWANI TANE JA & MS. RANI KIYALA ADVOCATES RESPONDENT BY: DR. V.R.R. KUMAR SR. DR O R D E R PER R.P. TOLANI J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 17-3-2010 RELATING TO A.Y. 2004-05. FOLLOWING GROUNDS ARE RAI SED: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING THE ACTION OF LD. AO IN REOPENING OF THE CASE U/S 147 A S PER LAW AND THE REASON RECORDED WERE VALID IN THE EYES OF L AW AND HAS FURTHER ERRED IN NOT QUASHING THE ASSESSMENT ORDER ON THE GROUND THAT ORDER PASSED U/S 147 RED WITH SECTION 1 43(3) WAS FRAMED WITHOUT COMPLYING WITH THE MANDATORY CONDITI ONS AS PRESCRIBED UNDER SECTION 147 TO 151 OF THE INCOME T AX ACT 1961. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN RE OPENING THE 2 IMPUGNED ASSESSMENT IS BAD IN LAW AND AGAINST THE F ACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE ACTION OF LD. AO IN TREATING THE LONG TERM CAPITAL GAIN AS SHOWN BY THE ASSESSEE IN THE RETURN AS SHORT TERM CAPITA L GAIN AND ACCORDINGLY MADE THE ADDITION. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER A CTION OF LD. CIT(A) IN NOT REVERSING THE ACTION OF LD. AO IN MAKING THE IMPUGNED ADDITION AND FRAMING THE IMPUGNED ASSESSME NT ORDER IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANC ES OF THE CASE VOID AB INITIO BEYOND JURISDICTION BY RECOR DING INCORRECT FACTS AND FINDINGS AND THE SAME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT REVERSING THE ACTION OF LD. AO IN CHARGING INTEREST U/S 234B OF THE INCOME TAX ACT 1961. 6. THAT THE APPELLANT CRAVES THE LEAVE TO ADD MODI FY AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING AND ALL THE ABOVE GROUNDS AE WITHOUT PREJUDICE TO EACH OTHER. 2. AT THE TIME OF HEARING GROUND NOS. 1 & 2 REGARD ING REOPENING OF ASSESSMENT WERE NOT PRESSED ACCORDINGLY BOTH THE G ROUNDS STAND REJECTED ACCORDINGLY. 3. IN GROUND NOS. 3 THE ASSESSEE HAS CHALLENGED THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF AO IN TREATING THE CAPITAL GAINS ON ACCOUNT OF ESOPS SHARES AS SHORT TERM CAPITAL GAINS AS AGAIN ST LONG TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE. 3 4. BRIEF FACTS ARE THAT ASSESSEE INDIVIDUAL WAS A N EMPLOYEE OF M/S PEPSICO INDIA HOLDINGS (P) LTD. IN EXECUTIVE POSITI ON. THE SAID M/S PEPSICO INDIA HOLDINGS (P) LTD. (PIHL) IS A PART OF PEPSIC O INC. CONSEQUENT TO THIS EMPLOYMENT WITH PIHL ASSESSEE WAS GRANTED VALUAB LE RIGHTS IN SHARES OF PEPSICO INC ESOP STOCK HELD WITH BARRY GROUP OF MER RILL LYNCH USA. THE RIGHTS WERE CONFERRED ON VARIOUS DATES I.E. 27-7-19 95; 25-7-1996; 23-9-1999 & 27-1-2000. THE ASSESSEE SOLD THESE SHARES ON 25-2 -2004 RELEVANT TO F.Y. 2003-04 I.E. A.Y. 2004-05. CONSEQUENT TO THE SALES ASSESSEE CLAIMED THE GAINS AS LONG TERM CAPITAL GAINS RELEVANT DETAILS ARE AS UNDER: OPTION DATE NOS COST $ SALE/ EXECUTIVE DATE SALE RATE$ GAIN $ INR (RS.) 27-7-1995 2783 21.54 25-02-2004 52.00 84701 3853896 25-7-1996 2514 29.84 25-2-2004 52.00 95593 4349482 23-9-1999 5056 32.25 25-2-2004 52.00 55560 2527980 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 $ 4 66742 - GAIN USD $ 328930 4 - GAIN CONVERTED @ 45.50 PER USD ($) INR RS. 14966 315 THE GAINS WERE CLAIMED AS LONG TERM CAPITAL GAINS A S THE ASSET HELD THE RIGHTS FOR A PERIOD OF MORE THAN THREE YEARS BY THE ASSESSEE. BESIDES ASSESSEE CLAIMED 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). THEREA FTER 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 ACTUAL LY 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 IMMAT ERIAL IN THIS CASE. THE SHARES WERE ALLOTTED TO THE ASSESSEE AND SOLD BY HI M ON THE SAME DATE THEREFORE THEY WERE LIABLE TO TAX AS SHORT TERM CA PITAL GAINS. SINCE THEY WERE HELD TO BE SHORT TERM CAPITAL GAINS NO FURTHER DED UCTION U/S 54F WAS ALLOWED TO THE ASSESSEE. 4.2. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL TO THE CIT(A) BEFORE WHOM IT WAS SUBMITTED AS UNDER: (I) THE RELIANCE PLACED BY THE AO ON THE CASES INFOSYS TECHNOLOGIES LTD. VS. CIT GARRIC DSILV VS. JCIT (2006) 105 TJ 445 (T DEL T) AND GRIDHAR KRISHAN VS. ACIT (2008) 117 TTJ (BANG) 965 WAS MISPLACED BECAUSE FACTS OF APPELLANTS CASE ARE MAT ERIALLY DIFFERENT. 5 (II) THE ESOP SCHEME AND ESPECIALLY THE TERMS STOCK AND OPTION HAS NOT BEEN CORRECTLY APPRECIATED BY THE AO (III) THE AO HAS NOT APPRECIATED THAT WHAT WAS TRANSFERRE D WAS VALUABLE RIGHT AND NOT TANGIBLE SHARES BECAUSE DIST INCTIVE SHARES WERE NOT ALLOTTED TO THE ASSESSEE. (IV) THE CAPITAL ASSET I.E. A VALUABLE RIGHT TO EXERCISE AN OPTION TO SELL STOCK WAS A LONG TERM CAPITAL ASSET BECAUSE IT WA S CREATED ON THE DATE OF ACCEPTANCE I.E. 27-7-1995 AND OTHER DATES. (V) THE CALCULATION OF CAPITAL GAINS MADE BY THE AO WAS BASED UPON SALE AND PURCHASE DATES WHICH IS EXERCISE DATE AND SALE DATE. DIFFERENCE BETWEEN SALE AND EXERCISE DATE WOULD NOT ARISE AS THE SALE PRICE AND PURCHASE (COST. PRICE OF PEPSICO IN C SHARE WOULD BE SAME ON BOTH DATES BEING INSTANTANEOUSLY SAME). THI S CANNOT RESULT IN ANY GAIN OR LOSS THEREFORE QUESTION OF TAXATION OF CAPITAL GAIN WOULD NOT ARISE. (VI) THE AO HAS ON THE ONE HAND ACCEPTED THE PRICE PAID BY THE ASSESSEE ON THE DATES OF ACCEPTANCES OF OFFER AS TH E COST BUT HAD NOT ACCEPTED THEM TO BE DATES AS THE DATES OF RESPECTI VE OF ACQUISITIONS. 4.3. CIT(A) HOWEVER UPHELD THE ORDER OF AO ON THI S ISSUE BY FOLLOWING OBSERVATION: 6 I HAVE GIVEN A CAREFUL CONSIDERATION TO THE ABOVE POINTS MADE BY THE APPELLANT AND I AM ALSO AWARE THAT THERE ARE CONFLICTING DECISIONS OF THE ITAT ON THIS ISSUE E.G. 1. 2009-TIOL-573-MUM MR. BOMI S BILLIMORIA VS. AC MUMBAI 2. ACIT VS. DR. DHURJATI GUPTA ITAT HYDERABAD B BEN CH (2010) 33 DTR (HYD) (TRIB) 287 3. ACIT VS. SHRI JASWWINDER SINGH AHUJA ITA NO. 185 & 186 DEL/2009 HOWEVER AS FAR AS THE PRESENT APPEAL IS CONCERNED THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE ITAT IN THE CAS E OF ACIT VS. SHRI JASWINDER SINGH AHUJA IN ITA NO. 185 & 186.DEL/2009 WHERE IT HAS BEEN HELD AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE MATERIAL AVAILABLE AND THE JUDGMENTS CITED BY BOTH SIDES. WE FIND THAT THE ISSUE IN THE PRESENT CASE IS SQUARELY COVERED BY T HE 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 PURPOS E OF DETERMINING WHETHER THE SHARES WERE LONG TERM OR SHORT TERM CAPITAL ASSET. AFTER HOLDING SO MATTE R 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. I N THE PRESENT CASE THE DATE OF EXERCISING OF OPTION I S NOT IN DISPUTE AS THE OPTION WAS EXERCISED IN THE PRESENT CASE ON THE DATE OF SALE OF SHARES AND HENC E AS PER TRIBUNAL DECISION THE CAPITAL GAIN IN QUESTION IS SHORT TERM CAPITAL GAIN ONLY. IT IS TH E CLAIM OF THE ASSESSEE THAT THIS TRIBUNAL DECISION PUT IN BY RBI FOR NOT MAKING PAYMENT FOR 7 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 THE ASSESSEE BEFORE THE DATE OF EXERCISE O OPTION. AFTE R GOING THROUGH THE ESOP SCHEME IN THE PRESENT CASE WE FIND THAT HE ASSESSEE WAS GIVEN AN OPTION FOR PURCHASE OF SHARES AT A FIXED PRICE AT ANY POI NT OF TIME WITHIN 10 YEARS BUT UNTIL AND UNLESS THE ASSESSEE EXERCISES HIS OPTION THE ASSESSEE DOES NO T BECOME THE OWNER OF SHARES BECAUSE IF THE ASSESSEE BECOMES THE OWNER OF ANYTHING HE IS ENTITLED FOR GAIN ON THAT ACCOUNT AND HE IS LIABLE TO SUFFER THE LOSS FOR THE SAME. BUT IN THE PRESENT CASE IF THE MARKET PRICE OF SHARES IS MORE THAN THE OFFER PRICE THE ASSESSEE IS ENTITLED FOR THE GAIN BUT IF THE MARKET PRICE OF THE SHARES FALLS BELOW THE OFFER PRICE THE ASSESSEE IS NOT BOUND TO SUFFER SUCH LO SS ON THOSE SHARES BECAUSE IN THAT SITUATION THE ASSESSEE WILL NOT SIMPLY EXERCISER HIS OPTION AND AS A RESULT THE ASSESSEE WILL NOT SUFFER ANY LOSS. THIS GOES TO SHOW THAT THE ASSESSEE WAS NOT HAVING ANY OWNERSHIP OF THE SHARES TILL HE EXERCISED THE OPTION. UNLESS THE ASSESSEE BECOMES THE OWNER BEING LIABLE FOR LOSS ALSO ON PRICE FALL IT CANNOT BE SAID THAT SHARES ARE ACQUIRED AND THIS PERIOD PRIOR TO ACQUISITION DATE CANNOT BE CONSIDERED. THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISIO N OF THE JURISDICTIONAL ITAT I HOLD THAT THE SHORT TERM CAP ITAL GAINS HAD ARISEN ON ACCOUNT OF SALE OF SHARES OF A FOREIGN CO MPANY AND SINCE NO STT HAD BEEN PAID THE ENTIRE STCG OF RS. 1 49 66 315/- IS LIABLE TO NORMAL RATES OF TAX. THE ADDITION OF RS. 1 49 66 315/- MADE BY THE AO IS THEREFORE CONFI RMED. AGGRIEVED ASSESSEE IS BEFORE US. 5. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS AS UND ER: 8 (I) IN THE CASE OF PEPSICO ESOP THE SHARES ARE HELD IN STOCK BY AN APPOINTED TRUSTEE E.G. BARRY GROUP OF MERILL LYNCH WHO HOLD THEM IN STOCK. THIS GROUP IS OFFICIAL REPRESENTATIV E OF THE VARIOUS EMPLOYEES OF PEPSICO INC ALL OVER THE WORLD AND AS A GROUP POLICY HOLDS SHARES WITH THEM IN STOCK ON THEIR BEHALF AND THE EMPLOYER. THIS ARRANGEMENT SUITS BOTH EMPLOYEE AND EMPLOYER. THE EMPLOYER WOULD NOT LIKE TO TRANSFER SHARES DIRECTLY TO EMPLOYEE UNLESS THEY PERFORMS AS PER EXPECTATION. THE EMPLO YEES ALSO WOULD NOT LIKE TO TOTALLY TRUST THE EMPLOYER TILL T HE TIME OF COMMITMENT DATE ARRIVES. HENCE THE EMPLOYEES ARE AL LOWED TO BECOME THE OWNERS (BY WAY THEIR WRITTEN AGREEMENT A LSO KNOWN AS FILLING UP AND SIGNING AGREEMENT FOR ELIGIBLE SHARE S OPTIONS) WITH THE COMPANY AND THE OFFICIAL ESOP TRUSTEES VIZ BARR Y GROUP OF MERRILL LYNCH. REASONS FOR SEPARATE AGREEMENTS AND SIGNING OF THESE AGREEMENTS ON VARIOUS DATES WAS TO ENSURE FI RM COMMITMENTS ON THESE DATES FROM EMPLOYEES AND ALSO ENSURE EQUITY OF PURCHASE PRICE OF SHARE AMONGST THESE EMP LOYEES ON RESPECTIVE DATE OF THEIR ELIGIBILITY AT PREVAILING MARKET RATES. (II) APPELLANT ENTERED INTO VARIOUS AGREEMENTS AND ACCEP TED FOLLOWING OFFERS AND PRICES FOR ESOP STOCK WHICH WAS COMMENS URATE 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 DAT ES MENTIONED ABOVE AND WERE ENCASHABLE IN A PERIOD OF TEN YEARS AFTER ELAPSE OF 9 INITIAL PERIOD OF THREE YEARS FROM THE DATE OF ACC EPTANCE 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 AN D KEEP THE SAME TILL THEY REACH THEIR OPTIMUM TIME IN THE EYES OF E MPLOYEE 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 ACQUIRED BY THIS TRUST FROM MAR KET AND STORED IN THEIR STOCK ALSO CALLED CAPITAL STOCK FOR THE EMP LOYEES OF WORLDWIDE PEPSICO. THUS THE EMPLOYEE BECAME THE OW NER OF THE STOCK ON THE DAY WHEN HE SIGNED THE AGREEMENT AND C OULD REDEEM OR ENCASH HIS RIGHTS(PART OF STOCK) ANY TIME AFTER LOCK IN PERIOD OF THREE YEARS. NO TRANSFER OF SHARES TOOK PLACE FROM COMPANY TO EMPLOYEE BUT WERE HELD BY THIS TRUST BARRY GROUP IN ITS STOCK ON BEHALF OF THE EMPLOYEE. THEY ALLOCATED AND SOLD TH EM AS AND WHEN ASKED FOR BY ASSESSEE. THE BARRY GROUP OF MERRILL L YNCH ACTED AS THE CUSTODIAN OF THESE SHARES FOR AND ON BEHALF OF THE PEPSICO INC AND EMPLOYEES WORLD WIDE. (V) AFTER A LOCK IN PERIOD OF THREE YEARS THE SHARES W OULD BE TRANSFERABLE I.E. EMPLOYEE CAN SELL THEM. THIS WAS DONE TO ENSURE MINIMUM RETENTION OF EMPLOYEE FOR A PERIOD OF THREE YEARS SO THAT HE WOULD NOT LEAVE BEFORE THAT PERIOD. (VI) THE ASSESSEE ACQUIRED THE RIGHTS IN INDISTINCTIVE SHARES AS MENTIONED ABOVE AT THE PREVAILING MARKET PRICE ONL Y. (VII) THE ONLY BENEFIT BY ESOP SCHEME WAS THAT THE CONSID ERATION FOR PURCHASE WAS DEFERRED I.E. ASSESSEE COULD PAY THE P URCHASE PRICE WHEN HE OPTS TO SELL THEM. THIS COULD CONSTITUTE AN IMPORTANT 10 INCENTIVE. THUS IT WAS ONLY POSTPONEMENT OF PAYMENT OF PURCHASE PRICE. (VIII) AFTER OPTION BECAME EXERCISABLE THE TRUSTEES HAD THE SOLE DISCRETION AND WITHOUT THE ASSESSEES CONSENT COUL D SALE SUCH OPTION AND PAY THE DIFFERENCE BETWEEN THE OPTION P RICE AND THE PREVALENT FAIR MARKET VALUE OF THE SHARES BY GIVING WRITTEN NOTICE CALLED AS THE BUY OUT NOTICE. PAYMENTS OF SUCH BU Y OUT AMOUNTS PURSUANT TO THIS PROVISION WAS TO BE EFFECTED BY P EPSICO AND COULD BE PAID IN CASH IN SHARES OF CAPITAL STOCK OR PAR TLY IN CASH AND PARTLY IN CAPITAL STOCK AS THE TRUST DEEMED ADVISA BLE. (IX) CLAUSE NO. 4 OF PEPSICO ESOP AGREEMENT STIPULATES AVAILABILITY OF A VALUABLE RIGHT IN ESOP STOCK (EXISTING ON THE DAT E OF SIGNING OF OPTIONS) WITH THE APPELLANT AS IT LAYS DOWN TRANSF ERABILITY IN CASE OF DEATH ETC. FROM THE EMPLOYEE TO HIS LEGAL HEIRS I.E. SOMETHING VALUABLE EXISTS. (X) CLAUSE 9 RECOGNIZES EXISTENCE OF THIS VALUABLE RIGH T I.E. BUY OUT OPTION (WHAT CAN BE BOUGHT AND SOLD IS APPLICANT/ A PPELLANTS RIGHT TO SHARES IN ESOP STOCK). THUS PEPSICO RECOGNIZED E XISTENCE OF VALUABLE RIGHTS OF HOLDING OF THESE UNDISTINCTIVE S HARES IN THE HANDS OF THE EMPLOYEE. 5.1. LEARNED COUNSEL CONTENDS THAT CIT(A) HAS NOT D ISPUTED THESE FACTS ON PAGE 44 OF HIS ORDER HAS APPRECIATED ONLY THE CON FLICTING DECISIONS OF THE ITAT ON THIS ISSUE. THIS CLEARLY INDICATES THAT TH ERE ARE CASES WHICH ARE IN FAVOUR OF THE ASSESSEE ALSO. CIT(A) IGNORING THE FA VOURABLE DECISION HAS 11 PREFERRED TO RELY ON THE CASE OF ACIT VS. SHRI JAS WINDER SINGH AHUJA (ITA NO. 185 & 186.DEL/09) WHOSE FACTS ARE CLEARLY DIST INGUISHABLE. 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 TH E 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 DETE RMINING THE PERIOD OF HOLDING THE ASSET IN QUESTION AND NOT TH E DATE ON WHICH THE OPTION WAS EXERCISED AND STOCK OPTION WER E CONVERTED INTO SHARES. AS ALREADY NOTED ABOVE MUMB AI BENCHES OF THIS TRIBUNAL IN THE CASES CITED ABOVE SPECIFICALLY CONSIDERED THIS ISSUE ALSO AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISIONS OF THE BOMBAY HIGH COURT IN CIT VS. STERLING INVESTMENT CORPORATION LTD. (1`979 ) 12 CTR (BOM) 263; (1980) 123 ITR 441 (BOM) AND CIT VS. TAT A SERVICES LTD. (1979) 13 CTR (BOM) 227; (1980) 122 I TR 394. AT THIS JUNCTURE WE MAY ALSO NOTICE THAT THERE WAS A SIGNIFICANT CHANGE IN THE POSITION ON ACCOUNT OF AMENDMENT TO C L. (BA) UNDER S. 115WC(1) OF THE ACT WHEREBY THE DATE OF L IABILITY FOR FRINGE BENEFIT TAX (FBT) ON SUCH CONCESSIONS UNDER ESOP SCHEME HAS BEEN SHIFTED FROM THE DATE OF EXERCISE OF OPTION BY THE EMPLOYEES TO THE DATE ON WHICH OPTION VESTS ON THEM. THE NATURE OF EXPLANATION WAS A CLARIFICATORY ONE. OPTI ON AHS BEEN DEFINED IN THE EXPLANATION TO THIS NEW CLAUSE TO ME AN A RIGHT BUT NOT AN OBLIGATION GRANTED TO AN EMPLOYEE TO APP LY FOR THE SPECIFIED SECURITY OR SWEAT EQUITY SHARES AT A PRE DETERMINED PRICE. VESTING OF SUCH RIGHT WOULD BE DATE OF LIAB ILITY FOR THAT 12 PURPOSE. THIS EXPLANATION ALSO FORTIFIES OUR VIEW T HAT DATE OF VESTING THE OPTIONS ON THE EMPLOYEE SHALL BE THE DA TE OF ACQUISITION FOR THE PURPOSE OF CAPITAL GAIN COMPUTA TION. IN THE CASE UNDER CONSIDERATION THERE IS NO DISPUTE REGAR DING THE DATE ON WHICH THE ESOPS WERE VESTED ON THE ASSESSEE BY W LC. AS FOR THE DECISION OF THE CALCUTTA HIGH COURT IN T HE CASE OF MRS. A. GHOSH VS. CIT (SUPRA) RELIED ON BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE IT RELATES TO CONVERSI ON OF DEBENTURES INTO EQUITY SHARES AND DATE OF ACQUISITI ON OF SHARES IN THAT CONTEXT AS AGAINST HOLDING OF ESOPS BY THE ASSESSEE IN THE PRESENT CASE DATE OF ACQUISITION OF SHARES IN RESPECT OF WHICH RELATES BACK TO THE DATE OF GRANT OF ESOPS AN D NOT EXERCISE OF OPTION. SIMILARLY IN THE CASE OF DR. V.V. MODY (SUPRA) BEFORE THE KARNATAKA HIGH COURT THE ISSUE RELATES TO CAPITAL GAINS IN RELATION TO AN IMMOVABLE PROPERTY HELD BY THE ASSESSEE IN DUAL POSITION BOTH AS TENANT AS WELL AS LANDLORD AT THE SAME TIME AND IN RELATION TO THE SAME PROPERTY. FACTS OF THAT CASE ARE DISTINGUISHABLE AND THE RATIO LAID DOWN TH EREIN HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. FURTHER SEQUENCE OF EVENTS COMMENCING FROM THE GRA NT OF OPTION TO THE SALE OF THE SHARES AS SEEN FROM THE COPIES OF THE OPTION LETTERS FROM WLC ACCEPTANCE LETTERS BY WAY OF DECLARATION OF THE ASSESSEE APPROVAL LETTER FROM R BI AND SUCH OTHER MATERIAL PLACED ON RECORD IN THE PAPER BOOK E STABLISH THAT THE ASSESSEE BECOMES THE OWNER OF THE SHARES PURSUA NT 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 REPRESEN TED SUCH PROPERTY WHICH WERE VALUABLE AND INHERITABLE AND HE NCE WERE CAPITAL ASSET. OUR VIEW IS FORTIFIED BY THE DECISIO N 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 W AS 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 ANOTHE R CAPITAL ASSET. IT IS EVIDENT FROM THE DETAILS OF THE DATE OF ACQU ISITION OF SUCH 13 RIGHT BY THE ASSESSEE AS SUBMITTED IN THE PAPER BO OK THE SHARES WERE HELD BY THE ASSESSEE FOR A PERIOD MORE THAN TW ELVE MONTHS AND HENCE THE RESULTANT GAINS MUST BE COMPUTED AS L ONG-TERM CAPITAL GAINS. 5.3. IT IS PLEADED THAT THIS CASE CLINCHES THE ISSU E AND UNEQUIVOCALLY HOLDS THAT ESOP ACCOUNT ALLOTTED TO ASSESSEE AT A MARKET VALUE WHEN SOLD AFTER A PERIOD OF ONE YEAR OUGHT TO BE HELD AS LONG TERM CA PITAL GAINS. 5.4. ADVERTING TO THE ORDER OF THE ITAT IN THE CASE OF MR. BOMI S. BILLIMORIA VS. ACIT (2009) 124 TTJ (MUMBAI) 960 LE ARNED COUNSEL CONTENDS THAT THIS CASE LAYS DOWN FOLLOWING PROPOS ITIONS: (I) IN CASE OF CASHLESS ESOPS THE COST OF ACQUISITION W AS UNASCERTAINABLE AND THEREFORE RELYING ON THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. B.C. S RINIVASA SETTY (1981) 128 ITR 294 (SC) IT HAS BEEN HELD THAT COST OF ACQUISITION BEING UNASCERTAINABLE THE LONG TERM CAPITAL GAINS CANNOT BE COMPUTED. THE FACT REMAINS THAT EVEN IN CASE OF CAS HLESS ESOPS IT HAS BEEN HELD THAT IT CONSTITUTED A VALUABLE RIGHT AND WAS A CAPITAL ASSET AND ON TRANSFER LIABLE TO BE TREATED SHORT TERM OR LONG TERM ON THE BASIS OF HOLDING PERIOD. (II) IT HAS BEEN FURTHER HELD THAT IF THE REVENUE TREATS THE DATE OF ACQUISITION AND SALE TO BE SAME IN THAT CASE MARKET VALUE OF ACQUISITION WILL BE SAME AS SALE PRICE AND RESULTIN G GAIN WILL BE NIL THUS GIVING RISE TO NO CAPITAL GAINS. 14 5.5. THE ITAT CONCLUDED THE CASE OF BOMI S. BILLIM ORIA (SUPRA) AS UNDER: 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE RECORD. AS COULD BE NOTICED FROM THE ST OCK OPTION PLAN AND THE TERMS OF RBI NO PAYMENT WAS MADE BY T HE ASSESSEE NOR EXERCISED THE RIGHT TO PURCHASE SHARES BEFORE 13 TH AUG. 1992 AND THUS SO FAR AS THE ASSESSEE IS CONC ERNED THERE IS NO COST OF ACQUISITION TO THE ASSESSEE N WHICH EVEN T BY APPLYING THE DECISION OF B.C. SRINIVASA SETTY (SUPR A) THE AMOUNT RECEIVED IS NOT LIABLE TO TAX UNDER THE HEAD INCOME FROM CAPITAL GAINS. EVEN IF IT IS ASSUMED THAT THE MARKET VALUE OF THE SHARE IS NOT BENEFIT GIVEN TO THE ASSESSEE SUCH BENEFIT CAN BE SAID TO ACCRUE TO THE ASSESSEE ONLY ON THE DATE OF EXERCISE OF THE OPTION. IN THE INSTANT CASE THE DATE OF EXERCI SE OF OPTION AS WELL AS THE DATE OF SALE IS SAME AND THUS THERE IS NO DIFFERENCE BETWEEN THE DEEMED COST OF ACQUISITION AND THE ACTU AL PRICE REALIZED BY THE ASSESSEE AND THUS THE LEARNED CIT(A ) WAS NOT JUSTIFIED IN DIRECTING THE AO TO BRING TO TAX THE A MOUNT OF RS. 5 44 925 AS SHORT-TERM CAPITAL GAIN. UNDER THESE CI RCUMSTANCES WE SET ASIDE THE ORDERS PASSED BY THE TAX AUTHORITI ES AND DIRECT THE AO TO EXCLUDE THE IMPUGNED AMOUNT FROM THE COMP UTATION OF INCOME. 5.6. LEARNED COUNSEL THUS CONTENDS THAT IN ASSESSEE S CASE IT IS ADMITTED THAT THERE WAS AN ASCERTAINED VALUE TO THE ALLOTME NT OF ESOPS AS PER PREVALENT US MARKET. THE PRICE WAS THUS DEFINITE AN D ASCERTAINABLE; ONLY NON-PAYMENT OF PURCHASE CONSIDERATION BY ASSESSEE CANNOT DENY THE FACT OF ACQUISITION OF RIGHTS. THE ASSESSEE HAS RIGHTLY OF FERED 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 UNA SCERTAINABLE AS THE ESOPS WERE ALLOTTED ON THE BASIS OF A CASHLESS SCHEME WHE REAS IN ASSESSEES CASE 15 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 T AKEN THEN THE ASSESSEES RIGHT TO DISTINCTIVE SHARES WAS ACQUIRED ON THE SA ME 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. LEARNED DR IS HEARD WHO SUPPORTS THE ORDER OF LO WER AUTHORITIES. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE FACTS HAVE BEEN NARRATED I N DETAILS ABOVE. A PERUSAL OF THE CLAUSES OF ALLOTMENT CLEARLY REVEALS THAT TH E PARTICULAR NUMBERS OF SHARES WERE ALLOTTED TO ASSESSEE IN DIFFERENT YEARS AT DIFFERENT PRICES; ONLY DISTINCTIVE NUMBERS WERE NOT ALLOTTED WHICH HAS NOT BEEN DISPUTED BY DEPARTMENT. THE APPARENT BENEFIT TO ASSESSEE OUT OF ESOPS SCHEME WAS THAT IT HAD NOT TO PAY THE PURCHASE PRICE IMMEDIATELY AT THE TIME OF ALLOTMENT BUT THE SAME WAS TO BE DEDUCTED AT THE TIME OF SALE OR REDEMPTION OF SHARES. SINCE THERE WAS AN APPARENT FIXED CONSIDERATION OF ESOPS SHARES THE RIGHT TO ALLOTMENT OF PARTICULAR QUANTITY OF SHARES OF SH ARES ACCRUED TO THE ASSESSEE 16 AT RELEVANT TIME. THE BENEFIT OF DEFERMENT OF PURCH ASE PRICE CANNOT LEAD TO AN INFERENCE THAT NO RIGHT ACCRUED TO ASSESSEE. THE SALES OF SUCH VALUABLE RIGHTS AFTER THREE YEARS ARE LIABLE TO BE TAXED UN DER THE HEAD LONG TERM CAPITAL GAINS AND NOT SHORT TERM CAPITAL GAINS. CIT(A) OUT OF CONFLICTING ITAT JUDGMENTS HAS PREFERRED TO RELY ON ONLY FAVOU RABLE TO REVENUE I.E. JASWINDER SINGH AHUJA (SUPRA) OVERLOOKING OTHERS A ND 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. I N THE 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 NONPAYMENT OF PRICE OF SHARES AND THE OPTION BEING EXERCISED BY ASSESSEE ON THE DATE OF SALE OF SHARES . THERE WAS NO TRUSTEE WHEREAS IN ASSESSEES CASE THERE WAS A FIXED PRICE OF ALLOTMENT OF RIGHT TO FIXED QUANTITY OF SHARES AND THE INDISTINCTIVE SHA RES WERE HELD BY A TRUST ON BEHALF OF ASSESSEE. NON-ALLOTMENT OF DISTINCTIVE NU MBER OF SHARES BY TRUST CANNOT BE DETRIMENTAL TO THE PROPOSITION THAT ASSES SEES VALUABLE RIGHT OF CLAIMING SHARES WAS HELD IN TRUST AND STOOD SOLD BY PEPSICO. THEREFORE THERE WAS A DEFINITE VALUABLE AND TRANSFERABLE RIGHT WHI CH CAN BE TERMED AS A CAPITAL ASSET IN FAVOUR OF THE ASSESSEE. 17 7.1. IN OUR VIEW THE ASSESSEES CLAIM OF TAXABILIT Y OF GAINS ON THE TRANSFER OF SUCH RIGHTS UNDER THE HEAD LONG TERM CAPITAL GA INS IS JUSTIFIED AND DESERVES TO BE ACCEPTED. IF WE ACCEPT AOS STAND T HEN THERE WILL BE NO CAPITAL GAIN; IF THE DATE OF ALLOTMENT OF SHARE AN D 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 PU RCHASE 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 G UPTA (SUPRA) THEN ALLOTMENT CONSTITUTES NEW RIGHT OF PURCHASE AND THE PRICE WILL BE SAME AS THE SALE CONSIDERATION. IN BOTH SITUATIONS THERE WILL B E NO TAXABILITY. 7.2. IN OUR VIEW THESE PROPOSITIONS ARE OF NO AVAI L INSOFAR AS WE HAVE HELD THAT THE ASSESSEE ACQUIRED A VALUABLE AND TRANSFER ABLE 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 DHURJAT I GUPTA (SUPRA) ARE SQUARELY APPLICABLE IN FAVOUR OF ASSESSEE. THE RIGH T OF SHARES CONSTITUTE CAPITAL ASSETS AND THE GAINS SHOULD BE TAXED AS L ONG TERM CAPITAL GAINS AS THE HOLDING PERIOD IS MORE THAN 3 YEARS. WE REVE RSE THE ORDERS OF LOWER 18 AUTHORITIES ON THIS ISSUE TREATING THE GAINS AS SH ORT TERM CAPITAL GAINS. THE GROUND IS ALLOWED. 8. NEXT ISSUE RAISED IN GROUND NO. 5 IS REGARDING CHARGING OF INTEREST U/S 234B OF THE I.T. ACT. THE CHARGING OF INTEREST U/S 234B IS CONSEQUENTIAL IN NATURE. THE AO SHALL RECALCULATE THE INTEREST U/S 2 34B IF ANY WHILE GIVING EFFECT TO APPELLATE ORDER. 9. GROUND NO. 6 IS GENERAL IN NATURE AND REQUIRES N O ADJUDICATION. 10. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN OPEN COURT ON 30-09-2011. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30-09-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 19