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| The Tax Publishers2020 TaxPub(DT) 5610 (Mum-Trib) INCOME TAX ACT, 1961
Section 37(1)
Liability in respect of ESOP was incurred at end of each year, which was to be quantified at end of vesting period when employees become entitled to exercise options, therefore, discount on ESOP was an ascertained liability and not a contingent liability. Further, discount on ESOP was simply one of the modes of compensating employees for their services and was a part of their remuneration. Thus, by no stretch of imagination, such discount could be described as either a short capital receipt or a capital expenditure. It is nothing but employees cost incurred by the company and was, therefore, deductible.
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Business expenditure - Allowability - Discount on ESOP -
Assessee-company claimed deduction of expenses incurred towards ESOP. AO disallowed deduction on the ground that these expenses were only notional expenses incurred in relation to issue of shares to employees resulting in increase in capital and were not an allowable expenses. Held: Liability in respect of ESOP was incurred at end of each year, which was to be quantified at end of vesting period when employees become entitled to exercise options, therefore, discount on ESOP was an ascertained liability and not a contingent liability. Further, discount on ESOP was simply one of the modes of compensating employees for their services and was a part of their remuneration. Thus, by no stretch of imagination, such discount could be described as either a short capital receipt or a capital expenditure. It is nothing but employees cost incurred by the company and was, therefore, deductible.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2008-09 to 2013-14
INCOME TAX ACT, 1961
Section 36(1)(iii)
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