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| The Tax Publishers2021 TaxPub(DT) 3501 (Bang-Trib) INCOME TAX ACT, 1961
Section 37(1)
Assessee had not issued its own shares at discounted price. In fact, employees had been given shares of the holding company at a discounted price and assessee had borne the discount amount on behalf of its employees. Hence, in effect, it was a staff welfare programme of assessee and liability accrued in resect of ESOP was not contingent liability but an ascertained liability and discount given on shares was expenditure for the purpose of section 37(1).
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Business expenditure - ESOP (Employees' Stock Option Plan) expenses - Assessee given shares of the holding company at a discounted price and asessee had borne the discount amount -
Assessee claimed expenditure incurred in respect of ESOP (Employees Stock Option Programme). Assessee explained that the employees/directors of the assessee company are eligible to purchase shares of Novozymes A/S Denmark (holding company) as per terms and conditions specified in the stock option plan. The holding company shall issue shares at a price lower than the prevailing market price. As per the agreement, the holding company shall recover the loss arising to it on issue of shares (difference between average market price and issue price) to the employees of company from the assessee company. As per the ESOP scheme, the right to purchase shares of the holding company shall accrue to the employees proportionately over a period of 3 years. The assessee has entirely borne the loss arising on issue of shares to the ultimate holding company. The assessee company has reimbursed the same to its holding company and claimed the same as expenditure. AO took the view that if shares had been offered at discounted price to a third party, assessee would not have claimed the discount as loss. Simply because itwas offered to emloyees, thediscount in issuing shares had been treated as loss. Since no money had gone out of packet of the company issuing shares, loss was imaginary loss. Held: Assessee had not issued its own shares at discounted price. In fact, employees had been given shares of the holding company at a discounted price and assessee had borne the discount amount on behalf of its employees. Hence, in effect, it was a staff welfare programme of assessee and liability accrued in resect of ESOP was not contingent liability but an ascertained liability and discount given on shares was expenditure for the purpose of section 37(1).
Relied:CIT v. Biocon Ltd. (2020) 121 Taxmann.com 351 (Karn-HC) : 2022 TaxPub(DT) 835 (Karn-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2012-13 & 2013-14
INCOME TAX ACT, 1961
Section 40(a)(ii) Section 37(1)
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