2015 (11) TMI 404 - HC - Income Tax

HC allows deduction of ESOP costs as revenue expenses under relevant tax rules, supporting assessee's claim

COMMISSIONER OF INCOME TAX Versus LEMON TREE HOTELS LTD

The HC upheld the assessee's claim allowing the cost of Employees Stock Option (ESOP) to be debited to the profit and loss account. Relying on precedent ... Disallowance of the expenses debited as cost of Employees Stock Option (‘ESOP’) - Held that:- The Court has been shown a copy of the decision dated 19th June 2012 passed by the Division Bench of Madras High Court in CIT-III Chennai v. PVP Ventures Ltd.[2012 (7) TMI 696 - MADRAS HIGH COURT] where a similar question was answered in favour of the Assessee by holding that the cost of ESOP could be debited to the profit and loss account of the Assessee. This Court has also in its decision in Oswal Agro Mills Ltd.[2015 (11) TMI 301 - DELHI HIGH COURT] held that the expenditure incurred in connection with issue of debentures or obtaining loan should be considered as revenue expenditure. - Decided in favour of assessee. Issues:1. Appeal by Revenue under Section 260A of the Income Tax Act, 1961 against ITAT order for AY 2008-09.2. Deletion of addition of expenses debited as cost of Employees Stock Option (ESOP) in profit and loss account.Analysis:1. The High Court was presented with an appeal by the Revenue against the ITAT order for the Assessment Year 2008-09 under Section 260A of the Income Tax Act, 1961. The main issue raised was whether the ITAT erred in deleting the addition of Rs. 1,28,19,169/- made by the Assessing Officer as a disallowance of expenses debited as the cost of ESOP in the profit and loss account.2. The Court was referred to a decision by the Division Bench of Madras High Court and its own decision in a separate case. The Madras High Court decision held that the cost of ESOP could be debited to the profit and loss account of the Assessee. Similarly, the High Court's own decision in another case stated that expenditure related to issuing debentures or obtaining loans should be considered as revenue expenditure.3. Considering the precedents and legal principles, the High Court affirmed the impugned order of the ITAT, which had ruled in favor of the Assessee. The Court found no substantial question of law arising in the present case and subsequently dismissed the appeal by the Revenue.This detailed analysis of the judgment provides insights into the legal reasoning and precedents considered by the High Court in reaching its decision on the issues raised in the appeal.