2017 (12) TMI 1581 - HC - Income Tax

Court affirms Tribunal decision on stock option treatment as revenue expenditure under Section 37(1)

The Court upheld the Tribunal's decision to treat the difference between market price and employees' stock option plan as revenue expenditure under ... Difference between the market price and the employees stock option plan - revenue expenditure allowable under Section 37(1) - Held that:- The Tribunal relied upon the decision of the Hon'ble Division Bench of this Court, to which, one of us (KRCBJ) was a party, in the case of CIT Vs. PVP Ventures Ltd. [2012 (7) TMI 696 - MADRAS HIGH COURT] and dismissed the appeal filed by the Revenue. The special leave petition filed by the Revenue against the said decision was also dismissed by the Hon'ble Supreme Court [2014 (3) TMI 1127 - SUPREME COURT] It is seen that the Hon'ble Supreme Court had given reasons and rightly dismissed the special leave petition. Therefore, we do not agree with the submission that the dismissal of the special leave petition was a dismissal simplicitor. The questions of law, having already been answered against the Revenue and in favour of the assessee in the case of PVP Ventures Ltd., we are bound to follow the same, which was rightly taken note of by the Tribunal. - Decided in favour of assessee Issues:1. Interpretation of revenue expenditure under Section 37(1) of the Act in relation to the difference between market price and employees' stock option plan.2. Validity of Tribunal's decision regarding the allowance of expenditure claim against business profit for employee stock compensation cost.Analysis:1. The appeal challenged the Tribunal's order regarding the treatment of the difference between market price and employees' stock option plan as revenue expenditure under Section 37(1) of the Act for the assessment year 2008-09. The appellant questioned the Tribunal's decision, arguing that the difference represented a notional loss and could not be set off against normal business profit. The Tribunal, citing a previous decision of the Hon'ble Division Bench of the Court, upheld the allowance of the expenditure. The Hon'ble Supreme Court also dismissed the Revenue's special leave petition against this decision, emphasizing that since the Revenue did not challenge the Tribunal's order, the High Court rightly rejected the revision. The dismissal of the special leave petition was not considered a dismissal simplicitor, as reasons were provided. Consequently, the Court upheld the Tribunal's decision, stating that the questions of law had been answered against the Revenue in a previous case, and thus, the same reasoning applied in the present case.2. The second issue involved the validity of the Tribunal's reasoning in allowing the expenditure claim against business profit for employee stock compensation cost. The appellant contended that the dismissal of the special leave petition was without reasons, thus suggesting that the Revenue should be permitted to present additional arguments. However, the Court disagreed with this submission, highlighting that the Supreme Court had indeed provided reasons for the dismissal of the special leave petition. Given that the questions of law had already been settled in favor of the assessee in a prior case, the Court upheld the Tribunal's decision and ruled in favor of the assessee, dismissing the tax case appeal brought by the Revenue.