2010 (12) TMI 1354 - HC - Income Tax

High Court to Review Tax Deduction on Stock Options under ESOP Scheme; Questions Tribunal's Decision on 'Notional Loss.

Ranbaxy Laboratories Ltd. Versus CIT

The HC admitted the case for consideration, focusing on substantial questions of law regarding the tax treatment of stock options under the ESOP Scheme. ... - Issues involved: Interpretation of the tax treatment of stock options under the ESOP Scheme u/s 37(1) of the Act by the Tribunal.Issue (i):The Tribunal erred in law by holding that the difference between the price of stock options offered to employees and the market price on the grant date was not allowable expenditure u/s 37(1) of the Act. The appellant contended that this difference should be considered as a deductible expense.Issue (ii):The Tribunal erred in not recognizing that the difference between the market price of the stock and the price of stock options given to employees constituted remuneration and should be an allowable deduction u/s 37 of the Act. The appellant argued that this difference should be treated as a benefit to employees and hence deductible.Issue (iii):The Tribunal's decision on the options discount under the stock options scheme not being an allowable deduction was challenged. The appellant argued that the Tribunal should have referred to a larger Bench before disregarding the earlier view taken by a co-ordinate Bench.Issue (iv):The Tribunal was accused of exceeding its jurisdiction u/s 254 of the Act by introducing a new case in its order, stating that the options discount was a 'notional loss' not eligible for deduction u/s 37 of the Act. The appellant contended that the Tribunal should have limited its decision to the questions raised in the appeal.The High Court admitted the case for consideration based on the substantial questions of law raised by the appellant. The filing of paper books was dispensed with, and the case was scheduled to be heard along with another related matter.