ESOP share discount deduction is allowable and must be apportioned over the vesting period for tax computation.

ESOP share discount is treated as an allowable business deduction under the Income-tax Act, and the deduction is to be spread over the relevant vesting period. The Tribunal followed its earlier view in the same assessee's case, noting no change in facts or law, and accepted the year-wise apportionment method for computing the deduction. On that basis, the Revenue's challenge failed and the disallowance did not survive.

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Issues: (i) Whether expenditure claimed towards ESOP discount was allowable as a deduction under the Income-tax Act, 1961, and if so, whether it had to be apportioned over the vesting period.

Analysis: The Tribunal noted that the issue had already been decided in the assessee's own case for earlier years, where the discount offered on shares under the ESOP scheme was held to be deductible under section 37(1). It followed the earlier view that such deduction is to be worked out by apportioning the year-wise discount over the period of vesting and carrying out the necessary arithmetic calculation. In the absence of any change in facts or law, the Tribunal found no reason to depart from the earlier decisions.

Conclusion: The ESOP expenditure was held to be allowable as a deduction, with the amount to be computed by apportioning the discount over the vesting period, and the Revenue's challenge failed.

Final Conclusion: The disallowance of ESOP expenses was upheld as deleted, and the Revenue's appeal stood dismissed.

Ratio Decidendi: Discount on shares granted under an ESOP scheme is an allowable business deduction under section 37(1) of the Income-tax Act, 1961, and the deduction must be spread over the relevant vesting period.

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