TaxTMI 
TaxTMI 
2008 (3) TMI 407
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....ee in respect of ESOP-1998 Scheme from 29th March, 1998 itself. (iv) The CIT(A) grossly failed in appreciating the process of public issue of shares and consequent application of the same in asses sees case. (v) The CIT(A) has grossly erred in appreciating the fact that even in the case of a public issue, the legal ownership is established as soon as the shares are allotted to the share applicant and not either from the date of the payment for the application money or on the date of receipt of the share certificate." 3. During the previous year relevant to the assessment year under consideration, the assessee was working as senior manager in I-flex Solution Ltd. Erstwhile company was named as Citycorp Information Technology Industries Ltd. (CITIL). The assessee was granted ESOP during the course of employment by CITIL. During the financial year 2003-04, the assessee exercised the option and sold the shares and thereby earned capital gain to the extent of Rs. 1,05,61,252. The assessee treated such capital gain as long-term capital gain. According to the AO, the assessee exercised the option given under ESOP in the financial year 2003-04 and, therefore, he became the complet....
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....p; -do- On 1st Jan., 2003 30% -do- Thus, on 1st Jan., 2003 you can acquire full legal ownership of the entire ESOP of shares allocated to you under ESOP-1998 provided you continue to be in the employment of the company at that time and exercise the option by paying the strike price. Hence, when the assessee accepted the offer he held only beneficiary interest in shares. As per the AO, the assessee acquired full legal ownership of the entire ESOP of shares on 1st Jan., 2003. (3) In the document referred to in para (2) above, it is mentioned that beneficiary ownership does not give the assessee complete right to title and interest. (4) The AO called for information from the company with whom the assessee was employed. As per the information received, it is clear that the assessee exercised option for 8,000 shares on ESOP Scheme, 1998 and paid Rs. 50 per share on 29th July, 2003. Rs. 225 per share was paid on 25th Aug., 2003 for 1,800 shares. The strike price was only paid on 3rd July and 3rd August. The assessee acq....
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....m the date of beneficiary ownership does not entitle him to become the legal owner. It was, therefore, held that the AO was right in treating the capital gain as short-term capital gain. 5. Before us, the learned Authorised Representative has filed the written submissions. It is undisputed that the assessee became beneficiary owner of the shares from 29th March, 1998. When an asset is held by trust for a beneficiary, the asset must be deemed to have been held by the beneficiary for the purposes of the Act. For this proposition, the learned Authorised Representative relied on the following decisions: (1) CWT vs. V. Thiruvenkata Reddiar (l981) 128 ITR 689 (Ker); (2) CWT vs. S.S. Sankaralingam (2001) 167 CTR (Mad) 137 : (2000) 245 ITR 640 (Mad); (3) CWT vs. Sb. Naseema Begum & Ors. (2003) 179 CTR (AP) 608 : (2002) 258 ITR 503 (AP). 6. For the purpose of assessing the income, beneficiary ownership is only considered. The learned Authorised Representative relied on Circular No. 768, dt. 24th June, 1998. From the circular, the date of transfer and period of holding of securities held in Demat form are to be considered on the basis of the date on which the beneficiary becom....
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....person who is in actual physical control of the property realizing the entire income and use of the income of the property is liable to tax irrespective of the fact that legal ownership through registration of document has not taken place. 8. The learned Departmental Representative supported the orders of the authorities below. The learned Departmental Representative drew our attention to answer No. 2 given in CITIL ESOP-1998-An overview. In that answer, it is menti0lled that in January, 2003, the assessee can acquire full legal ownership of entire ESOP shares allotted to him under ESOP-1998 provided the assessee continues in the employment of the company at that time and exercises the option by paying the strike price. It was, therefore, submitted that the assessee has not held the shares before 1st Jan., 2003 as legal owner. Period for which the shares have been held by the assessee is less than 12 months and, therefore, the AO has rightly treated the gain as short-term capital gain. 9. We have heard both the parties. As per ESOP, shares were to be offered to the selected employees. The selected employee meant any employee of the company selected by the committee to be appo....
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....OP-1998. That offer was accepted vide letter dt. 29th March, 1998. Along with the offer, the company included answer to such question that may be useful for the assessee. It will be useful to reproduce answer Nos. 2, 3 and 4 from the letter received by the assessee along with letter of company. "How will the ESOP work? Additional equity shares, specifically earmarked for the ESOP, have been issued by the company, as approved by the general body of CITIL shareholders. A trust named 'CITIL Employees Stock Option Trust' has been formed which will hold these ESOP equity shares until legal ownership is actually transferred to employees. A particular number of shares (mentioned in your letter of offer) have been allocated to you, at a strike price of Rs. 400 per share. You will become the beneficiary owner of these shares, as stated in your letter of offer, with immediate effect. This beneficiary ownership will be converted into full legal ownership in a phased manner, as your employment association with CITIL progresses in future. The milestones for such conversion are as follows: On 1st Jan., 1999 : 10% of shares mentioned in your letter &nb....
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....cent of the shares on 1st Jan., 1999), you have three options: - You can pay the strike price and purchase that portion of the shares from the trust outright. - You can request the trust to dispose of the shares at the best possible price that the trust can get and pay you the difference between the price at which the sale takes place and strike price. The trustees' decision on such sale will be final and binding. (This facility will be available only to ESOP participants, and not to other shareholders). You can thus get the advantage of the appreciation in share value, without having to invest any amount from your side. - You can let the trust continue to hold the shares on your behalf until you are in a position to pay for them. However, this option is available to you only for a maximum period of 10 years, i.e., before 1st Jan., 2009, at the latest, you must pay for the shares and acquire them outright from the trust. If not, the trust will at its sole discretion, dispose of the shares, and pay you the difference, if any, between the disposal value and the strike price. The trustee's decision on such sales will be final and binding." 14. From the above answer, it is ....
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....pts the legal position that a liability depending upon a contingency is not a debt in praesenti or in futuro till the contingency happened. But, if there is a debt the fact that the amount is to be ascertained does not make it any the less a debt if the liability is certain and what remains is only the quantification of the amount. In short a debt owed within the meaning of s. 2(m) of the WT Act can be defined as a liability to pay in praesenti or in futuro an ascertainable sum of money." 1 7. Once the assessee owes debt in respect of the shares for which he became the full legal owner, then we have to see whether the period of holding is to be seen from that date. The period of holding cannot be ascertained from the date on which the assessee accepted the offer of ESOP. At the time of acceptance of the offer, the assessee becomes only beneficiary owner. Sec. 2(42A) says that short-term capital asset means a capital asset held by the assessee for not more than 12 months in respect of shares immediately preceding the date of transfer. As per s. 2(29A), long-term capital asset means a capital asset, which is not a short-term capital asset. The word used in s. 2(42A) in respect of ....
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....the ownership of an assessee but is held by him in the name of his nominees, it can appropriately, without any straining of language, be said that the capital asset is held by the assessee. The capital asset may be held by the assessee in his own name or in the name of any other person. Moreover, it must be remembered, that the word 'held' is used in s. 2 (42A) with reference to any capital asset. It is not limited to shares. The concept of a registered holder cannot, therefore, be introduced in the construction of the section. So long as the bonus shares are beneficially owned by the assessee, whether in his own name or in the name of another, they would be held by the assessee within the meaning of s. 2(42A). The extreme contention of the Revenue seeking to read the word 'held' as meaning 'held as a registered owner' cannot, therefore, be accepted." CIT vs. Ved Parkash & Sons (HUF) (1993) 115 CTR (P&H) 63 : (1994) 207 ITR 148 (P&H) In this case, the assessee entered into an agreement for purchase of a flat in New Delhi on 29th May, 1970. Pursuant to an agreement she was given possession of a flat on the same date. The assessee was to pay the amount due in instalments and th....