TaxTMI 
TaxTMI 
2008 (3) TMI 407
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....e 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 complete owner of the shares during the finan....
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....ired 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 acquired complete right of the title and interest for shares of ESOP-1998 Scheme from the date of payment. Thus, the assessee has not held the shares for more than 12 months. (5) The assessee submitted that the transfer of legal ownership under ESOP is as under: 1-1-1999 10% 200 shares 1-1-2000 15% 600 shares 1-1-2001 20% 1,600 shares 1-1-2002 25% 2,000 shares ------------ 4,000 shares ------------ The assessee sold 10,000 (sic) shares out of 3,200 shares directly purchased. Thus, 6,800 shares were sold out of shares made available to assessee under ESOP. Sin....
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....th 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 becomes a beneficial owner of securities. The CBDT Circular No. 704, dt. 28th April, 1995 [(1995) 125 CTR (St) 86] clarified that the holding period should be determined on the basis of date of transfer. In case securities are transacted through stock exchange and transactions are followed up by delivery of shares, the purchase consideration cannot be made a criteria to determine the ownership of shares allotted under ESOP. The learned Authorised Representative drew our attention to para 4 of the document mentioned as CITIL ESOP-1998-An overview. It was submitted that the assessee was given three options to acquire full legal ownership in the phased manner. The AO himself has accepted that the assessee became full legal owner on 1st Jan., 2003, though payment was not made by that date. The beneficiary ownership was converted into legal ownership on the following dates: On 1st Jan., 1999 : 10% of shares mentioned in your letter of offer On 1st Jan., 2000 : 15% of shares mentioned in your letter of o....
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....pany in instalments within one month after the receipt of the pro rata cost of the relevant shares from the selected employee. The offer to the selected employee is to be made in writing and shall be: (a) of 100 shares or multiples thereof; (b) personnel to the selected employee and not assignable; (c) accepted in whole or in part within 30 days of its being made and if accepted in part shall be accepted for as many number of shares or multiples thereof as fixed by the committee from year to year or any multiple thereof and any offer which is not so accepted shall lapse at the expiration of the said period; (d) coupled with an obligation to repay that part of the loan from the company as had been utilized for the acquisition of the shares accepted by the employee. 10. On the acceptance of the offer of shares in whole or in part, selected employee will undertake to pay within 10 days from the date of acceptance of the offer the pro rata cost of the shares incurred by the trustees. 11. In the ESOP Scheme there are three stages: (1) Granting (2) Vesting (3) Exercise of option 11.1 By granting, the company grants the employees an option to purchase shares in the company. 11.....
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....different from full legal ownership? Beneficiary ownership means that the shares have been allocated to you under certain conditions, and are being held by the trust on your behalf. However, you do not have the full ownership of the shares as yet, and you cannot sell or use them as security, or place a lien on them. You will, however, be entitled to receive the dividends (net of all taxes, costs, etc., if any) that may be declared by the company on its equity shares from time-to-time, even while you have only beneficiary ownership. Once you acquire full legal ownership, you may sell the shares, place a lien on them, etc., provided you have actually exercised your option by purchasing these shares from the trust by paying the strike price. Do I need to pay for the shares? When? Initially, when the shares are allocated to you as beneficial owner, you need not pay anything. You will receive the dividends that may be declared on those shares, even though you have not as yet paid anything towards purchase of the shares. When you become entitled to full legal ownership of the shares (e.g. to 10 per cent of the shares on 1st Jan., 1999), you have three options: - You can pay the stri....
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.... phased manner and has been given three options as and when he becomes full legal owner in the phased manner. After becoming full legal owner of the shares, the trust cannot enjoy the profits from sale of shares and it can only be entitled to recover strike price, which becomes payable by the assessee on account of becoming full legal owner on the date. 16. The assessee owes a debt to the trust as and when he becomes full legal owner in the phased manner. The worthy Supreme Court in the case of Kesoram Industries & Cotton Mills Ltd. vs. CWT (19(6) 59 ITR 767 (SC) observed as under after considering a number of judgments: "We have briefly noticed the judgments cited at the Bar. All the decisions agree that the meaning of the expression 'debt' may take colour from the provisions of the concerned Act; it may have different shades of meaning. But, the following definition is unanimously accepted: 'A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation: debitum in praesenti, solvendum in futuro.' The said decision also accepts the legal position that a liability depending upon a contingency is not a debt in praesenti or in fu....
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....e' in s. 5(1)(xx) of WT Act should be interpreted as meaning 'shares' possessed of, owned by or belonging to the assessee and it is not necessary that the shares should stand in the name of the assessee in the company's share register. Hence, for considering the period, for which the shares are held it is not necessary to see that such shares are in the name of the assessee in the company's share register. CIT vs. All India Tea & Trading Co. Ltd. (1979) 117 ITR 525 (Cal) The Calcutta High Court held that the words 'held by an assessee' in the definition of capital asset included physically, actually, constructive and also symbolic possession of property of any kind. In the instant case, the employee was having constructive possession of shares in the phased manner. CIT vs. G. Ethirajulu (1974) 93 ITR 366 (AP) The learned Gujarat (sic-Andhra Pradesh) High Court considered the meaning of the word 'held' and observed as under: "The word 'held', according to its plain natural sense, means 'belonging to' or 'of the ownership of. Where a capital asset is of the ownership of an assessee but is held by him in the name of his nominees, it can appropriately, without any straining of la....