TaxTMI 
TaxTMI 
2014 (3) TMI 21
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....instalment of shares that vested on the assessee on 31/03/2007 and earlier ignoring the fact that no benefit is admissible to assessee u/s. 115WB(1)(d) & Circular No. 9 of 2007. (4) The Commissioner of Income-tax (Appeals) ought to have noticed that assessee has not produced any evidence as to the exercising of option and taking over of these shares on a date after 01/04/2007 and hence, he was not eligible for any relief with regard to shares that vested in him on 31/03/2007 and earlier. 3. Facts of the case are that the assessee Sri Sudhakar Prasad is a salary employee and working as General Manager in IVY Comptech Pvt. Ltd., Hyderabad during the financial year 2007-08. For the assessment year 2008-09 the assessee filed his return of income on 31.07.2008 for Rs. 75,84,950. Also claimed losses of current year (short term capital loss on sale of shares) to be carried forward of Rs. 65,88,350/-. The return was processed u/s. 143(1) on 25.09.2009. Subsequently, it was noticed from the return of income filed by the assessee that the assessee had invested huge amounts and claimed capital loss, more less of the same amount and in the absence of any details with regard to such claim an....
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....arket value which has been taken into account while computing the value of fringe benefits under clause (ba) of sub-section 1 of Section 115WC". Section l1SWC speaks of valuation of fringe benefits and clause (ba) of sub-section 1 reads as below : "the fair market value of the specified security or sweat equity shares referred to in clause (d) of sub-section 1 of Section 115WB, on the date on which the option vests with the employee as reduced by the amount actually paid by, or recovered from, the employee in respect of such security or shares." 6. The CIT(A) observed that the AO has not taken cognizance of the amended provisions of Sec. 49(2AB) and the introduction of FBT from A.Y. 2008-2009 i.e.. from the assessment year under consideration and held that since there was no cost of acquisition the loss claimed was only notional loss and, therefore, the loss was not allowed. The observation of the AO is not correct. It may be noted that the Fringe Benefit Tax has been introduced to bring grant of Stock Options by employees within the purview of FBT and the salient features of scheme are as under: (i) FBT shall apply in all cases where any specified security or sweat equ....
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....the assessee and filed the return as required by the Income Tax Act. The employer has given a certificate confirming the payment of FBT in respect of ESOPs granted to the assessee. As per the provisions of Sec. 49(2AB) the FMV adopted by the employer becomes the cost of acquisition for the calculation of capital gains. The AO's observation that the assessee did not invest any amount on. the acquisition of ESOPs is wrong and the assessee has received ESOPs on the FMV on which tax has been paid by the employer which therefore becomes the cost of acquisition as per the provisions of Sec. 49(2AB) r.w.s. 115WC(l)(ba) of IT Act. Therefore it is held that the assessee is entitled to the deduction by way of cost in respect of ESOPs allotted to him by his employer. The AO is directed to allow the cost of acquisition taking the FMV of the shares on the date of vesting as calculated for the purpose of FBT and recalculate the capital gains on sale of ESOPs and allow the set off and the carry forward of loss as per law. Against this finding of the CIT(A), the Revenue is in appeal before us. 8. The learned DR drew our attention to CBDT circular No. 9/2007 dated 20.12.2007 which suggests that ....
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....even if the allotment or transfer is to current or former employee or employees; (vi) the provisions of this new clause shall apply in cases where the allotment or transfer is on or after 1st day of April, 2007. The expressions "specified security" and "sweat equity shares" have also been defined. The value of fringe benefit is subjected to FBT at the prevailing rate, which is currently 30% plus surcharge plus education cess. Method of computation of the value of the fringe benefit 2. Method of computation of the value of the fringe benefit Under the existing provisions contained in section 115WC, the method of computation of the value of fringe benefits referred to in section 115WB has been provided. A new clause (ba) in sub-section (1) of the said section 115WC has been inserted to provide for computation of fringe benefit related to allotment or transfer of specified security or sweat equity shares by employers to employees. It has been provided that the value of fringe benefit in such cases shall be determined in accordance with the formula - A - B Where, A = the Fair Market Value (FMV) of the specified security or sweat equity shares on the date of vesting....
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....han the date of the vesting of the option, not being a date which is more than 180 days earlier than the date of the vesting. Determination of the cost of acquisition for capital gains purposes 3. Consequent to insertion of clause (ba) in sub-section (1) of section 115WC providing for the valuation of fringe benefits referred to in clause (d) of sub-section (1) of section 115WB, a new sub-section (2AB) has been inserted in section 49. This new sub-section provide that the cost of acquisition of specified security or sweat equity shares shall be the fair market value which has been taken into account while computing the value of fringe benefit under the new clause (ba) of sub-section (1) of section 115WC. Determination of the period of holding 4. A new sub-clause (hb) has also been inserted in clause (i) of Explanation 1 to clause (42A) of section 2. This new sub-clause provide that the period of holding in case of such specified security or sweat equity shares, in the hand of the employee, shall be reckoned from the date of allotment or transfer of such security or shares. Recovery of FBT by the employer from its employee 5. A new section 115WK has also been inser....