TaxTMI 
TaxTMI 
2014 (9) TMI 939
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....tion, the assessee-company issued sweat equity shares to the following persons : (a) Shri Narendra Baheti Rs. 50,00,000 (b) Shri Rajendra Baheti Rs. 50,00,000 Rs. 1,00,00,000 Each of the abovesaid people was allotted 5,00,000 equity shares at par value of Rs. 10 per share at free of cost. The assessee claimed the abovesaid amount of Rs. 1 crore as expenditure. Before the Assessing Officer, the assessee submitted that the provisions relating to fringe benefit tax (section 115WC(1)) requires the assessee to pay fringe benefit tax on the value of sweat equity shares allotted to the employees and it has also paid the fringe benefit tax on the above said amount of Rs. 1 crores. Accordingly it was submitted that the sweat equity shares is a kind of fringe benefit given to its employees and the same is allowable as revenue expenditure. However, the Assessing Officer rejected the said explanation with the following observations : "This explanation is not acceptable as the loss is not on account of any expenditure or incurring any liability for such expenditure. For claiming such expe....
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.... (Chennai) 1049 (d) CIT (Asst.) v. Spray Engineering Devices Ltd. 2012)(53 SOT 70)(Chd) (e) Deputy CIT v. Accenture Services P. Ltd (I. T. A. No. 4540/M/08 dated March 23, 2010) (f) Novo Nordisk India P Ltd v. Deputy CIT [2013] 37 CCH 414 (Bang) The learned authorised representative also invited our attention to the provisions relating to the fringe benefit tax. 5. On the contrary, the learned Departmental representative submitted that the case law relied upon by the assessee relate to the shares issued under ESOP scheme and hence the ratio of those decisions could not applied to the facts prevailing in the instant case, as the objective of issuing shares under ESOP scheme and sweat equity scheme is different. He submitted that the approval given by the Government of India for issuing shares to Mr. Narendra Baheti provided for issuing shares "for a consideration other than cash" and further it states that the shares have to be issued after one year fro....
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....Income-tax (Appeals) about the facts prevailing in Ranbaxy Laboratories Ltd. v. Addl. CIT [2009] 124 TTJ (Delhi) 771 would show that the issue considered therein was different one, i.e., the assessee therein claimed the difference between the "market value" of shares and the "issue price" as expenditure. However, in the instant case, the assessee has issued shares at free of cost and hence the entire value of shares is treated as part of employee benefit and accordingly the value of sweat equity shares was claimed as deduction. 8. Before us, the learned authorised representative mainly placed reliance on the provisions of fringe benefit tax to contend that the assessee, having paid the fringe benefit tax, should be allowed to claim the value of sweat equity shares as deduction. The learned authorised representative invited our attention to Circular No. 8 of 2005 dated August 29, 2005 issued by the Central Board of Direct Taxes giving clarifications about the fringe benefit tax. The learned authorised representative invited our attention to question No. 35 and the answer given to it, wherein it is clarified that the fringe benefit tax is not payable on the portion of expenses, wh....
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....oyees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called." Thus, it is seen that the sweat equity shares are issued for consideration "other than cash" for providing know-how or for making available rights in the nature of intellectual property rights or value additions. Thus, employees or directors should provide "intangible assets" of the nature specified in the above said definition to the company for obtaining equity shares at a "discount" or "for consideration other than cash". If shares are issued "free of cost" without acquiring any intangible assets of the nature specified in the above said definition, in our view, the same would not fall in the category of "sweat equity shares". 10. The notes of accounts attached to the balance-sheet as at March 31, 2008, which is placed at page 27 of the paper book, states about the issue of sweat equity shares as under : "During the year the company has issued equity shares of Rs. 50,00,000 each (5,00....