TaxTMI 
TaxTMI 
2018 (12) TMI 1255
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....2/- as Short Term Capital Gains ('STCG') and consequently denied the assessee deduction u/s 54 EC of the Act amounting to Rs. 20,41,672/-. The assessee's appeal was dismissed by CIT(A) vide order dated 06.01.2017. On further appeal by the assessee, the Tribunal in order in ITA No. 590/Bang/2017 set aside the order of assessment passed by the AO consequent to the directions of the Addl. CIT, as the assessee was not provided any opportunity of being heard in the matter by the Addl. CIT before issuing such directions to the AO u/s 144A of the Act. 2.2 Subsequent thereto, the AO passed the order of assessment u/s 43(3) r.w.s. 254 of the Act dated 07.09.2013. In this order, the AO once again held that the LTCG on transfer of ESOP options amounting to Rs. 20,41,672/- are to be treated as STCG and consequently denied the assessee deduction of Rs. 20,41,672/- claimed u/s 54EC of the Act. On appeal, the CIT(A) dismissed the assessee's appeal vide the impugned order 13.07.2018. 3. Aggrieved by the order of CIT(A)-3, Bengaluru dated 13.07.2018 for Assessment Year 2007-08, the assessee has preferred this appeal before the Tribunal, wherein the following grounds are raised. 1.1 T....
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....s should be considered from the date of grant of such options and the right to exercise options, right to transfer options, vesting date are all not relevant for ascertaining the holding period of the options. 1.6 The learned Commissioner of Income tax (Appeals) -3, Bengaluru has erred in not appreciating that the options were not transferred to an outsider but it was taken back by Infosys Technologies Ltd itself. 1.7 On facts and in the circumstances of the case and law applicable, the assessment of capital gains of Rs. 20,41,672 as short term capital gains is to be deleted and the gains are to be taken as long term capital gains and further exemption claimed u/s 54EC should be allowed as claimed in the return of income. 1.8 The learned Assistant Commissioner of Income tax, Circle 15(1), Bengaluru has erred in levying interest under section 234B and 234D of the Act. On facts and in the circumstances of the case and law applicable, interest under section 234D is not leviable. The appellant denies its liability to pay interest under section 234B and 234D. 1.9 In view of the above and other grounds to be adduced at the time of hearing, the appellan....
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....were justified in treating the capital gains on transfer of ESOP options as 'STCG' and thereby denying the deduction claimed by the assessee u/s 54EC of the Act. 4.3 In rejoinder, the learned AR submitted that the vesting and exercise of options are not relevant as in the case on hand, the ESOP options were transferred to Infosys Technologies Ltd., as such, without any exercise and since the period of holding was long term; therefore, it was a case of 'LTCG'. It is contended that the learned DR's argument would have been relevant had it been a case where ESOP options were exercised, shares allotted and subsequently if those shares are sold, then the gain from sale of shares would be 'STCG'. 4.4.1 I have considered the rival submissions and perused and carefully considered the material on record; including the judicial pronouncements cited. On an appraisal of the material on record it is not disputed that the assessee, an employee of Infosys BPO Ltd., was granted ESOP options, of which 6000 options were subsequently vide Option Transfer Agreement dated 07.02.2007 transferred to/bought back by Infosys Technologies Ltd., with Infosys BPO Ltd., as a confirming party. These 6000 o....
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.... Gillette Co. ESOP are cashless. The assessee surrendered these rights and obtained certain amount, being the difference of the price of shares between the date of grant and the date of surrender. On these facts, in our opinion the issues covered in favor of assessee by the decision of the Delhi Bench of the Tribunal in the case of Abhiram Seth vs. JCIT in ITA no.2302/Del/10 for Assessment Year 2004-05 (supra) wherein at para 7 it was held as follows:- "7. We have heard rival submissions and gone through the entire material available on record. The facts have been narrated in detail above. A perusal of the clauses of allotment clearly reveals that the particular number of shares were allotted to assessee in different years at different prices; only distinctive numbers were not allotted which has not been disputed by dept. The apparent benefit to assessee out of ESOPs scheme was that it had not to pay the purchase price immediately at the time of allotment but the same was to be deducted at the time of sale or redemption of shares. Since there was an apparent fixed consideration of ESOPs shares, the right to allotment of particular quantity of shares accrued to the assessee....
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....y. 7.2. In our view, these propositions are of no avail in so far as we have held that the assessee acquired a valuable and transferable right on these shares as on the respective dates in 1995-96 to 1999-2000, as mentioned above. The cases of Bomi S Billimoria (supra) and Dhurjati Gupta (supra), are squarely applicable in favour of assessee. The right of shares constitute capital assets and the gains should be taxed as long term capital gains as the holding period is more than 3 years. We reverse the orders of lower authorities on this issue, treating the gains as short term capital gains. The ground is allowed." 10. Coming to the decisions relied upon by the Ld. DR in the case of Giridhar Krishna M vs. ACIT, Bangalore B Bench (2008) 117 ITJ (Bang.) 965; 307 ITR (AT) 0068, the assessee had first exercised the option to purchase shares on 7th November,2002 and thereafter transferred these shares so acquired in April,2003. In these circumstances the Tribunal has held that the right conferred by means of a grant and indicating the period within which the employee could subscribe to the shares are indicators of the fact that the assessee could exercise the option wit....
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.... follows:- "7.1. In our view, the assessee's claim of taxability of gains on the transfer of such rights under the head 'capital gains' is justified and deserves to be accepted. If we accept Assessing Officer's stand, then there will be no capital gain; if the date of allotment of share and sale thereof is the same, the price of purchase of shares cannot be the price paid for right which is not held as purchase, which becomes unascertainable. According to Assessing Officer, the earlier right of allotment does not constitute a purchase of shares and thus leads to a presumptive situation. In that case as rightly observed by the ITAT in the case of Bomi S Billimoria (supra), the purchase price will be unascertainable if we apply the case of Dhurjati Gupta (supra), then allotment constitutes new right of purchase and the price will be same as the sale consideration. In both situations there will be no taxability. 7.2. In our view, these propositions are of no avail insofar as we have held that the assessee acquired a valuable and transferable right on these shares as on the respective dates in 1995-96 to 1999- 2000, as mentioned above. The cases of Bom....