TaxTMI 
TaxTMI 
2022 (12) TMI 672
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....et Value of the shares of the assessee company had been established by means of the trade between unrelated parties leading to establishment of a definitive value. ii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in completely placing reliance on the value of per share of the assessee company determined by the Merchant Banker and not taking cognizance of a determinative value established by trade between unrelated parties during the year under consideration itself. iii. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that even though the trade between unrelated parties took place after the exercise of option under ESOP scheme by the employee, the said trade had taken place during the same financial year whereby the value of perquisite based on the fair market value so established could have been added to the salary income of the employee and appropriate TDS done by the assessee company. iv. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in rejecting the Fair Market Value (FMV) of Rs.850/- per share adopted....
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.... be as determined by a merchant banker on the specified date i.e. the date of exercising the option or any date earlier than the date of exercising this option not being a date which is more than 180 days earlier than the date of exercising the option. 2.2 As required by the above sections and the Rules, the company got fair market value of shares determined through a merchant banker, who worked out the fair market value of the shares at Rs.194.15 per share. The assessee company accordingly worked out the perquisites in the hands of Mr. Rajeev Samant as under: Particulars Amount (Rs.) a. Fair Market Value of the Shares 194.15 b. Exercise Price of the Shares 155.00 c. Perquisite per share [(a)-(b)] 39.15 d. Total Shares Issued 40,000 e. Total Perquisite [(c)*(d)] 15,66,000 2.3 The assessee company accordingly deducted tax at source (TDS) on the perquisite amount of Rs.15,66,000/- in terms of section 192 of the Act and deposited the tax into Government account. 2.4 But according to the Assessing Officer, during relevant assessment year M/s Reliance capital had sold shares of the assessee company at the rate of Rs. ....
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....In the light of the above definition the assessee would have to take the market value which Reliance capital fetched while selling its equity holding of assessee company. 6. The option of exercising is clearly mentioned in Rule 3(8) of the Income Tax Rules in cases where there is no sale purchase transactions in the shares of any private company. However, it is evident from the transactions itself the reliance capital has sold its holding @ Rs.850 per share and it is duly recorded in the registry. Hence, the applying of fair market value as per the prevailing market rates is the appropriate method. 7. In view of the above said observation, it is seen the assessee has credited the appropriate credit of perquisites in the salary of the director Rajeev Samant, hence the default thereof u/s 192 is worked out as under : Particulars Amount (Rs.) a. Fair Market Value of the Shares 850 b. Exercise Price of the Shares 155.00 c. Perquisite per share [(a)-(b)] 695 d. Total Shares Issued 40,000 e. Total Perquisite [(c)*(d)] 2,78,00,000 Less : Perquisite added 15,66,000 2,62,34,....
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....ated the value of the said equity shares in terms of Explanation below the section, according to which fair market value of the said equity shares was reduced by the amount actually paid. Further, the Rule 3(8) of the Rules, provided that in case of shares of the company, which is not listed on the recognized stock exchange, the fair market value shall be such value of the shares in the company has determined by a merchant banker. The assessee adopted the fair market value of Rs.194.15 per share determined by a merchant banker and accordingly worked out amount of perquisite to Sh. Rajeev Samant at Rs.15,66,000/-. But the contention of the Revenue is that during the year under consideration shares of the assessee company were sold in an independent transaction at Rs.850 per share and therefore the fair market value should have been taken at Rs.850 per share and the perquisite should accordingly be computed at Rs.2,78,00,000/- and tax should have been deducted on said amount accordingly. The assessee has deducted tax on the perquisite amount of Rs.15,66,000/and therefore in view of the Assessing Officer, tax has not been deducted on the balance perquisite amount of Rs.2,62,34,000/-, ....
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....were issued to the employee @ Rs. 155 per share. The issue price is more than the FMV determined under Rule 3(8) of the IT Rules, there is no benefit or perquisites given by the appellant company to the employee on issuing the shares under ESOP. The AO has also not challenged the FM of the shares determined by the merchant banker. Therefore, the appellant was not liable to deduct TDS on such grant of shares under ESOP. The TDS If ability of Rs. 47 250/- imposed by the AO is deleted. Accordingly, the ground no.3 of the appeal is allowed." 6.2 Thus, the issue-in-dispute in the instant case is whether the fair market value of equity shares of the assessee as on the date of exercising of the option by the employee for converting the warrant into shares, as determined by the merchant banker should be adopted or fair market of equity shares should be adopted on the basis of a real-time transactions of sale of equity shares of the company. 6.3 We find that for the purpose of computing fair market value of the equity shares allotted to the employee Sh. Rajeev Samant, the assessee has followed the procedure laid down in Rule 3(8) of the Rules. Under the rules, in case of shar....