TaxTMI 
TaxTMI 
2009 (6) TMI 115
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....nfirming the addition of Rs. 5,44,025 as short-term capital gains overlooking the fact that it is a capital receipt on which the assessee incurred no cost at the time of acquisition. 2. The assessee is an employee of Johnson & Johnson, Bombay which is a subsidiary of Johnson & Johnson, USA. Under a stock option plan the USA company offers, to key executives of their international affiliates worldwide, certain number of shares at a stipulated price. On 7th Dec., 1989 the assessee was granted an option to purchase 2,500 shares of Johnson & Johnson, USA at a price of US $ 57.88 per share (i.e., fair market value of the stock on the day of granting the option). However, on restructuring, the number of shares was doubled to 5,000 and the rate p....
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....from salary or short-term capital gain or speculative profits overlooking the fact that it is a capital receipt not liable to tax or in the alternative it is assessable to tax as "long-term capital gain". 6. The learned counsel appearing on behalf of the assessee contended before the CIT(A) that the impugned amount received by the assessee should be taxed either as salary or short-term capital gain or speculation profit but strangely the AO was not sure of the head under which the amount in question has to be taxed and thus applied all the provisions. Hence addition is contrary to law. It was strongly contended that the amount in question is liable to be taxed under the head "Capital gains" and since the cost of the shares is nil, no capit....
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....asset, we have to proceed on the premise that on sale of such shares it would amount to transfer of a capital asset. In the case of Infosys Technologies Ltd. vs. Dy. CIT (2003) 78 TTJ (Bang) 598 : (2003) 86 ITD 312 (Bang) the Court observed that ESOP is subject to several conditions and an employee would become free to exercise its right to purchase the shares only upon fulfilling the conditions and that too after the respective dates of maturity of the stipulated shares. In the case of Sumit Bhattacharya vs. Asstt. CIT (2008) 113 TTJ (Mumbai)(SB) 633 : (2008) 112 ITD 1 (Mumbai)(SB), the Tribunal, Mumbai Special Bench while dealing with the nature of stock appreciation rights, observed that so far as ESOPs are concerned there is an outright....
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....bsp; exercisable of total during period then ....
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.... to and including day of expiration. 20% 100% ------------------------------------------------------------------ 12. As could be noticed from p. 7 of the paper book, the option shall not be exercisable until the day following the second anniversary from the date of offer i.e., the option can be exercised after 11th July, 1991 but cannot be exercised after the expiration of 10 years. The exercise of option is subject to several conditions such as: (a) the shares shall remain authorised for listing on the New York Stock Exchange at the time of exercise of the option. (b) the exercise is subject to the terms ....
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....rwise the option to purchase the shares was exercised on the same date on which it was sold and hence, even if it has to be brought to tax, the amount taxable is the difference between the market value on the date of purchase and the market value on the date of sale. In the instant case, the option having been exercised on the same date there cannot be any difference between the purchase price and sale price in which event the assessee is not liable to tax on the amount received on sale of shares. He submitted that the learned CIT(A) was not justified in holding that the cost of acquisition of shares can be determined merely because the appellant has received net consideration. 15. On the other hand, the learned Departmental Representative....