TMI Blog2015 (1) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... r the ESOP. Computation of quantum of deduction – Held that:- An employee becomes entitled to the shares at a discounted premium over the vesting period depending upon the length of service provided by him to the company - In all such schemes, it is at the end of the vesting period that option is exercisable albeit the proportionate right to option is acquired by rendering service at the end of each year - the company incurs liability to issue shares at the discounted premium only during the vesting period - The liability is neither incurred at the stage of the grant of options nor when such options are exercised - the liability to pay the discounted premium is incurred during the vesting period and the amount of such deduction is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Option Scheme (ESOP). During the accounting year relevant to the assessment year under consideration, the assessee company brought two schemes for issue of ESOP. The deduction claimed at ₹ 8,27,17,775/- was worked out as under:- ESOP Scheme Date of grant Market price Rs. Per Share Exercise price Rs. Per Share Intrinsic value Total No. of options No. of effective options Total cost Amortized in F.Y. 2007-08 1 2 3 4 5 6 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) sustained the order of the Assessing Officer. Hence, this appeal by the assessee. 6. At the time of hearing before us, the learned counsel for the assessee relied upon the decision of the Special Bench of ITAT in the case of Biocon Ltd. Vs. DCIT [2013] 144 ITD 21. He stated that the Special Bench of ITAT has considered the identical issue and has examined every aspect, i.e., whether the deduction is allowable on issue of employee's stock options and how to compute the deduction and has also considered whether any adjustment is required to be made in the subsequent year if any option remained unexercised or lapsed at the end of the exercise period. The ITAT arrived at the conclusion that the deduction is allowable and the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Fringe Benefit tax that the legislature itself contemplates the discount on premium under ESOP as a benefit provided by the employer to its employees during the course of service. If the legislature considers such discounted premium to the employees as a fringe benefit or 'any consideration for employment', it is not open to argue contrary. Once it is held as a consideration for employment, the natural corollary which follows is that such discount i) is an expenditure; ii) such expenditure is on account of an ascertained (not contingent) liability; and iii) it cannot be treated as a short capital receipt. Therefore, discount on shares under the ESOP is an allowable deduction. (emphasis by underlining provided by us) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esting period. The liability is neither incurred at the stage of the grant of options nor when such options are exercised. Considering the questions of 'when' and 'how much' of deduction for discount on options is to be granted, it is held that the liability to pay the discounted premium is incurred during the vesting period and the amount of such deduction is to be found out as per the terms of the ESOP scheme by considering the period and percentage of vesting during such period. Therefore, deduction of the discounted premium is to be allowed during the years of vesting on a straight line basis. 11. The learned counsel for the assessee has claimed that the discount worked out by the assessee, though named as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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