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2007 (9) TMI 535 - AT - Income TaxSale of Shares - Determination of Period of holding - Date of acquisition - Stock option schemes - Whether the transfer resulted in a short-term capital gain or a long-term capital gain - HELD THAT:- In the present case the assessee has exercised the option only on November 7, 2002 and only on November 7, 2002 he became the owner of 62,500 shares so exercised by paying for the cost on the same date. This is evidenced from the following documents produced during the course of assessment. The employees stock option is a document that binds the employer vis-a-vis the employee of the company. The binding of the employer is also specific to the employee. That is to say, it is employee specific and to him alone. The employer by means of the declaration of the option has in fact undertaken to comply with that declaration in regard to every employee who would fall within the conditions of that declaration. We have earlier observed that the declaration as on September 9, 2001, by which the assessee was provided with a scheme of purchase of shares of a specified number and the period within which he could so obtain is only an indicator of conferment of a right to exercise the option to purchase the shares. This particular grant and vesting is always employee specific and, therefore, has no value whatsoever unlike the rights to subscribe for further shares as contained in section 81 of the Companies Act which is a transferable commodity. Therefore, the dates of grant and vesting are irrelevant because they do not result in any shares acquisition, but acquisition of shares happens only when the assessee exercises his option and is allotted the specified number of shares. He, having exercised the option as on November 7, 2002, and sold it in April/May, 2003, the period of holding is about 5 to 6 months. This being less than 12 months, even in accordance with the provisions of section 2(42A) of the Act, read with Explanation 1(i)(d), the shares sold would have to fall in the category of short-term capital asset only. The decision of the Kerala High Court relied upon by the DR in SN. Zubin George v. CIT [2002 (9) TMI 23 - KERALA HIGH COURT], was concerning the determination of the date of acquisition of the shares and the conclusion of the court was that the date of acquisition is the date on which the share certificates were issued and accordingly, it was held that the period has to be considered from the date on which the shares were issued to the assessee. We have observed very clearly that the events that preceded the exercise of option for purchase of the shares followed by allotment have no relevance other than remaining in the background. This is for the reason that the employee’s specific grant and vesting of right are not transferable unlike the right to subscribe for further shares as contained in section 81 of the Companies Act and hence have no value. Further, till the shares are allotted, the assessee is not a subscriber to the shares of the company and is not considered a member and, therefore, he could not have transferred any shares prior to the date on which he became a member. Thus, we are of the view that there is no merit in the appeal and the same is dismissed.
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