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2012 (7) TMI 696 - HC - Income Tax
Revision u/s 263 - Nature of receipts on account of exchange fluctuations - expenditure on issue of shares under the Employees Stock Option - AO treated the receipts on account of exchange fluctuation as a capital receipt and the same was reduced from the profits and gains while working out the relief under Section 80HHE.
Held that:- any and every erroneous order cannot be the subject matter for revision under Section 263 of the Act, unless the second requirement of it being prejudicial to the interest of the Revenue exists. -
Having thus agreed with the assessee as well as with the Assessing Officer, the Commissioner of Income Tax however issued a letter dated 21.1.2004 taking the view that the receipt arising on account of exchange fluctuation was revenue in character. There are no reasons indicated as to why he suddenly shifted his stand as regards the character of the receipt from capital to revenue. - there are no materials to show that as to how the order of the Officer was erroneous to become prejudicial to the Revenue to initiate jurisdiction under Section 263 of the Act.
Merely because part of the share capital is used as a working capital, the character of the receipt would not become a revenue receipt. Thus, once this aspect becomes clear and the entire money raised through issue of equity shares is to be treated as share capital, the gains on account of foreign exchange fluctuations, in the event such share capital collected in foreign exchange, hence is only capital receipts and the determination as to whether it is to be treated as capital receipt or revenue receipt cannot depend upon the end use of the share capital. - Following the decision in CIT v. JAGATJIT INDUSTRIES LIMITED (2009 (9) TMI 62 - DELHI HIGH COURT), decided in favor of assessee.
Regarding ESOP - the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. - the expenditure on issue of shares under the Employees Stock Option could be allowed as staff welfare expenditure - Decided in favor of assessee.