TMI Blog2007 (2) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... available on records. 3. That in any case addition of taxable interest Rs. 2,41,000 as made by the learned CIT (Appeals) is illegal and highly arbitrary and unjustified. 4. That the learned CIT (Appeals) further erred in law and on facts in rejecting the assessee claim under section 54F of the Income-tax Act, 1961 and illegally disallowed the assessee valid claim of deduction Rs. 4,50,000 under section 54F of the Act. The learned CIT (Appeals) has not correctly appreciated the fact of the case. 5. That the learned CIT (Appeals) has further erred in not given direct relief under section 54F of the Income-tax Act, 1961 and remand back to Assessing Officer with direction while the assessee submit the relevant evidence before the learned CIT (Appeals). 6. That the learned CIT (Appeals) has further erred in allowing only consequential relief in respect of charging of interest failing to appreciate that no interest was leviable. In any case the CIT (Appeals) should have appreciated that interest was leviable on the tax on income declared in the return and not on the income assessed." 3. The revenue has taken following five grounds in its appeal : "1. The learned CIT (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also stated that the option price is not paid at the time of option agreement but the American Company purchases shares on behalf of the employees and the cost is debited to the account of the employees and whenever the stock option is sold, the option price is deducted from the sale proceeds and the balance is remitted to the employees. It was further stated that the assessee opted for the stock option on 29-8-1995 whereby the assessee was granted 2,690 shares and the total option price of $ 41,396 was debited to the account of employee in the accounts of American Company. These shares were sold on 27-8-1997 for a total consideration of $ 1,30,465 and after deducting the above price at $ 41,396 from this sale proceeds, the balance $ 89,068 equivalent to Indian rupees 32,32,409 were remitted to the assessee-employee through the banking channel. The assessee stated that since the option price was deducted from the sale proceeds, the assessee has shown cost at NIL and accordingly the total amount received has been shown as long-term capital gain at Rs. 32,32,409. The assessee stated that since these shares were granted on 29-8-1995 and were sold on 27-8-1997, the period of holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares were held by the foreign company in the portfolio of the assessee and that after deducting the option price, the balance was remitted to the assessee, therefore, transaction was relating to the stock option and its consequent sales. The CIT (Appeals) further stated that the shares were purchased by the foreign company from the open market near about the date of exercise of the option and the same were allotted to the assessee employee at an option price. He further observed that even though nothing was paid by the assessee to its employer company at the time of exercise of the option, but it cannot be said that there was no cost price of the stock option allotted to the assessee. He, thereafter, computed the interest of Rs. 2,41,000 on the basis of amount paid by the employer with respect to the option exercised by the assessee by applying 8% interest for a period of two years on the amount of option price of 41,396 dollars, which worked out to be Rs. 15,05,990. Accordingly, he held that the perquisite for providing the funds for purchase of stock option by the foreign company amounts to Rs. 2,41,000 which should be added in the hands of the assessee-employee as his salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook comprises of 36 pages. From the record, we found that in the return of income, the assessee has declared long-term capital gain on sale of bonus stock amounting to Rs. 32,32,409. Deductions were claimed under section 54F of the Act, in respect of residential house amounting to Rs. 4,50,000, and under section 54EA on account of investment in UTI, MIP SI amounting to Rs. 12 lakhs. During the course of scrutiny assessment, the assessee was asked to show how the bonus stock was acquired. The assessee only submitted copy of agreement with the Cadence Design System (India) Pvt. Ltd. The assessee further submitted that assessee has not paid any amount on account of purchase of bonus shares, and that its employer foreign company has purchased certain shares in the market for and on behalf of the assessee. The Assessing Officer further noted that no distinctive number of the said shares purchased for and on behalf of the assessee were furnished nor any proof of payment by foreign company for purchase of the alleged shares were furnished. The Assessing Officer, therefore, held that since there is no cost of acquisition of these shares in the hands of the assessee, the non-statutory stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing allowed in favour of the assessee, the difference between the prevailing market price on the date of offer of such option vis-a-vis the offer, is to be treated as perquisite accruing to the assessee in the previous year in which the option is given. The Legislature has however altered this position by laying down in the proviso to section 17(2)( iiia ) with effect from 1-4-2000 that perquisite will accrue when the option is exercised. When the option is exercised by the employee that date will be the date of acquisition of the shares for the purpose of determining whether the shares were long-term or short-term capital asset. The price at which the option is exercised will be the cost of acquisition for the purpose of computing capital gains. We may add here that the statement of law on the issue as explained by the CIT(A) in para 4.1 of his order is correct, subject to what we have stated above. It is not clear from the record as to whether the assessee has declared any such value as perquisite in the year in which stock option was exercised by him. We also do not find any merit in the order of Ld. CIT(A) insofar as he had computed the interest of Rs. 2.41 lakhs, so as to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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