TMI Blog2011 (9) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Gains” as the holding period is more than 3 years. - Decided in favor of assessee. - ITA No. 2302/Del/2010 - - - Dated:- 30-9-2011 - R. P. Tolani And Shamim Yahya, JJ. Appellant by : Dr. Rakesh Gupta; Sh. Ashwani Taneja Ms. Rani Kiyala Advocates Respondent by: Dr. V.R.R. Kumar Sr. DR ORDER Per R. P. Tolani, J.M : This is assessee s appeal against CIT(A) s order dated 17-3-2010 relating to A.Y. 2004-05. Following grounds are raised: 1. That having regard to the facts and circumstances of the case Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in reopening of the case u/s 147 as per law and the reason recorded were valid in the eyes of law and has further erred in not quashing the assessment order on the ground that order passed u/s 147 red with section 143(3) was framed without complying with the mandatory conditions as prescribed under section 147 to 151 of the Income Tax Act, 1961. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in reopening the impugned assessment is bad in law and against the facts and circumstances of the case. 3. That having reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25-02-2004 52.00 84701 3853896 25-7-1996 2514 29.84 25-2-2004 52.00 95593 4349482 23-9-1999 5056 32.25 25-2-2004 52.00 55560 2527980 27-1-2000 4963 34.00 25-2-2004 52.00 89076 4052958 14966315 27-7-1995 2783 21.54 59946 25-7-1996 2514 29.84 75018 23-9-1999 5056 32.25 163056 27-01-2000 4963 34.00 168742 - Sale of Shares (valuable right) on 25-2-2004 15316 USD $ 796432 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accepted the price paid by the assessee on the dates of acceptances of offer as the cost but had not accepted them to be dates as the dates of respective of acquisitions. 4.3. CIT(A), however, upheld the order of AO on this issue by following observation: I have given a careful consideration to the above points made by the appellant and I am also aware that there are conflicting decisions of the ITAT on this issue, e.g. 1. 2009-TIOL-573-Mum Mr. Bomi S Billimoria vs. AC Mumbai 2. ACIT vs. Dr. Dhurjati Gupta ITAT Hyderabad B Bench (2010) 33 DTR (Hyd) (Trib) 287 3. ACIT Vs. Shri Jaswwinder Singh Ahuja ITA no. 185 186 Del/2009 However, as far as the present appeal is concerned, this issue is decided against the assessee by the ITAT in the case of ACIT Vs. Shri Jaswinder Singh Ahuja in ITA no. 185 186.Del/2009 where it has been held as under:- We have heard the rival submissions and have gone through the material available and the judgments cited by both sides. We find that the issue in the present case is squarely covered by the Tribunal decision rendered in the case of Alok Kumar (supra). In that case also, the employer company was the same co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,49,66,315/- is liable to normal rates of tax. The addition of ₹ 1,49,66,315/- made by the AO is therefore confirmed. Aggrieved, assessee is before us. 5. Learned counsel for the assessee contends as under: (i) In the case of Pepsico ESOP the shares are held in stock by an appointed trustee e.g. Barry group of Merill Lynch, who hold them in stock. This group is official representative of the various employees of Pepsico Inc all over the world and as a group policy, holds shares with them in stock on their behalf and the employer. This arrangement suits both employee and employer. The employer would not like to transfer shares directly to employee unless they performs as per expectation. The employees also would not like to totally trust the employer till the time of commitment date arrives. Hence the employees are allowed to become the owners (by way their written agreement also known as filling up and signing agreement for eligible shares Options ) with the company and the official ESOP trustees viz Barry group of Merrill Lynch. Reasons for separate agreements and signing of these agreements on various dates was to ensure firm commitments on these dates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d pay the purchase price when he opts to sell them. This could constitute an important incentive. Thus it was only postponement of payment of purchase price. (viii) After option became exercisable, the Trustees had the sole discretion and without the assessee s consent could sale such option and pay the difference between the option price and the prevalent fair market value of the shares by giving written notice called as the Buy out notice . Payments of such buy out amounts pursuant to this provision was to be effected by Pepsico and could be paid in cash, in shares of capital stock or partly in cash and partly in capital stock, as the Trust deemed advisable. (ix) Clause no. 4 of Pepsico ESOP agreement stipulates availability of a valuable right in ESOP stock (existing on the date of signing of options) with the appellant as it lays down transferability in case of death etc. from the employee to his legal heirs i.e. something valuable exists. (x) Clause 9 recognizes existence of this valuable right i.e. buy out option (what can be bought and sold is applicant/ appellant s right to shares in ESOP stock). Thus Pepsico recognized existence of valuable rights of holding of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition for the purpose of capital gain computation. In the case under consideration, there is no dispute regarding the date on which the ESOPs were vested on the assessee by WLC. As for the decision of the Calcutta High Court in the case of Mrs. A. Ghosh Vs. CIT (supra), relied on by the learned Departmental Representative, it relates to conversion of debentures into equity shares and date of acquisition of shares in that context, as against holding of ESOPs by the assessee in the present case, date of acquisition of shares, in respect of which relates back to the date of grant of ESOPs and not exercise of option. Similarly, in the case of Dr. V.V. Mody (supra) before the Karnataka High Court, the issue relates to capital gains in relation to an immovable property held by the assessee in dual position both as tenant as well as landlord at the same time and in relation to the same property. Facts of that case are distinguishable and the ratio laid down therein has no application to the facts of the present case. Further, sequence of events commencing from the grant of option to the sale of the shares, as seen from the copies of the option letters from WLC, acceptance le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thus giving rise to no capital gains. 5.5. The ITAT concluded the case of Bomi S. Billimoria (supra), as under: 16. We have carefully considered the rival submissions and perused the record. As could be noticed from the stock option plan and the terms of RBI, no payment was made by the assessee nor exercised the right to purchase shares before 13th Aug., 1992 and thus, so far as the assessee is concerned, there is no cost of acquisition to the assessee n which event, by applying the decision of B.C. Srinivasa Setty (supra), the amount received is not liable to tax under the head Income from capital gains . Even if it is assumed that the market value of the share is not benefit given to the assessee, such benefit can be said to accrue to the assessee only on the date of exercise of the option. In the instant case, the date of exercise of option as well as the date of sale is same and thus there is no difference between the deemed cost of acquisition and the actual price realized by the assessee and thus the learned CIT(A) was not justified in directing the AO to bring to tax the amount of ₹ 5,44,925 as short-term capital gain. Under these circumstances we set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains . CIT(A) out of conflicting ITAT judgments has preferred to rely on only favourable to revenue i.e. Jaswinder Singh Ahuja (supra), overlooking others and without commenting about the relevant facts. It has not been dealt on that acquisition of valuable rights in a property amounts to a capital asset. In the case of Jaswinder Singh (supra), the shares were of the same company, whereas in this case there are group companies held through trustee and there were certain RBI guidelines about nonpayment of price of shares and the option being exercised by assessee on the date of sale of shares. There was no trustee whereas in assessee s case there was a fixed price of allotment of right to fixed quantity of shares and the indistinctive shares were held by a trust on behalf of assessee. Non-allotment of distinctive number of shares by trust cannot be detrimental to the proposition that assessee s valuable right of claiming shares was held in trust and stood sold by Pepsico. Therefore, there was a definite, valuable and transferable right which can be termed as a capital asset in favour of the assessee. 7.1. In our view, the assessee s claim of taxability of gains on the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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