TMI Blog2020 (10) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 1964 (4) TMI 4 - SUPREME COURT] Revenue in case of several other assessee's have accepted the fact that on cashless exercise of option, there arises a income in the nature of capital gains. However, in the case of the assessee the aforesaid stand was not taken. It is also pertinent to mention here that nothing was brought to our notice that the view taken by the tribunal in the following cases has been challenged by the revenue. See SHRI KAMLESH BAHEDIA C/O ABOBE SYSTEM INDIA PVT. LTD [ 2014 (8) TMI 843 - ITAT DELHI], N.R. RAVIKRISHNAN [ 2018 (12) TMI 1255 - ITAT BANGALORE] and DR. MUTHIAN SIVATHANU [ 2018 (11) TMI 1112 - ITAT CHENNAI] Thus in view of law laid down by the Supreme Court in Berger paints [ 2004 (2) TMI 4 - SUPREME COURT] it was not open for the revenue to take one stand in case of the assessee and to challenge the correctness of the same in case of other assessee. For this reason also, the revenue cannot be permitted to take a different view in this appeal. - Decided in favour of assessee. - I.T.A. NO.153 OF 2014 - - - Dated:- 23-10-2020 - HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD APPELLANT (BY Mr. T. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F USA, the assessee was granted stock option by SiRF USA whereunder the assessee was given right to purchase 30,000 shares of SiRF USA at an exercise price of US $0.08 per share. The assessee also had an option of cashless exercise of stock options which is an irrevocable direction to the broker to sell the underlying shares and deliver the proceeds of sale of shares after deducting the exercise / option price which was to be delivered to SiRF USA. In cashless exercise, the underlying shares are not allotted to the assessee and he is only entitled to receive the sale proceeds less the exercise price. The assessee in assessment year 2006 07 exercised his right under stock option plan by way of cashless exercise and received a net consideration of US $ 283,606 and offered the gain as a long term capital gain as the stock options were held nearly for ten years. The assessee also claimed deduction under Section 54F of the Act. 3. The Assessing Officer by an order dated 26.12.2018 passed an order under Section 143(3) of the Act and artificially split the transaction into two and brought to tax the difference between the market value of shares on the date of exercise and the exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from capital gains as the right to purchase the shares of the companies is a capital asset under Section 2(14) of the Act and relinquishment / extinguishment of a right in the same is a transfer within the meaning of Section 2(47) of the Act. It is urged that cashless exercise option was a transfer of capital asset by way of extinguishment of right in the capital asset. It is also pointed out that reliance of the tribunal on the decision on the special bench of the tribunal in ACIT vs. SUMIT BHATTACHARYA, (2008) 300 ITR (AT) 34 (MUM) (SB) is misconceived as the aforesaid decision was reversed by Bombay High Court in SUMIT BHATTACHARYA VS. ACIT (2020) 118 TAXMANN.COM 371 (Bom ) by placing reliance on the decision of the Supreme Court in Addl. CIT vs. BHARAT V. PATEL (2018) 98 TAXMANN.COM 386. It is also pointed out that at the time of grant of option in the year 1996 Section 17(2)(iiia) was not in existence. It is also urged that revenue in case of two other assessees placed in similar circumstances has accepted the fact that on cashless exercise of options, there arises income in the nature of capital gains and the revenue has not challenged the correctness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an independent consultant to SiRF USA and was not an employee of SiRF USA at the relevant time. Thus, there was no relationship of employer and employee between the SiRF USA and the assessee and therefore, the finding recorded by the tribunal that the income from the exercise of stock option has to be treated as income from salaries is perverse as it is trite law that unless the relationship of employer and employee exists, the income cannot be treated as salary. [See: CIT VS. L.W.RUSSEL supra ]. 8. The Supreme Court in 'DHUN DADABHOY KAPADIA AND HARI BROTHERS (P.) LTD supra has held that right to subscribe to shares of a company was treated to be a capital asset under Section 2(14) of the Act. The stock option being a right to purchase the shares underlying the options is a capital asset in the hands of the assessee under Section 2(14) of the Act, which is also evident from Explanation 1(e) to Section 2(42A) of the Act, which uses the expression 'in case of a capital asset being a right to subscribe any financial asset'. The cashless exercise of option therefore was a transfer of capital asset by way of a relinquishment / extinguishment of right in capita ..... X X X X Extracts X X X X X X X X Extracts X X X X
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