TMI Blog2022 (8) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... the stock on the date of grant of such options was not allowable revenue expenditure under Section 37(1) of the Income Tax Act, 1961. Accordingly, the impugned judgment of the Tribunal is set aside. - ITA 564/2012 - - - Dated:- 23-8-2022 - HON'BLE MR. JUSTICE MANMOHAN AND HON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA Appellant Through: Mr. Salil Kapoor and Mr. Sumit Lalchandani, Advocates Respondent Through: Mr. Sanjay Kumar and Ms. Easha Kadian, Advocates J U D G M E N T MANMOHAN, J (Oral): 1. Present appeal had been admitted by this Court on 30th April, 2013 on the following question of law:- Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho by an order dated 13.11.2009 dismissed the appeal preferred by the assessee. 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal is whether the tribunal is correct in holding that discount on the issue of ESOPs i.e., difference between the grant price and the market price on the shares as on the date of grant of options is allowable as a deduction under Section 37 of the Act. Before proceeding further, it is apposite to take note of Section 37(1) of the Act, which reads as under: Section 37(1) says that any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the company during the vesting period as provided in the scheme. On completion of the vesting period in the service of the company, the option vest with the employees. 9. In the instant case, the ESOPs vest in an employee over a period of four years i.e., at the rate of 25%, which means at the end of first year, the employee has a definite right to 25% of the shares and the assessee is bound to allow the vesting of 25% of the options. It is well settled in law that if a business liability has arisen in the accounting year, the same is permissible as deduction, even though, liability may have to quantify and discharged at a future date. On exercise of option by an employee, the actual amount of benefit has to be determined is only a q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocon Ltd. (Supra). 4. The subsequent appeals being ITA 107/2015 and ITA 214/2019 filed by the Commissioner of Income Tax on similar issues have been dismissed by this Court following the judgment of the Karnataka High Court in Biocon Ltd. vs. DCIT (LTU), Bangalore . 5. Consequently, following the judgment of the Karnataka High Court in CIT vs. Biocon Ltd. (Supra), the question of law is decided in favour of the assessee and it is held that the Income Tax Appellate Tribunal erred in law in holding that the difference between the price at which stock options were offered to employees of the appellant company under ESOP and ESPS and the prevailing market price of the stock on the date of grant of such options was not allowable reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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