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TMI Blog2022 (8) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... fered 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 revenue expenditure under Section 37(1) of the Income Tax Act, 1961?" 2. During the pendency of the present appeal, the Karnataka High Court in Commissioner of Income Tax vs. Biocon Ltd. [2020] 121 taxmann.com 351 (Karnataka) has upheld the judgment of the Special Bench of the Tribunal deciding the aforesaid question of law in favour of the assessee. The relevant portion of the aforesaid judgment is reproduced hereinbelow:- "2. The shares of the company were transferred to the trust at the face value and the employees of the assessee were allowed to exercise the option to buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession". 7. Thus, from perusal of Section 37 (1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expnded and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of Section 37(1) of the Act would be attracted. It is also pertinent to note that Section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole time directors, officers or the em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced reliance on decisions of the Supreme Court in Bharat Movers supra and Rotork Controls India P. Ltd., supra and has recorded a finding that discount on issue of ESOPs is not a contingent liability but is an ascertained liability. 10. From perusal of Section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression 'expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of the Act. The prim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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