TMI Blog2009 (6) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment, either in India or abroad, for acquiring the shares - During the previous year assessee sold 1,000 shares in USA and in return received a sum in Indian currency. By taking into consideration the amount retained in US dollars in EEFC account and bank charges the net gain was computed - assessee submitted before the AO that this amount is not liable to tax since the assessee did not pay any amount towards cost of acquisition. HELD THAT:- It 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 in which event, by applying the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is an employee of Johnson Johnson, Bombay which is a subsidiary of Johnson Johnson, USA. Under a stock option plan the USA company offers, to key executives of their international affiliates worldwide, certain number of shares at a stipulated price. On 7th Dec., 1989 the assessee was granted an option to purchase 2,500 shares of Johnson Johnson, USA at a price of US $ 57.88 per share (i.e., fair market value of the stock on the day of granting the option). However, on restructuring, the number of shares was doubled to 5,000 and the rate per share halved to US $ 28.94 per share. The case of the assessee was that the RBI has approved the stock option scheme on the condition that there should not be any payment, either in India or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain". 6. The learned counsel appearing on behalf of the assessee contended before the CIT(A) that the impugned amount received by the assessee should be taxed either as salary or short-term capital gain or speculation profit but strangely the AO was not sure of the head under which the amount in question has to be taxed and thus applied all the provisions. Hence addition is contrary to law. It was strongly contended that the amount in question is liable to be taxed under the head "Capital gains" and since the cost of the shares is nil, no capital gain is legally chargeable to tax. 7. Having considered the submissions of the assessee the learned CIT(A) observed that the AO was not justified in considering the receipt under various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng) 598 : (2003) 86 ITD 312 (Bang) the Court observed that ESOP is subject to several conditions and an employee would become free to exercise its right to purchase the shares only upon fulfilling the conditions and that too after the respective dates of maturity of the stipulated shares. In the case of Sumit Bhattacharya vs. Asstt. CIT (2008) 113 TTJ (Mumbai)(SB) 633 : (2008) 112 ITD 1 (Mumbai)(SB), the Tribunal, Mumbai Special Bench while dealing with the nature of stock appreciation rights, observed that so far as ESOPs are concerned there is an outright purchase by the assessee and the benefit is not conferred on the assessee in the shape of money, but in the form of shares at the time of purchase by exercising option and thus it is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------- Day following 4th anniversary to and including day of 5th anniversary 20% 60% ------------------------------------------------------------------ Day following 5th anniversary to and including day of 6th anniversary 20% 80% ------------------------------------------------------------------ Day following 6th anniversary to and including day of 7th anniversary 20% 100% ------------------------------------------------------------------ Day following 7th anniversary to and including day of expiration. 20% 100% ------------------------------------------------------------------ 12. As could be noticed from p. 7 of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market value of the share (taking into consideration the splitting of shares) is $ 28.94 per share. It is not the case of the Revenue that the assessee has paid US $ 28,94 per share and hence, on the date of exercising, the option there was no cost of acquisition of shares in which event, the sale proceeds cannot be brought to tax under the head "Capital gains" in the light of decision of the apex Court in the case of CIT vs. B.C. Srinivasa Setty. Even otherwise the option to purchase the shares was exercised on the same date on which it was sold and hence, even if it has to be brought to tax, the amount taxable is the difference between the market value on the date of purchase and the market value on the date of sale. In the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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