Delhi High Court
Case BriefsHigh Courts

Delhi High Court: On a question of law before the Court that whether the Income Tax Appellate Tribunal (‘ITAT’) 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 revenue expenditure under Section 37(1) of Income Tax Act, 1961, (‘IT Act’), a Division Bench of Manmohan and Manmeet Pritam Singh Arora, JJ., sets aside the impugned order and held that an assessee is entitled to claim deduction under Section 37 IT Act, 1961, if the expenditure has been incurred, thus, 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 IT Act.

Reliance was placed on Commissioner of Income Tax v. Biocon Ltd. I.T.A. NO. 653 OF 2013 (Karnataka), wherein it was held

“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 the shares within the time prescribed under the scheme subject to the terms and conditions mentioned therein. The assessee claimed the difference of market price and allotment price as a discount and claimed the same as an expenditure under Section 37 of the Act. The Assessing Officer rejected the claim on the ground that the assessee has not incurred any expenditure and the expenditure is contingent in nature and therefore, the assessee is not entitled to claim the difference between the market price and the allotment price as an expenditure under Section 37 of the Act. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 13.11.2009 dismissed the appeal preferred by the assessee.

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 primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital.

Thus, the Court 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 revenue expenditure under Section 37(1) of the Income Tax Act, 1961.

[PVR ltd. V. Commissioner of Income Tax, ITA 564 of 2012, decided on 23-08-2022]


Advocates who appeared in this case :

Mr. Salil Kapoor and Mr. Sumit Lalchandani, Advocates, for the Appellant;

Mr. Sanjay Kumar and Ms. Easha Kadian, Advocates, for the Respondent.


*Arunima Bose, Editorial Assistant has put this report together.

Case BriefsSupreme Court

Supreme Court: In a case where the Court was posed with the question as to whether determination of market value subsequent to the notification would be relevant to determine the market value of the land acquired more than two years earlier, the bench of Hemant Gupta* and V. Ramasubramanian, JJ has held that the same was not permissible.

In the present case, the notification dated 26.10.1990 was published intending to acquire 32 acres 6 kanal and 3 marlas of land in Village Sohana and 90 acres 7 kanal and 18 marlas of land in Village Lakhnaur. The said notification was followed by a notification dated 6.11.1991 issued under Section 6 of the Land Acquisition Act, 1894. The Land Acquisition Collector awarded compensation of Rs.1,75,000/- per acre. Aggrieved by the market value determined by the Land Acquisition Collector, the land owners sought reference under Section 18 of the Act. The Reference Court awarded compensation of Rs.4 lakhs per acre apart from the compensation for super-structures. The said award of the amount of compensation was based upon a judgment dated 11.10.2002 by the Reference Court pertaining to the same notification in respect of land situated in Village Lakhnaur.

It is important to note that the land situated at Village Sohana was also acquired vide notification dated 11.11.1993. The Reference Court awarded Rs.6,96,000/- per acre. However, the High Court has awarded compensation @ Rs.8 lakhs per acre. It was hence argued before the Supreme Court that suitable deduction should be made from such determination of the market value of the land acquired vide notification dated 26.10.1990.

The Court, however, noticed that, in the case at hand, when the later notification is issued, the development activities had already been taken place in view of the earlier two notifications. Therefore, it was not the percentage of increase in the market value but increase due to the development which has taken place on account of earlier notifications.

The Court, hence, held that the market value of the land cannot be based upon the land acquired vide notification dated 11.11.1993 i.e., more than two years later of the notification in question and when there were other notifications intervening on 26.10.1990 and 25.7.1991.

[Bhag Singh v. Union of India, 2022 SCC OnLine SC 553, decided on 05.05.2022]


*Judgment by: Justice Hemant Gupta


Counsels

For Land Owners: Senior Advocate Rameshwar Singh Malik

Case BriefsSupreme Court

Supreme Court: The bench of MR Shah* and BV Nagarathna , JJ has held that a consent award cannot be the basis to award and/or determine the compensation in other acquisition, more particularly, when there are other evidences on record.

The Court was dealing with a case relating to a land acquired for improvement of Ranganathittu Bird Sanctuary. The Land Acquisition Officer passed an award fixing the market value of the acquired land @ Rs.21,488/- per guntha. The Reference Court enhanced the amount of compensation to Rs.30,49,200/- per acre, i.e., Rs.76,230/- per guntha. The original claimant preferred first appeal before the Karnataka High Court seeking enhancement of the amount of compensation. Relying on a consent award and thereafter on “guesswork”, by the impugned judgment and order the High Court enhanced the amount of compensation to Rs.40 lakhs per acre with all consequential statutory benefits.

The Supreme Court noticed that the consent award relied upon by the High Court was in respect of the property acquired in the year 2011 and which was acquired for a different purpose, namely, for formation of double line railway broad gauge between Bengaluru and Mysore City. However, in the present case, Section 4 notification was issued in the year 2008, i.e., three years before the land acquired in the consent award in question.

Hence, it was held that the High Court ought not to have relied upon the same while determining the market price of the land acquired in 2008 considering the market price determined for the lands acquired in the year 2011 and on the basis of some “guesswork”.

Even otherwise, the Court held that the consent award ought not to have been relied upon and/or considered for the purpose of determining the compensation in case of another acquisition.

“In case of a consent award, one is required to consider the circumstances under which the consent award was passed and the parties agreed to accept the compensation at a particular rate. In a given case, due to urgent requirement, the acquiring body and/or the beneficiary of the acquisition may agree to give a particular compensation.”

[Special Land Acquisition Officer v. N. Savitha, 2022 SCC OnLine SC 339, decided on 22.03.2022]


*Judgment by: Justice MR Shah