{"id":272777,"date":"2022-09-01T15:30:57","date_gmt":"2022-09-01T10:00:57","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=272777"},"modified":"2022-09-01T15:30:57","modified_gmt":"2022-09-01T10:00:57","slug":"delhi-high-court-asessee-entitled-claim-difference-between-market-price-allotment-price-of-shares-under-section-37-income-tax-act-legalnews-legalresearch-legalupdates","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2022\/09\/01\/delhi-high-court-asessee-entitled-claim-difference-between-market-price-allotment-price-of-shares-under-section-37-income-tax-act-legalnews-legalresearch-legalupdates\/","title":{"rendered":"Whether the assessee is entitled to claim the difference between the market price and the allotment price of shares, as an expenditure under Section 37 of IT Act? Delhi High Court analyses"},"content":{"rendered":"
\n

Delhi High Court<\/span>: On a question of law before the Court that whether the Income Tax Appellate Tribunal (\u2018ITAT’) 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)<\/a> of Income Tax Act, 1961<\/a>, (\u2018IT Act’), a Division Bench of Manmohan<\/span> and Manmeet Pritam Singh Arora, JJ., sets aside the impugned order and held that an assessee is entitled to claim deduction under Section 37<\/a> IT Act, 1961<\/a>, 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.<\/p>\n

Reliance was placed on Commissioner of Income Tax<\/i> v. Biocon Ltd.<\/i> I.T.A. NO. 653 OF 2013 (Karnataka), wherein it was held<\/p>\n

\u201c2. 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.<\/i><\/p>\n

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.<\/span> 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. <\/span><\/span><\/p>\n

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)<\/a> of the Income Tax Act, 1961<\/a>.<\/p>\n

[PVR ltd. V. Commissioner of Income Tax, ITA 564 of 2012, decided on 23-08-2022<\/span>]<\/p>\n

\n

Advocates who appeared in this case :<\/p>\n

Mr. Salil Kapoor and Mr. Sumit Lalchandani, Advocates, for the Appellant;<\/p>\n

Mr. Sanjay Kumar and Ms. Easha Kadian, Advocates, for the Respondent.<\/p>\n

\n

*Arunima Bose, Editorial Assistant has put this report together.<\/span><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

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The facts of the case are such that the assessee is a software engineer who\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":236349,"url":"https:\/\/www.scconline.com\/blog\/post\/2020\/09\/26\/itat-can-exempted-income-which-is-not-part-of-the-total-income-alone-be-considered-for-disallowance-u-s-14a-of-income-tax-act\/","url_meta":{"origin":272777,"position":1},"title":"ITAT| Can exempted income which is not part of the total income alone be considered for disallowance u\/s 14A of Income Tax Act?","author":"Editor","date":"September 26, 2020","format":false,"excerpt":"by Akshat Malpani\u2020","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Income Tax Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/11\/ITAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":254042,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/09\/10\/interest-free-funds-not-kept-in-separate-account-can-proportionate-disallowance-on-interest-under-section-14a-of-it-act-be-allowed-sc-explains\/","url_meta":{"origin":272777,"position":2},"title":"Interest free funds not kept in separate account. Can proportionate disallowance on interest under Section 14A of IT Act be allowed? SC explains","author":"Prachi Bhardwaj","date":"September 10, 2021","format":false,"excerpt":"\u201c\u2026 in taxation regime, there is no room for presumption and nothing can be taken to be implied.\"","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-3-3.jpg?resize=1050%2C600&ssl=1 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Ravindra Bhat* and Sudhanshu Dhulia, JJ has summarised the law on\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/08\/MicrosoftTeams-image-62-1-1.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/272777","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67011"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=272777"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/272777\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/268833"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=272777"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=272777"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=272777"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}