c. n. kuchroo, aligarh vs assessee on 31 august, 2012

8/12/2019 C. N. Kuchroo, Aligarh vs Assessee on 31 August, 2012

1/8

Income Tax Appellate Tribunal - Agra

Income Tax Appellate Tribunal - Agra

C. N. Kuchroo, Aligarh vs Assessee on 31 August, 2012

IN THE INCOME TAX APPELLATE TRIBUNAL

AGRA BENCH, AGRA

BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANTMEMBER

ITA No.92/Agr/2011

Assessment Year: 2004-05

Shri C.N. Kuchroo, vs. Asstt. Commissioner of Income Tax, M/s. Rasool Singhal & Co., Circle - 1, Aligarh.

Railway Road,

Aligarh.

(PAN: AFBPK 7123 A)

(Appellant) (Respondent)

Appellant by : Shri M.H. Singhal, C.A. Respondent by : Km. Anuradha, Jr. D.R.

Date of Hearing : 06.08.2012 Date of Pronouncement of order : 31.08.2012

ORDER

PER A.L. GEHLOT, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the order dated 03.01.2011

passed by the ld. CIT(A), Ghaziabad for the A.Y. 2004-05 on the following

grounds:-

"1. That the learned CIT (Appeals) has not appreciated the facts and legal issues and relied on the order made

by the learned Assessing Officer on the wrong facts and basis by treating Rs.29,35,430/- as short term capital

gain instead of long term capital gain, when the period of stock option held by assessee was more than three

years 2 ITA No.92/Agr/2011

A.Y. 2004-05.

instead of more than one years as stipulated by the Income Tax Act, 1961.

2. That the learned CIT (Appeals) erred in law as well as on facts in not appreciating that the grant date, grant

price, exercise date, and exercise price are different, and the period of capital gain should have been calculated

on the basis of grant date and exercise date which has not been done as such learned CIT (Appeals) on the

basis of wrong facts has reached to a wrong conclusion of treating the amount to be short term capital gain

instead the same being long term capital gain.


Indian Kanoon - http://indiankanoon.org/doc/26856451/ 1


2/8

3. That the learned CIT (Appeals) erred in law as well as on facts in treating Rs.29,35,430/- to be the short

term capital gain on the basis that grant date and exercise date to be one and the same which is not a fact, they

are definitely different dates. Even if as per the argument of learned CIT (Appeals) both dates are treated to be

the same, then there would not any difference in the in the value of stock options on the same date and the

amount is bound to be NIL and thus there would neither be any short term capital gain or long term capital

gain on the same date.

4. That learned CIT(Appeals) has not deliberated and decided all the grounds of appeal which are addressed tohim and while in doing so he has not considered the very relevant ground that due, proper and legal

opportunity was not provided to the assessee, hence therefore, natural justice was denied and the order was

passed on wrong basis and wrong notions.

5. That the learned CIT (Appeals) erred in law as well as on facts in not appreciating verbal and written

arguments stating all the legal and factual points or rather ignored them and thus arrived on a wrong

conclusion and retain the addition treating it to be a short term capital gain.

6. That the learned CIT (Appeals) has not considered the facts that the learned ITO has failed to exercise his

power under section 131 of the Income Tax Act, 1961, even after repeated requests by the assessee, thus he

has ignored his legal rights which are legally vested in him extending his authority to be that of court underCode of Civil Procedure 1908 (act 5 of 1908). Because of not exercising his legal 3 ITA No.92/Agr/2011

A.Y. 2004-05.

rights and power assessee was denied legal, due and proper opportunity and case was completed in such a

manner, which is not only bad in law but as well as void ab initio.

7. That the learned CIT (Appeals) erred in law as well as on facts, in allowing himself to be influenced and

carried away on the basis of wrong facts relying on his own order which was approved by the Hon'ble

Tribunal of Delhi bench, which was based on different facts, and thus all other legal issues and facts were

totally ignored, and therefore, passed an order which is not relevant to law.

8. That the assessee craves leave for making any additions, deletion or alteration in the grounds of Appeals.

9. That the order of learned CIT (Appeals) is opposed to law and facts of the case and deserves to be

modified."

2. The brief facts of the case are that the assessee is a Director in M/s. Heinz

India Pvt. Ltd. During the assessment proceedings, the Assessing Officer (A.O.)

noticed that the assessee has shown income from capital gain on sale of shares

under Employees Stock Option Plan (ESOP). The assessee claimed exemption

under section 54F of the Income Tax Act, 1961 ('the Act' hereinafter) against the

said Long Term Capital Gain. The A.O., after considering the assessee's

submissions, was of the view that the date of purchase of these shares would be the

date when employee exercised his option. He accordingly assessed the said capital




3/8

gain as Short Term Capital Gain against the Long Term Capital Gain shown by the

assessee. The CIT(A) confirmed the order of the A.O. following his predecessor's

order which has been upheld by the I.T.A.T., Delhi Bench in the case of Ajay 4 ITA No.92/Agr/2011

A.Y. 2004-05.

Pandey. The relevant finding of the CIT(A) is reproduced as under :- (Page

anos.14 to 17)

"5. After having carefully considered the appellant's contentions and the facts brought out by the AO in the

assessment order, my conclusions on the issue involved in appeal are as under :-

"5.1 The only issue in this appeal is against the action of the AO in treating the capital gain arising on sale of

shares under Employees Stock Option Plan (ESOP) as 'Short Term Capital Gain' as against Long Term

Capital Gain shown by the assessee and thereby disallowing assessee's claim for exemption u/s 54F.

The appellant's case fails because the issue is squarely covered by the judgements of the undersigned and also

my predecessor CIT(A), upheld by Hon'ble ITAT, Delhi, in the case of Shri Ajay Pande, Alok Vihar,

Sector-50, Noida for assessment year 2005-06 & 2004-05, in which it was held that capital gain in such facts

and circumstances is taxable as Shot-term Capital Gain. The relevant para of the order in case of Shri Ajay

Pande (in appeal No.118/07- 08/GZB/Noida dated 24.03.2009 for A.Y. 2005-06) is reproduced hereunder :-

"5.2 The relevant para of conclusion of the said order is as under :

............4.3. The submission of the learned AR have been examined along with the fact brought on record by

the AO in the assessment order. Briefly, the plea of the learned AR is that since the date of option in the

instant case was 1st June, 1999, the stock option right has been acquired on 1.6.1999 and since the appellantsold the stock option by way of cashless exercise on 2nd May, 2003 and 6th November, 2003, the resultant

gain is the result of holding of stock option for more than 3 years and accordingly, the gain arising out of this

transaction should be treated as long term capital gain. The submission put forward by the learned AR

requires deeper scrutiny because the status of the transaction as 5 ITA No.92/Agr/2011

A.Y. 2004-05.

on 1.6.1999 remains that of an offer. This offer materialize only when the appellant exercise his option. Here,

exercising the option is the crucial act in as much as the date on which the option is exercised is the date on

which the unilateral offer turns into a bilateral contract. In the instant case, the appellant exercised his option

only on 03.05.2003 and 06.11.2003 when the impugned right is acquired and the same is disposed off. As

long as this option is not availed off by the appellant, it remains only an offer. Therefore, the argument of the

appellant that the date of offer i.e. 1.6.1999 should be treated as the date of acquisition of right does not have

any material basis. From the perusal of terms of offer, for the appellant, the acquisition materializes on

acceptance of written notice by the Board and allotment of shares and prior to this stage the element of finality

is missing. It is the decision of the appellant to enter into this transaction and the acceptance of the other party

makes it a bilateral transaction and till that time there is no transaction because the offer remains an offer, it

does not partake the character of final transaction. The said offer does not compulsorily mandate the appellant

to acquire the offer. In the above facts and circumstances, the acquisition date and the disposal date in the

instant case appear to be the same i.e. 2nd May, 2003 and 6th November, 2003. In view of the above, since

the aforesaid right has been held by the appellant only for a part of a singled day, the gain arising out of the

said transaction has been correctly treated as short term capital gain by the Assessing Officer ......."




4/8

It is pertinent to note that the decision of the undersigned and the predecessor CIT(A) in the case of Shri Ajay

Pande was upheld by the Hon'ble ITAT, New Delhi vide their order in ITA No.100 & 2209/Del/2008 & 2009

dated 31.12.2009.

The concluding para of the order of Hon'ble ITAT in the case of Shri Ajay Pande is reproduced hereunder, for

ready reference: 6 ITA No.92/Agr/2011

A.Y. 2004-05.

"8. ........ But this difference in fact is not material because the date of holding has to be counted from the date

when the shares are actually acquired by the assessee. In the present case, such acquisition of shares is on the

date of sale only and hence the resultant capital gain has to be assessed as short term capital gain. We,

therefore, decide this issue against the assessee by respectfully following this Tribunal decision rendered in

the case of Giridhar Krishna M (supra).

9. Other arguments raised in the written submissions filed by the assessee are that as per clause (e) of

Exaplanation-1 to section 2 (42A), in the case of renouncement of right to subscribe to any financial asset,

holding period should be reckoned from the date of such right by the company or institution as the case may

be making such offer. It is the claim of the assessee that as per this explanation to section 2(42A), the periodof holding of shares should be counted from the date of offer i.e. 1.6.1999. We are not in agreement with Ld.

AR of the assessee on this issue because as per us, this clause(e) of Explanatin-1 to section 2(42A) is

applicable in the case of renouncement of right to subscribe to any financial asset and we have seen that in the

present case, the assessee has not renounced his right to acquire the shares because such right is not

transferable in the present case. In the present case, the assessee has sold the shares and assigned part of sale

proceeds of shares to the company towards cost of shares. Since, in the present case, the shares are sold, date

of holding has to be counted from the date of acquisition of shares which is the date of sale in the present case.

No other argument is advanced by the Ld. AR of the assessee and hence we decide this issue against the

assessee as discussed above. Ground no.1 is rejected in both the years.

10. Regarding ground No.2 in both the years, it was submitted by ld. AR of the assessee that this issue isconsequential and this has to be decided only if it is held that the capital gain in question is long term capital

gain. 7 ITA No.92/Agr/2011

A.Y. 2004-05.

We find that in both the years, the assessee is claiming deduction u/s 54F and 54EC which are allowable

against long term capital gain if prescribed conditions are fulfilled. Since the capital gain in question is held to

be short term capital gain, the claim of deductions u/s 54F & 54EC are not allowable against short term

capital gain. Ground No.2 is also rejected in both the years.

11. In the result, both the appeals of the assessee are dismissed."

Keeping in view the aforesaid decision of Hon'ble ITAT, I hold that the AO was justified in assessing the

capital gain under the head 'Short Term Capital Gain' and also disallowing assessee's claim for exemption u/s

54F. The grounds taken by the appellant accordingly fail."

3. The ld. Authorised Representative submitted that the issue is not covered by

the order of the I.T.A.T. which has been followed by the CIT(A) on the ground that

the facts of the case under consideration are different. Ld. Authorised




5/8

Representative submitted that in the case under consideration there is no actual

transfer of shares but because of the difference in prices on the grant date and

exercise date.

4. The ld. Departmental Representative relied upon the order of the CIT(A) and

submitted that on identical set of facts the issue is covered in favour of the

Revenue by the order of I.T.A.T., Mumbai Bench in ITA No.4699/Mum/2004 in 8 ITA No.92/Agr/2011

A.Y. 2004-05.

the case of ACIT vs. Pramod H. Lele, order dated 10.08.2011. The relevant

finding of the I.T.A.T. is reproduced as under :-

"14. We see substance in the plea of the learned Departmental Representative. As he rightly points out, theissue is also squarely covered by a coordinate bench's decision in the case of Shripad S Nadkarni (supra)

wherein the coordinate bench, on the same set of material facts- as is the undisputed position, concluded that

"we are of the view that in the case of the assessee, the stock option plan is akin to the stock appreciation

rights and the gains arising from exercise of option are to be included as income from salary in the hands of

the assessee" and that "there is no merit in the stand of the assessee in including the said gains as income from

capital gains as the assessee had at no point of time become owner of the assets whereas it was only entitled to

the benefit of exercising option under the scheme, in receiving the gain on exercis ing the option

simultaneously purchase/ sale of shares and the profits being repatriated to India". We may also add that, as

evident from the perusal of statement of account of the assessee with the broker, the assessee was never owner

of any shares. This statement shows that while 2,000 shares were sold to the account of the assessee on 6th

February 1997 and a credit of US $ 1,13,723.71 was given by the stock broker, corresponding debit forpurchase of shares from Johnson & Johnson for US $ 28,940 was effected on 13th February 1997. Similarly,

for the sale of 3,800 shares, the sale proceeds of US $ 1,23,771.46 and US $ 1,11,398.68 were credited on

24th February 1997, corresponding debit of US $ 61,706 for purchase of these shares was given on 27th

February 1997. In both these transactions, credit for shares sold were given even before the debits for

purchase of shares were given. Clearly, therefore, the assessee was not the owner of these shares before the

shares were sold, and entries, to that extent, were mere notional in nature. Section 45 (1) provides that any

profits or gains from the transfer of capital asset are taxable as capital gains, but then, even going by the

documents produced by the assessee, here is a case in which the assessee did not own any capital asset in the

form of shares when he claims to have sold the same. The impugned gains are, therefore, cannot be taxed

under the head 9 ITA No.92/Agr/2011

A.Y. 2004-05.

'capital gains'. In any event, even if it is assumed that the income is taxable as gains on sale of shares, because

shares were not held even for a single day, the gains can only a short term capital gain, and such a treatment

does not bring any relief to the assessee either.

15. In Billimoria's case (supra), the coordinate bench was not aware of a direct decision on the same issue by

another coordinate bench in Nadkarni's case (supra). Learned counsel does not dispute this, but defends it by

submitting that what it was duty of the learned Departmental Representative to invite bench's decision to

judicial precedents in favour of the revenue.




6/8

16. As to what should be binding value of a judicial precedent, which is rendered in ignorance of the earlier

binding precedents on the issue, we can do no better than to may refer to the observations made by Hon'ble

Andhra Pradesh High Court Full Bench, in the case of CIT Vs B R Constructions (202 ITR 222). While

dealing with the rule of precedents, Their Lordships have, inter alia, qualified the binding nature of precedents

by observing as follows:

It may be noticed that precedent ceases to be a binding precedent:

(i) if it is reversed or overruled by a higher Court, (ii) when it is affirmed or reversed on a different ground,

(iii) when it is inconsistent with the earlier decisions of the same rank,

(iv) when it is sub silentio, and

(v) when it is rendered per incuriam.

In para 578 at p. 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as

follows :

'A decision is given per incuriam when the Court has acted in ignorance of a previous decision of its own or ofa Court of coordinate jurisdiction which covered the case before it, in which case it must be decided which

case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow

that decision; or when the decision is given in 10 ITA No.92/Agr/2011

A.Y. 2004-05.

ignorance of the terms of a statute or rule having statutory force.'

In Punjab Land Development & Reclamation Corpn. Ltd. vs. Presiding Officer, Labour Court (1990) 3 SCC

682 : (1990) 77 FJR 17 (SC), the Supreme Court explained the expression 'per incuriam' thus:

'The Latin expression per incuriam means through inadvertence. A decision can be said generally to be given

per incuriam when the Supreme Court has acted in ignorance of a previous decision of its own or when a High

Court has acted in ignorance of a decision of the Supreme Court.

17. Viewed thus, as held by Hon'ble Andhra Pradesh High Court (Full Bench), a decision which is rendered in

ignorance of an earlier decision of a coordinate bench of equal strength "which covered the case before it"

does not have precedent value. Learned counsel does not dispute that earlier decision in Nadkarni's case

squarely covered the issue in appeal in Billimoria's case and yet coordinate bench did not have the benefit of

considering decision in Nadkarni's case by a bench of equal strength, yet he contends that the later decision

should be followed. This submission is, suffice to say, legally unsustainable in view of the law so laid down in

BR Construction's case (supra). We, therefore, reject learned counsel's reliance on Billimoria's decision by a

division bench, and leave it at that.

18. In any case, what the coordinate bench has held in Billimoria's case is that "no payment was made by the

assessee nor exercised the right to purchase the shares before 13th August 1992 ( i.e. the date of exercise of

option), and thus, so far as the assessee is concerned, there is no cost of acquisition to the assessee, in which

event, by applying the decision of B C Srinivas Shetty 128 ITR 294, the amount received is not liable to tax

under the head 'income from capital gains", but then it is not even assessee's case before us that the shares did

not have a cost of acquisition. The assessee has taken the cost of acquisition of shares as on the value at the

point of time when related stock option was granted, and the short question requiring our adjudication is

whether the gains should be treated as long term capital gains, with indexation benefits, or as short term 11

ITA No.92/Agr/2011




7/8

A.Y. 2004-05.

capital gains. There is no cross objection by the assessee, nor there is even any petition under Rule 27 of the

Income Tax Appellate Tribunal Rules. The issue of taxability of gains arising on exercise of stock options has

never been a subject matter of controversy before any of the authorities below; the issue has remained

confined to the question as to whether these gains are short term capital gains or long term capital gains. The

decision of the coordinate bench does not even touch upon this issue. We need not address ourselves to this

issue. We are, for this reason also, unable to find any merits in learned counsel's reliance on coordinatebench's decision in the case of Billimoria (supra).

19. The only other observation made by the coordinate bench, in operative portion of the decision in

Billimoria's case is that, "Even if it is assumed that the market value of shares is the benefit given to the

assessee, such benefit can be said to accrue to the assessee only on the date of exercise of the option" and that

"In the instant case, the date of exercise of option as well as the date of sale is same, and thus there is no

difference between deemed cost of acquisition and the actual price realized by the assessee". Learned counsel

could not, however, explain to us as to under which provision of law, on the facts of this case before us, we

can we take the market value of share as on the date of sale of shares as 'deemed cost of acquisition' of these

shares; as a matter of fact, it has never been the case of the assessee either. The gains have been brought to tax

only when the option is exercised and not when option is granted, and that is what the said decision holds. Thecost of acquisition, in the present case, is stated to be the value of shares as on the date of grant of options and

that is precisely what has been taken into account for computation of the capital gains, and as the shares were

admittedly not held for more than 12 months, the gains on sale of these shares have been treated as short term

capital gains. We are unable to understand as to how the above observations help the case of the assessee. As

a matter of fact, whether the income on exercise of stock options is to be treated as short term capital gain or

as income from salaries, this aspect of the matter is wholly academic and tax neutral. Viewed thus, the

assessee does not derive any advantage from the observations so made in the case of Billimoria (supra).

12 ITA No.92/Agr/2011

A.Y. 2004-05.

20. For the reasons set out above, we vacate the impugned relief granted by the CIT(A) and restore the order

of the Assessing Officer to the extent that the gains on exercise of stock options, on the admitted facts of this

case, is taxable as short term capital gains. The reasoning adopted by the CIT(A), in treating the gains on sale

of stock option shares as 'long term capital gain', is, for the detailed reasons set out earlier in this order -

particularly in paragraph 10 above, erroneous and it does not meet our approval. In this view of the matter,

and as we are dealing with limited issue in appeal as raised by the Revenue, it is not really necessary for us to

deal with other aspects of this matter."

5. We notice that on identical set of facts the issue is covered in favour of the

Revenue by the order of I.T.A.T., Mumbai Bench in ITA No.4699/Mum/2004 in

the case of ACIT vs. Pramod H. Lele, order dated 10.08.2011. By respectfully

following the above order of I.T.A.T., Mumbai Bench, order of the CIT(A) is

confirmed.

6. In the result, appeal of the assessee is dismissed.

(Order pronounced in the open Court)




8/8

Sd/- Sd/- (BHAVNESH SAINI) (A.L. GEHLOT) Judicial Member Accountant Member PBN/*

Copy of the order forwarded to:

Appellant/Respondent/CIT (Appeals) concerned/CIT concerned/ D.R., ITAT, Agra Bench, Agra/Guard File.

By Order

Sr. Private Secretary

Income-tax Appellate Tribunal, Agra

True Copy



c. n. kuchroo, aligarh vs assessee on 31 august, 2012

Documents