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The Tax Publishers Asstt. CIT v. Pramod H. Lele [IT Appeal Nos. 5581 (Mum.) of 2004 & 3691 (Mum.) of 2005, dt. 6-11-2015] : 2016 TaxPub(DT) 0560 (Mum-Trib) Capital gains from ESOP whether short term or long term Facts Assessee was an employee of Warner Lambert USA. He was allotted Employee stock options by WL USA. Subsequently WL USA merged with Parke Davis USA which in turn got merged with Pfizer USA. Thus the assessee held options of Pfizer. The options were exercisable within a period of 10 years. Assessee sold some of these options during assessment year 2002-03 to 2004-05 and claimed tax exemption under section 10(38) as long term capital gains. It is not known from the decision whether the deals were done in a stock market in India or otherwise (since exemption under section 10(38) was claimed it supposes that the sale happened in India). The assessees plea was that the options be reckoned from the date they were granted and not on the date they were exercised as the offer was accepted and kept open with only actual allotment subsequent upon exercising. Department disallowed the claim under section 10(38) thus taxed it as short-term capital gains or speculative income under section 43(5) or income from other sources. The departmental reasoning was it is only upon allotment that the shares came into being until then the options were only a right of offer which could be accepted or rejected by assessee. Commissioner (Appeals) accepted the plea of the assessee. Department went in appeal to the ITAT. Held against the assessee by ITAT that the capital gain be reckoned from the date of actual allotment of shares thus were short term in nature. Income will be assessed either as capital gain or as income from other sources. The options gave a right to exercise within 10 years. They conferred a contingent right and it is only upon actual exercising the offer became an acceptance to buy that many shares. Acquisition date shall relate to the date of actual allotment of the shares and not to the date of the grant. Since the tenure of the allotment to the sale is of short term in nature the income will be short-term capital gains. The assessee's own case cited in Asstt. CIT v. Promad H. Lele (2011) 47 SOT 363 (Mum.) for assessment year 1998-1999 was found to be elaborate and thus did not require any interference. Since being short-term gains no exemption of section 54EA will also be available.

The Tax Publishers

Asstt. CIT v. Pramod H. Lele [IT Appeal Nos. 5581 (Mum.) of 2004 & 3691 (Mum.) of 2005, dt. 6-11-2015] : 2016 TaxPub(DT) 0560 (Mum-Trib)

Capital gains from ESOP whether short term or long term

Facts

Assessee was an employee of Warner Lambert USA. He was allotted Employee stock options by WL USA. Subsequently WL USA merged with Parke Davis USA which in turn got merged with Pfizer USA. Thus the assessee held options of Pfizer. The options were exercisable within a period of 10 years. Assessee sold some of these options during assessment year 2002-03 to 2004-05 and claimed tax exemption under section 10(38) as long term capital gains. It is not known from the decision whether the deals were done in a stock market in India or otherwise (since exemption under section 10(38) was claimed it supposes that the sale happened in India). The assessees plea was that the options be reckoned from the date they were granted and not on the date they were exercised as the offer was accepted and kept open with only actual allotment subsequent upon exercising. Department disallowed the claim under section 10(38) thus taxed it as short-term capital gains or speculative income under section 43(5) or income from other sources. The departmental reasoning was it is only upon allotment that the shares came into being until then the options were only a right of offer which could be accepted or rejected by assessee. Commissioner (Appeals) accepted the plea of the assessee. Department went in appeal to the ITAT.

Held against the assessee by ITAT that the capital gain be reckoned from the date of actual allotment of shares thus were short term in nature.

Income will be assessed either as capital gain or as income from other sources.

The options gave a right to exercise within 10 years. They conferred a contingent right and it is only upon actual exercising the offer became an acceptance to buy that many shares. Acquisition date shall relate to the date of actual allotment of the shares and not to the date of the grant. Since the tenure of the allotment to the sale is of short term in nature the income will be short-term capital gains.

The assessee's own case cited in Asstt. CIT v. Promad H. Lele (2011) 47 SOT 363 (Mum.) for assessment year 1998-1999 was found to be elaborate and thus did not require any interference. Since being short-term gains no exemption of section 54EA will also be available.