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The Tax Publishers ESOP allotment taxability under Section 28(iv) for assessment year 2007-08 *Facts:* Assessee a director in a company was allotted ESOP free of cost by the company with a lock in of 3 years compelling him to remain in the allottee company for 10 years. The allottee company had valued par value of shares of Rs. 10 each at Rs. 200 and difference of Rs. 190 was taken to share premium. Subsequently in 2009-10 the allottee company thru court order reduced its share premium to zero. At the time of allotment the book value of each share was Rs. 9.98. It was the case of the revenue that the entire amount of Rs. 200 for 100,000 shares was taxable under Section 28(iv) as benefit/perquisite out of professional pursuit. Assessee's plea was there was no benefit which accrued to him nor any benefit arose taxable under Section 28(iv). He was not an employee either to trigger tax under Section 17(2)(iv) nor was he a professional. FBT on ESOP was only with effect from A.Y. 2008-09. Since no benefit/income arise in his hands there was no tax which could be fastened. This was accepted by CIT(A). On higher appeal by revenue - Held against the revenue that no real income arose in the hands of the Assessee. Thus there was no tax which was payable by him. *Applied:* Commissioner of Income Tax v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC) Godhra Electricity Co. Ltd. v. Commissioner of Income Tax, (1997) 225 ITR 746 (SC) Commissioner of Income Tax v. Birla Gwalior (P.) Ltd., (1973) 89 ITR 266 (SC) Poona Electric Supply Co. Ltd. v. Commissioner o f Income Tax, (1965) 57 ITR 521 (SC) State Bank of Travancore v. Commissioner of Income Tax, (1986) 158 ITR 102 (SC) Read - R.B. Jodhamal Kuthiala v. Commissioner of Income Tax (1971) 82 ITR 570 (SC) *Ed. Note:* Taxability under Section 28(iv) has been a vexed issue in many such cases. Readers ought to recap that there was a TDS provision Section 194R brought into the statute to cover TDS on this income scoping Section in Budget 2022. Elaborate clarificatory circular has also been issued on this TDS Section as well recently by CBDT. *Case:* ACIT v. Harish Bhandari 2023 TaxPub(DT) 122 (Del-Trib)

The Tax Publishers

ESOP allotment taxability under Section 28(iv) for assessment year 2007-08

Facts:

Assessee a director in a company was allotted ESOP free of cost by the company with a lock in of 3 years compelling him to remain in the allottee company for 10 years. The allottee company had valued par value of shares of Rs. 10 each at Rs. 200 and difference of Rs. 190 was taken to share premium. Subsequently in 2009-10 the allottee company thru court order reduced its share premium to zero. At the time of allotment the book value of each share was Rs. 9.98. It was the case of the revenue that the entire amount of Rs. 200 for 100,000 shares was taxable under Section 28(iv) as benefit/perquisite out of professional pursuit. Assessee's plea was there was no benefit which accrued to him nor any benefit arose taxable under Section 28(iv). He was not an employee either to trigger tax under Section 17(2)(iv) nor was he a professional. FBT on ESOP was only with effect from A.Y. 2008-09. Since no benefit/income arise in his hands there was no tax which could be fastened. This was accepted by CIT(A). On higher appeal by revenue -

Held against the revenue that no real income arose in the hands of the Assessee. Thus there was no tax which was payable by him.

Applied:

Commissioner of Income Tax v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)

Godhra Electricity Co. Ltd. v. Commissioner of Income Tax, (1997) 225 ITR 746 (SC)

Commissioner of Income Tax v. Birla Gwalior (P.) Ltd., (1973) 89 ITR 266 (SC)

Poona Electric Supply Co. Ltd. v. Commissioner o f Income Tax, (1965) 57 ITR 521 (SC)

State Bank of Travancore v. Commissioner of Income Tax, (1986) 158 ITR 102 (SC)

Read - R.B. Jodhamal Kuthiala v. Commissioner of Income Tax (1971) 82 ITR 570 (SC)

Ed. Note: Taxability under Section 28(iv) has been a vexed issue in many such cases. Readers ought to recap that there was a TDS provision Section 194R brought into the statute to cover TDS on this income scoping Section in Budget 2022. Elaborate clarificatory circular has also been issued on this TDS Section as well recently by CBDT.

Case: ACIT v. Harish Bhandari 2023 TaxPub(DT) 122 (Del-Trib)