Difference b/w Price Offered under ESOP and ESPS and Market Price on the Date of Grant of Options Deductible as Revenue Expenditure: Delhi HC [Read Order]

A division bench of the Delhi High Court has held 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 is allowable as revenue expenditure under Section 37(1) of the Income Tax Act, 1961.

The assessee, M/s PVR Ltd, challenged an order of the Delhi ITAT wherein it was held 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.

Justice Manmohan and Justice Manmeet Pritam Singh Arora held that “following the judgment of the Karnataka High Court in CIT vs. Biocon Ltd, the question of law is decided in favor of the assessee and it is 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. Accordingly, the impugned judgment of the Tribunal is set aside.”

Mr. Salil Kapoor and Mr. Sumit Lalchandani, Advocates appeared for the assessee.

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