Case Law Details
PCIT Vs Lemon Tree Hotels Private Limited (Delhi High Court)
The Delhi High Court dismissed the Revenue’s appeal, holding that no substantial question of law arose on either of the two issues raised. The first issue concerned the allowability of expenditure claimed towards the Employee Stock Ownership Plan (ESOP). The Court noted that the same issue had already been decided in favour of the assessee in earlier assessment years. For Assessment Year 2008-09, in Commissioner of Income Tax v. Lemon Tree Hotel Ltd., the Court had upheld the ITAT’s decision, which followed the judgment in Commissioner of Income Tax v. PVP Ventures Ltd.. The Court also observed that, in another assessment year involving the same assessee, it had not framed any question of law on the issue.
Read SC Jusgment in this case: SC Dismisses Revenue Appeal as ESOP Allotment Expense Is Allowable
The Revenue contended that, in view of Circular No. 9 of 2007, only actual expenditure incurred for acquisition of shares from a third party could qualify for deduction and that allotment of shares under an ESOP involved only notional expenditure. The Court rejected this contention, holding that such an interpretation ignored commercial realities. It observed that requiring employers to purchase shares from the market or third parties instead of allotting their own shares to employees was impractical. Accordingly, it held that no question of law arose on the ESOP issue.
The second issue related to disallowance under Section 14A of the Income-tax Act. The ITAT had granted relief by following the Delhi High Court’s judgment in Joint Investment Pvt. Ltd. v. CIT. The High Court held that no question of law arose on this issue either.
Consequently, the appeal filed by the Revenue was dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The question of law urged with respect to expenditure claimed towards case of Employee Stock Ownership Plan (ESOP) has been subject matter of previous orders of this Court in respect of the present assessee. For A.Y. 2008-09 in ITA 107/2017 (Commissioner of Income Tax Vs. Lemon Tree Hotel Ltd.), the Court held that since the ITAT followed the previous judgments in Commissioner of Income Tax vs. PVP Ventures Ltd. [TC(A) No. 1023 of 2005] the expenditure had to be allowed. Likewise, for another assessment year, this court did not frame the question of law Although the Revenue urges that in terms of Circular No.9 of 2007, the expenditure ought not to be allowed given that actual expenditure towards acquisition of shares, and not mere allotment of shares by the employer can be considered as a permissible deduction, this Court is of the opinion that such an argument is untenable; that was the rationale of disallowance in this case. What the Revenue urges essentially is that the unless the employer/assessee acquires the shares from a third party, it cannot claim any deduction and that expenditure claimed for allotment or issue of ESOP is merely notional. This Court is of the opinion that such an argument ignores the realities of functioning of commercial entities who would then be asked to purchase shares from market place or third party at prevailing rates instead of allotting them.
For above reasons, no question of law arises.
The second issue is with respect to the disallowance under Section 14(A) of the Act. The ITAT granted relief following the judgment of this Court in Joint Investment Pvt. Ltd. vs. CIT [2015] 372 ITR 694.
This question of law does not arise.
Appeal is consequently dismissed.
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