ACIT Vs Pramod H. Lele (ITAT Mumbai)- The Stock Option Plan had granted only an ‘option to buy’ a specified number of shares in a specified time frame at a specified price, subject to the fulfilment of other conditions set out in the plan. There was no compulsion on the part of the assessee to acquire the shares. In other words, the Stock Option Plan only allowed the assessee to get benefit from the increase in the market price of the shares between the date of grant and the date of sale of shares. Therefore, where only stock options were issued and stood in the name of employees and no payment was made until the date of exercise, mere grant of an option does not result in a transfer of shares.
Further, the assessee had at no point in time, become owner of the shares. It was only entitled to the benefit of exercising the option under the plan, in receiving the gain on exercising the option by simultaneous purchase/sale of shares. Thus, the entries in the stock broker’s books were merely notional. The assessee did not own any capital asset in the form of shares, and therefore, the gains on sale of shares, in the present case based on simultaneous purchase/sale of shares would be short-term capital gains as the shares were held not even for a single day. The Tribunal thus reversed the order of the CIT(A) and held that the gain on exercise of stock options were taxable as short term capital gains.
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