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Ruling On Stock Options
The Mumbai Bench of the Income Tax Appellate Tribunal ("ITAT") has delivered an important ruling in the case of Pramod H Lele. The ITAT has held that a stock option plan did not create any compulsion on the assessee to buy the shares, as the assessee was granted an 'option to buy'. ITAT held that a mere grant of option could not result in transfer of shares and thus, the date on which the option was granted could not be treated as the date of acquisition of shares. Taxand India looks at the case.
To read the facts of the case and the full article from Taxand India click here.
The Mumbai Tribunal judgement lays down principles of how to distinguish a stock option plan vis-a-vis a stock appreciation right. Under a stock option plan, the shares / options are actually acquired by the employees as opposed to a stock appreciation right wherein the appreciation in the stock gets credited to the account of the employee. Also the following key principles are noteworthy:
- An option to buy shares does not create any compulsion on the employee to buy shares
- The options / shares should be physically held either in hard / soft format to meet the principles of existence of a 'capital asset'
- Mere grant of option does not result in transfer of shares and thus the date on which the option was granted could not be treated as the date of acquisition of shares
- A decision which is rendered 'per incuriam' does not have any precedent value.