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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आयकर अपीलीय अिधकरण,‘सी’ �यायपीठ,चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI �ी महावीर �सह, उपा�य� एवं �ी मनोज कुमार अ�वाल, लेखा सद�य के सम� BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 680/CHNY/2020 िनधा�रण वष�/Assessment Year: 2014-15 Amec Foster Wheeler India Pvt. The ACIT (OSD), Ltd., Vs. Corporate Range -1, Zenith Building, 6th Floor, Chennai Ascendas IT Park, CSIR Road, Taramani, Chennai – 600 113. PAN : AAACF 3204C (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Ms. K.Amulya, CA & Ms. V. Rajeswari, CA ��यथ� क� ओर से/Respondent by : Shri S. Marudhu Pandyan, CIT सुनवाई क� तार�ख/Date of Hearing : 22.12.2022 घोषणा क� तार�ख/Date of Pronouncement : 22.12.2022 आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-4, Chennai in ITA No.479/16-17/CIT(A)-4/A.Y.2014-15 dated 06.02.2020. The assessment was framed by the ACIT(OSD), Corporate Range-1,
- 2 - ITA No.680/Chny/2020 Chennai for the assessment year 2014-15, u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 29.12.2016.
The first issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making disallowance of cost incurred in connection with off the shelf software products treating the same as royalty under the provisions of the Act read with relevant treaties. For this, assessee raised ground Nos. 2 to 4 but the relevant ground is ground No.2, which reads as under:- “2. The Ld. CIT(A) and Ld. AO erred in non-consideration of the fact that the said expenditure merely represents cost to cost reimbursement of expenditure incurred on behalf of the Appellant by AFWG overseas entities and therefore, no income arises in the hands of AFWG entities necessitating the obligation to withhold taxes on the part of the Appellant under the provisions of the Act.”
Briefly stated facts are that during the financial year 2013-14 relevant to this assessment year 2014-15, the assessee incurred expenditure amounting to Rs.5,52,97,013/- on account of costs in connection with the shelf software products utilized for its day to day business. According to assessee, such costs are paid by the Amec Foster Wheeler Group entities to the vendors and subsequently recharged to the assessee on cost to cost basis without any margin. The AO during the course of assessment proceedings noted that the assessee company has debited amount of Rs.4,67,49,942/- on
- 3 - ITA No.680/Chny/2020 account of software expenditure / purchases, which has been paid to the group companies without deduction of TDS. The AO required the assessee as to why said amount should not be disallowed. The assessee filed various explanations and stated vide letter dated 23.12.2016 that assessee incurs various cost in connection with off the shelf software products utilized by it in its day to day business amounting to Rs.5,52,97,013/- for the relevant assessment year. The agreement with providers of such off the shelf software products has been entered into by overseas Amec Foster Wheeler Group entities on behalf of all the group entities due to administrative convenience and to minimize the overall costs. The costs pertaining to software products utilized by assessee are recharged by the contracting Amec Foster Wheeler Group entity by raising a debit note. Given that the software costs have been recharged by Amec Foster Wheeler Group entities to assessee on a cost to cost basis without any mark up, the assessee has not withheld any tax on such reimbursements which has no income element in it. There is no income arising in the hands of the Amec Foster Wheeler Group overseas entities with respect to such cost to cost reimbursement and hence the question of withholding tax does not arise. The AO treated the transaction as royalty by holding that as per the provisions of section 9(1)(vi)(b) of the Act, the income by way of
- 4 - ITA No.680/Chny/2020 royalty payable by a person who is the resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India or, the same should be brought to tax. The AO relied on the retrospective amendment brought in by the Finance Act, 2007 including an Explanation to section 9(1)(vii)(b) of the Act, thereby invoking the provisions of section 40(a)(i) of the Act disallowed the above amount and added back to the total income of the assessee. Aggrieved, assessee came in appeal before the CIT(A).
The CIT(A) noted that the assessee has purchased license, whereby, an alphanumeric key is provided with the compact disc (CD) used as an activation key. According to him, if it is a product, then compact disk gets corrupted and then it becomes useless and the product gets damaged. He noted that this is not the case here because what is purchased by assessee is license and not the product in the CD. Therefore, once the assessee has purchased software which is not ‘copyrighted article’ but the same falls under the domain of copyright. Therefore, according to him payments made there on to purchase of software constitute royalty within the
- 5 - ITA No.680/Chny/2020 meaning of Article 12(3) of the DTAA and even as per the provisions of 9(1)(vi) than the definition of ‘royalty’ under the DTAA As the right that is transferred in the present case is the transfer of copyright including the right to make copy of software for internal business, and the payment made in that regard would constitute ‘royalty’ for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as per clause (iv) of Explanation 2 to Sec.9(1)(vi) of the Act. Therefore, according to him, the assessee is liable to deduct TDS u/s.195 of the Act in respect of payments made to non-resident AE’s towards purchase of software and therefore in case of failure will attract disallowance u/s.40(a)(i) of the Act. Hence, he confirm the action of the AO in bringing the amount of Rs.4,67,49,942/- under the tax net by invoking the provisions of section 40(a)(i) of the Act. Aggrieved, assessee is in appeal before Tribunal.
At the outset, the ld.AR for the assessee stated that this issue is covered in favour of assessee by Tribunal decision in ITA No.799/Chny/2017 dated 03.08.2022, wherein the Tribunal considered the decision of Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Ltd., vs. CIT, [2021] 125 Taxmann.com 42 and allowed the claim of assessee on
- 6 - ITA No.680/Chny/2020 exactly identical facts and on the same pretext vide para 17 & 18 as under:- “17. The learned Counsel for the Assessee now argued that the expenditure incurred towards its share of software cost which are in the nature of off-the-shelf software products such as of Microsoft Office [MS Office], IBM Lotus Notes, AVEVA, Auto CAD, etc. It was contended that the above said expenses were negotiated and incurred at a group level with the third-party vendors by the overseas Associated Enterprises [AE] on behalf of all the group entities and the corresponding cost was recharged to the various entities on a cost-tocost basis without any mark-up. He stated that this issue stands now covered by the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited Vs. Commissioner of Income Tax reported in [2021] 125 Taxmann.com 42 (SC), wherein the Hon’ble Supreme Court has held that “the amount paid by resident Indian and end-user / distributors to non-resident computer software manufacturers / suppliers , as consideration for resale / use of computer software through EULAs / distribution agreement, is not payment of royalty for use of copyright in computer software, and thus, the same does not give rise to any income taxable in India.”
We noted that this issue is covered by the decision of the Hon’ble Supreme Court wherein it is held that the expenditure incurred towards the purchase of the off-the-shelf software products is not in the nature of “Royalty” for use of copyright in the software and thus not liable for withholding of tax u/s.195 of the Act, we delete the disallowance and allow this issue of the Assessee.”
5.1 When this was confronted to ld. CIT-DR, he could not controvert the above fact situation and hence, respectfully following the Tribunal decision in the assessee’s own case and also, the issue stands covered in favour of assessee by the decision of Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd., supra, we delete the disallowance and allow the appeal of assessee on this issue.
- 7 - ITA No.680/Chny/2020 6. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in regard to addition made on account of amount pertaining to provision of loss contracts and AO concluding that the provision for anticipated loss is a uncertain liability and not allowable as deduction u/s.37 of the Act. For this, assessee has raised following ground Nos.5 & 6:- “5. The Ld. CIT(A) and the Ld. A0 erred in concluding that the provision for anticipated loss is an unascertained liability not allowable as a deduction under section 37 of the Act without appreciating that the such provision represents the excess of estimated contract expenditure over the estimated contract revenues.
The Ld. CIT(A) and the Ld. AO erred in concluding that future costs are not allowable as a deduction under the Act without appreciating that the accounting, of such costs is as per the requirements of the Accounting Standard -7, basis which, income subject to tax, has been recognized by the Appellant.”
Brief facts are that the assessee is a part of global group which undertakes provision of engineering, construction and project management activities. During the relevant financial year relevant to this assessment year, the assessee provided engineering design services to third parties such as Dow Chemicals, Tata projects, Swan Energy, Petronet LNG, Reliance Industries, IOCL etc. The assessee in its books of accounts during the relevant assessment year recorded a provision for loss contracts amounting to Rs.5,32,47,117/- and this loss was in relation to contract awaited
- 8 - ITA No.680/Chny/2020 with Reliance Industries Ltd., which was entered into during the financial year 2012-13 relevant to assessment year 2013-14. It was contended that this project was in progress during the relevant assessment year also. It was claimed that this loss amount represents the expected loss on the contract which was recorded during the relevant assessment year in line with the requirements of AS-7, as prescribed by the Institute of Chartered Accountants of India. But said provision for loss was claimed as deduction by the assessee in computing the taxable income for the relevant assessment year. The AO during the course of assessment proceedings asked to provide the details regarding the provision for loss contracts and justify the same being allowed as an allowable expenditure, in view of it being a provision. The AO noted that the assessee other than claiming it to be an estimated contract cost did not furnish any other detail to substantiate the quantification of the same. The AO noted that this is only a provision for the expenses created by assessee on estimate and this is contingent in nature. According to AO, this is uncertained liability and therefore, disallowed and added to the total income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO. Aggrieved, now assessee is in appeal before the Tribunal.
- 9 - ITA No.680/Chny/2020 8. Now before us, the ld.AR for the assessee stated that once the same was disallowed by the AO and confirmed by CIT(A), the assessee reviewed and reversed the provision made on account of expected loss of contracts for the subsequent two years i.e., assessment year 2015-16 & 2016-17 and offered to tax in the said years. The ld.AR filed the details and she argued that once the income is offered in subsequent years and accepted as it by the AO in the assessment framed u/s.143(3) of the Act, no addition can be sustained in the relevant assessment year. She drew our attention to details filed before us, which reads as under:- AY Particulars INR Crores Rate of Supporting Documents Tax Impugned Provision for (5.32 Cr.) 33.99% Audited Financial Statements AY loss contract – Pg.4 of paper book Extracts of ITR – pg.31 of paper book 15-16 Other Income – 4.89 Cr. 33.99% Audited Financial Statements Reversal of – Pg.210 of paper book provision Extracts of ITR – pg.215 of paper book 16-17 Other Income – 0.43 Cr. Audited Financial Statements Reversal of – Pg.221 of paper book provision Extracts of ITR – pg.226 of paper book
In view of the above, she stated that the addition should be deleted only for the simple reason that the assessee has already offered this
- 10 - ITA No.680/Chny/2020 income and Revenue accepted the same in assessment year 2015- 16 and 2016-17.
On the other hand, the ld.CIT-DR stated that although the assessee offered in assessment year 2015-16 & 2016-17 but actually assessment year for this alleged loss has actually reduced the income of relevant assessment year 2014-15. He stated that there is revenue loss on account of withholding of tax on account of charging of interest u/s.234B & 234C of the Act. In answer to the same, the ld.AR stated that this issue is covered by the decision of Hon’ble Supreme Court in the case of CIT vs. Excel Industries Ltd., 358 ITR 295, wherein it is held that once the item of expenditure is revenue neutral, the entire exercise of seeking to disturb the year of liability of expenditure should be futile.
After hearing rival contentions and going through the facts, we noted that this issue needs verification at the level of AO, who will verify whether the assessee has declared this income and are accepted by Revenue in assessment year 2015-16 & 2016-17 by reversing the entry of provision for loss contract created by assessee for an amount of Rs.5,32,47,117/-. But in any eventuality, the issue on principle is covered by the decision of Hon’ble Supreme Court in
- 11 - ITA No.680/Chny/2020 the case of Excel Industries Ltd., supra, and hence respectfully following the same, we accept the arguments of the ld.AR on principle but remit the matter back to the file of the AO for verification purposes. This issue of assessee’s appeal is allowed for statistical purposes.
The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in disallowing charges paid in respect of Employees Stock Option Plan (ESOP). For this, assessee has raised following ground No.7, 8 & 9:- 7. The Ld. CIT(A) and the Ld. AO erred in concluding that the Appellant failed to establish that the charges paid to the ultimate holding company with reference to the Employee Stock Option Plan are allowable in the hands of the Appellant without appreciating the various submissions filed before them. 8. The Ld. CIT(A) and the Ld. AO erred in concluding that even if the expenditure were to be regarded as expenditure in the hands of the Appellant, the said expenditure would be capital in nature without appreciating that the decision of the Special Bench of the Hon'ble Tribunal in case of Biocon Limited has held that the discount on shares issued to employees can never to categorized as a capital expenditure.
The Ld. CIT(A) and the Ld. AO erred in disregarding the decision of the Jurisdictional Madras High Court in the case of PVP Ventures Limited as well as the decision of the Jurisdictional Bench of the Hon'ble Tribunal in the case of S.S.L. Ltd which have held that costs in relation to employee stock option scheme is a deductible revenue expenditure.
Brief facts are that the AO during the course of assessment proceedings noticed that the assessee has debited an amount of
- 12 - ITA No.680/Chny/2020 Rs.33,89,770/- as payment made to Foster Wheeler AG, Switzerland, the holding company, charges with respect to shares allotted to the employees of the assessee company under employees stock exchange plan. The AO required the assessee to give details along with justification for claiming the same as revenue expenditure. The assessee explained the issue and filed submissions as under:-- “Foster Wheeler AG, Switzerland, the ultimate holding Company, operates a Performance Share Plan (“PSP”) covering certain eligible employees of its subsidiaries. PSP for conditional shares are awarded to eligible based on their sustained performance and value.
Foster Wheeler Energy Limited (on behalf of Foster Wheeler AG) charges out stock option recharges to the Company at the prevailing market value of shares at the time of delivery. The company accounts for these charges as and when the debit notes are received. In the relevant AY 2014-15, the Company recharged Rs.33,89,770 to FWEL for ESOP vested to its employees.”
The AO after considering the submissions of the assessee held that ESOP expenses even if it is treated as expenditure, the same is in the nature of capital expenditure because security premium is a capital item and hence, cannot be allowed u/s.37 of the Act. Further, he noted that the liability arises in the hands of the holding company namely Foster Wheeler AG, Switzerland only as it is, the expenses related to the same, on discount of issue of shares, the same is to be treated as expenses in the hands of ultimate holding
- 13 - ITA No.680/Chny/2020 company. Therefore, the AO disallowed the claim of assessee. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO by treating the expenditure in the nature of capital expenditure. Aggrieved, now assessee is in appeal before the Tribunal.
We have heard rival contentions and gone through facts and circumstances of the case. We noted the arguments of ld.AR that the assessee, as she explained that that Foster Wheeler AG, Switzerland, the ultimate holding company, operates a Performance Share Plan (PSP) covering certain eligible employees of its subsidiaries. PSP for conditional shares are awarded to eligible employees based on their sustained performance and value. Foster Wheeler Energy Ltd., on behalf of Foster Wheeler AG charges out stock option recharges to the assessee, at the prevailing market value of shares at the time of delivery. The managing director of the assessee for the impugned assessment year was eligible to receive stock options under the said scheme. The issue of stock options to employees, being in the nature of ‘employee compensation’, the assessee debited the corresponding cost in its profit and loss account and made payment for the same to its AE based on the debit notes received from the AE. She further explained that during the relevant
- 14 - ITA No.680/Chny/2020 assessment year Foster Wheeler Energy Ltd., recharged assessee for ESOP vested to its MD amounting to Rs.33,89,770/-. The assessee treated this amount as an operating cost and included the same for the purpose of transfer pricing in the cost base for determining the arms length price / margin for the relevant segment. It was explained by ld.AR that the assessee has incurred expenses by way of payment to its parent company which has in turn issued shares to the employees of the assessee and therefore, as considered by the AO, the decision of Delhi Tribunal in the case of Ranbaxy Laboratories Ltd., vs. Addl.CIT, [2010] 39 SOT 17, wherein ESOP expenditure is purely held to be notional. The ld.AR stated that the assessee has incurred expenses towards disbursing compensation to the employees for their services and hence, the same is revenue in nature. For this, she relied on the decision of Chennai Tribunal in the case of Caterpillar India (P) Ltd., vs. DCIT in ITA No.1722/Chny/2012, order dated 17.02.2017, wherein exactly on identical facts, the issue was decided by the Tribunal in para 3.6 as under:- 3.6. We have heard the rival submissions and perused the materials available on record including the paper books filed by the assessee. The brief facts of the case is that three employees who had been deputed to assessee company were allotted the shares of Caterpillar Inc, U.S.A. at a price less than the prevailing market price and the differential amount of USD 1694120 (INR equivalent Rs. 7,41,51,630/-) was raised as a debit note by Caterpillar Inc, U.S.A. on the assessee company which was paid by the
- 15 - ITA No.680/Chny/2020 assessee. Since the concerned employees were deputed / working in the assessee company at the time of issuance of ESOP, the price differentials in the form of ESOP expenditure was debited in the books of the assessee company as part of staff welfare measures. Admittedly, the scheme provides for allotment of shares of Caterpillar Inc even to deputed employees. The said payment of Rs. 7,41,51,630/- was actually made by the assessee and hence it is not a notional loss . Moreover, the shares of the parent company were issued to those employees. Hence the finding given by Delhi Tribunal that issue of shares under ESOP at less than market price only results in short receipt of share premium does not arise at all. Accordingly, the case law relied upon by the lower authorities on the decision of the co-ordinate bench of Delhi Tribunal in the case of Ranbaxy Laboratories Ltd vs ACIT reported in 26 DTR 420 is not applicable in the instant case. We find that the expenses in connection with the issue of shares of Caterpillar Inc. U.S.A. under ESOP scheme by the assessee to the employees is an ascertained liability and more in the nature of welfare measures for the employees. Accordingly the compensation paid in the form of price differentials is squarely allowable as deduction as an expenditure incurred wholly and exclusively for the purpose of business. We find that the ld CITA had erroneously applied the provisions of section 40(a)(ia) of the Act by holding that the ESOP expenditure is only in the nature of salary or extra remuneration and hence the same would any way deserves to be disallowed for non-deduction of tax at source. We find from the provisions of section 40(a)(ia) of the Act as prevailing at the relevant point of time and as applicable to the year under appeal, that salary expenditure was not included in the list of items warranting disallowance. However the same was introduced in the statute at a much later point of time. Hence the argument of the revenue fails on that count. With regard to the version of the ld CITA that the ESOP scheme should be in accordance with the guidelines prescribed by the Central Government as mandated in section 17 of the Act , we agree with the ld AR that the same is to be applied only for the purpose of valuation of perquisites. We find that even the proviso to section 17(2)(iii) of the Act no where contemplated the eligibility of allowability of deduction of ESOP expenditure for an assessee. In any case, if the proviso is applied and perquisites valuation is made accordingly, then the same would have to be construed as salary to the employees which is an allowable deduction for the employer. If there is any violation thereon in the form of non –deduction of tax at source, then the same would fasten some TDS liability on the employer u/s 201 and 201(1A) of the Act and that would not in any case hamper the allowability
- 16 - ITA No.680/Chny/2020 of deduction towards salaries in the hands of the employer. We find that the CBDT had issued a Circular in the context of Fringe Benefit Tax vide Circular No. 9/2007 dated 20.12.2007 , wherein , in response to Question No. 16 , they had specifically replied that ESOP expenditure is an allowable deduction in computing the taxable income of the employer company. For the sake of convenience, the same is reproduced hereunder :- “16. Whether the fringe benefit arising on account of shares allotted or transferred under ESOP is allowed as deduction in calculating the taxable income of the employer company ?
Answer. In case where the employer purchases the shares and then subsequently transfers such shares to its employees, the expenditure so incurred is allowable as deduction in computing the taxable income of the employer company. However, if the shares are allotted to the employees from the share capital of the company, no deduction is allowable in computing the taxable income of the company since no expenditure has been incurred by it.”
In the instant case, the shares of Caterpillar Inc. U.S.A. has been allotted to the employees and the price differential is debited to the assessee company by way of a debit note and as stated supra, since the employees were under the control of the assessee company on deputation and more so the ESOP scheme also provided for allotment of shares under ESOP to deputed employees also, the assessee had debited the price differentials as ESOP expenditure in its profit and loss account. This in our considered opinion, is an allowable expenditure and is in tune with the reply given in the Frequently Asked Questions (FAQ) in the CBDT Circular No. 9/2007 dated 20.12.2007. The Circular issued by the CBDT is binding on the tax authorities and the same could be used by the assessee if proved beneficial to the assessee.
We also find that the issue under dispute is squarely covered by the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs PVP Ventures LTd in TC(A) No. 1023 of 2005 dated 19.6.2012 reported in 2012-TIOL-550-HC-MAD-IT wherein it had been held categorically held that ESOP expenditure is in the nature of staff welfare expenses and is squarely allowable as deduction in computing the taxable income of an assessee. The relevant operative portion of the said judgement is reproduced hereunder:- :-:
- 17 - ITA No.680/Chny/2020 " As far as the Employees Stock Option Plan is concerned, a rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. In the circumstances, we agree with the submission of learned senior counsel appearing for the assessee in this regard by upholding the order of the Tribunal. "
We also find that the decision of Hon’ble Madras High Court was subsequently followed by the Hon’ble Delhi High Court in the case of CIT vs Lemon Tree Hotels Ltd in ITA No. 107/2015 dated 18.8.2015 reported in 2015-TIOL-2636-HC-DEL-IT.
In view of our aforesaid findings in the facts and circumstances of the case, respectfully following the CBDT Circular and the judicial precedents relied upon hereinabove, we hold that the compensation paid in the form of ESOP expenditure is an allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business. Hence we have no hesitation in directing the ld AO to delete the disallowance made in this regard. Accordingly, the Grounds 1a) to 1e) raised by the assessee are allowed.
13.1 The ld.AR also relied on another decision of Bangalore Bench of the Tribunal in the case of TE Connectivity Services India Pvt. Ltd., in IT(TP)A No.191/Bang/2022 dated 16.09.2022, wherein the Tribunal has considered exactly identical facts in para 30 as under:- 30. We have carefully considered the rival submissions. It is clear from the facts on record that there was an actual issue of shares of the parent company by the assessee to its employees. The difference, between the fair market value of the shares of the parent company on the date of issue of shares and the price at which those shares were issued by the assessee to its employees, was reimbursed by the assessee to its parent company. This sum so reimbursed was claimed as expenditure in the profit & loss account of the assessee as an employee cost. The law by now is well settled by the decision of the Special Bench of the ITAT Bangalore in the case of Biocon Ltd. in ITA No.248/Bang/2010, A.Y. 2004-05 and other connected appeals,
- 18 - ITA No.680/Chny/2020 by order dated 16.07.2013, wherein it was held that expenditure on account of ESOP is a revenue expenditure and had to be allowed as deduction while computing income. The Special Bench held that the sole object of issuing shares to employees at a discounted premium is to compensate them for the continuity of their services to the company. By no stretch of imagination, we can describe such discount as either a short capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted. The said decision has been upheld by the Hon’ble Karnataka High Court in the case of BIOCON Ltd. (supra). Therefore the issue in so far as this Bench of ITAT is concerned is concluded by the decision of the Hon’ble Jurisdictional High Court. Pendency of identical issue before the Hon’ble Supreme Court cannot be the basis not to follow decision of jurisdictional High Court. In the present case, there is no dispute that the liability has accrued to the assessee during the previous year. There is no reason why this expenditure should not be considered as expenditure wholly and exclusively incurred for the purpose of business of the assessee. We therefore hold that the claim of the assessee has to be allowed. Grd.No.11 is accordingly allowed.
When these facts were confronted, ld.CIT-DR could not adduce anything except relied on the order of the AO and that of the CIT(A).
After hearing rival contentions and going through the facts of the case, we noted that the expenses incurred by assessee by way of payment to its parent company, which has in turn issued shares to the employees of the assessee, the expenditure seems towards disbursing compensation to the employees for their services and hence, the same is to be treated as revenue in nature as held by the Tribunal in the case of Caterpillar India Pvt. Ltd., supra as well as TE
- 19 - ITA No.680/Chny/2020 Connectivity Services India Pvt. Ltd., supra. Respectfully following the decision of Co-ordinate Bench of Chennai and Bangalore, we allow the claim of assessee.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 22nd December, 2022 at Chennai.
Sd/- Sd/- (मनोज कुमार अ�वाल) (महावीर �सह ) (MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH) लेखा सद�य/ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT चे�ई/Chennai, �दनांक/Dated, the 22nd December, 2022 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� ) अपील(/CIT(A) 4. आयकर आयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.