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New Delhi Television Ltd., New… vs ACIT | ITAT Delhi 2016 | BharatTax

NEW DELHI TELEVISION LTD.,NEW DELHI vs. ACIT, NEW DELHI

ITA 2851/DEL/2013Status: DisposedITAT Delhi17 August 2016AY 2007-0831 pages

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Cases cited in this judgment

Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.

Brooke Bond India Ltd. v. CIT
225 ITR 798 · 1997 · SC
223 citing
Indian Molasses Co. Pvt. Ltd. v. CIT
37 ITR 66 · 1959 · SC
202 citing
Vodafone India Services (P.) Ltd. v. Union of India
368 ITR 1 · 2014 · HC
168 citing
Punjab State Industrial Development Corporation Ltd. v. CIT
225 ITR 792 · 1997 · SC
158 citing
LI and Fung India Pvt. Ltd. v. CIT
361 ITR 85 · 2014 · HC
32 citing
35 Taxmann 335
35 Taxmann 335
3 citing

Income Tax Appellate Tribunal, DELHI BENCH ‘I-2’, NEW DELHI

Before: SHRI J. SUDHAKAR REDDY & MS. SUCHITRA KAMBLE

For Appellant: Adv. &

ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER These are Cross Appeals filed for the Assessment Year (Assessment Year) 2007-08 directed against the order of the Ld.CIT(A)-XX, New Delhi dated 6.3.2013.

2. Facts in brief:- The Assessee is a Company and is engaged in the business of Television, News Broadcasting to its two channels namely NDTV 24x7 and NDTV India. It also produced customized software programmes for broadcasters. It filed its return of income on 2.11.2007 declaring loss of ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi Rs.7,08,80,472/-. The A.O. completed the assessment u/s 143(3) of the Act on 17.2.2011 determining the total income at Rs.15,01,72,110/- inter alia making a transfer pricing adjustment of Rs.94,16,785/- u/s 92CA(3) of the Act, disallowing claim of software expenditure of Rs.3,06,009/- as revenue expenditure and the claim of expenditure on ESOP of Rs.21,28,41,993/-.

3. Aggrieved the assessee carried the matter in appeal. 3.1. The First Appellate Authority granted part relief. Both the assessee as well as the Revenue have filed these appeals to the extent they were aggrieved with the order of the Ld.CIT(Appeals).

4.

We first take up the assessee’s appeal in ITA 2851/Del/2013. The grounds of appeal read as follows.

“1. That on facts and in law the orders passed by the Assessing Officer (A.O.)/CIT(A) Transfer Pricing Officer (TPO) are bad in law and void ab initio.

2. That on facts and in law the CIT(A)/TPO erred in upholding/making an addition of Rs.94,16,785/- under Chapter X of the Act.

3. That on facts and in law, as regards appellant’s receipts of Rs.4,52,95,590/- the CIT(A) erred in upholding that the nature of services rendered by the appellant to its AE are in the nature of ‘Management services’ and not ‘Shareholder services’. 3.1. That on facts and in law the CIT(A) erred in holding that the appellant has failed to produce any evidences in support of its claim vis a vis nature of services.

(a) The receipt of amount as reimbursement for share holder activity and reimbursement of expenses, were of identical character. The ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi expenditure for share holder activity has been incurred by the assessee in order to conceptualise and give effect to an efficient NDTV group structure and that the expenditure has been incurred for dealing with tax, finance and other advisory and it was performed as a promoter share holder. (b) That there was no obligation on the part of the NDTV Net Work Plc (UK) to reimburse the expenditure incurred on share holder activity to the NDTV group. Only an amount of 1,73,88,214 towards management services is to be reimbursed. (c) That there is no risk involved in respect of reimbursement of expenditure or in respect of share holder activity and hence such reimbursement does not require any mark up. (d) TNMM is found to be the most appropriate method (MAM) in respect of the transactions entered into by the assessee. As the assessee was not entitled to receive reimbursement of expenditure incurred on share holders activity, but was reimbursed for the same, the assessee charged NDTV Net Works Plc, UK for management services at cost and hence the transaction was done at arm’s length. (e) He disputed the finding of the TPO that the assessee should have bench marked the transactions of share holder activity under the head ‘management services’. (f) The TPO had held that the activities performed by the assessee are not share holder activity. He argued that the TPO has erred in not appreciating the nature of expenses incurred in relation to share holding activity which were reimbursed to the assessee company. He submitted that there is a distinction as, expenditure for share holder activity was incurred prior to incorporation of NDTV Net Works Plc in UK, for which the assessee is not entitled for reimbursement and whereas, the expenditure which was entitled to reimbursement, was incurred after incorporation of the company. (g) He argued that the mark up of 18.18% made by the TPO on the management services is unjustified. He pointed out that the next year

ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi the TPO accepted 10% of the mark up whereas in this year the rate of mark up is taken at 17%. (h) Alternatively and without prejudice, he submitted that if at all an adjustment has to be made, it could not exceed Rs.11,81,994 on Rs.6,55,01,012. He filed a calculation sheet in support of this claim. (i) The Ld.Counsel raised a fundamental aspect as to whether the transaction in question i.e. share holder activity can be classified as an international transaction itself. For this proposition he relied on the judgement of Hon’ble Mumbai High Court in the case of Vodafone India Services P.Ltd. 368 ITR 1 (Bom) and submitted that advice given prior to incorporation is not an international transaction and hence such activity is outside the ambit of Transfer Pricing provisions. He submitted that, as a parent company, the assessee was performing its obligation of setting up of a Subsidiary. (j) He pointed out that the TPO has not charged any mark up on an amount of Rs.1,68,85,054 and has done so only on an amount of Rs.4,52,95,590 and that there is no logical explanation for doing so. (k) He submitted that merely because the Transfer Pricing report shows share holder activity as an international transaction, it cannot be taken as one, when doing so is contrary to law. He submitted that the international transaction as defined in S.92B means a transaction “having a bearing on profits, income, loss or assets” and submitted that, share holder activity does not have a bearing on these items. (l) He relied on the decision of Hon’ble Delhi High Court in the case of M/s Li & Fung India Pvt.Ltd. vs. CIT (2014) 361 ITR 85 and submitted that, no intangible asset has been created. When the assessee’s employees worked for the formation of the assessee’s UK Subsidiary and the expenditure reimbursed was nothing but the cost of assessee’s employees for the time worked in formation of the UK company. 7.2. On the issue of ESOPs, the second ground in the assessee’s appeal, the Ld.Counsel submitted that in the assessee’s own case for the A.Y. 2008- 09, the A.O. applied the propositions laid down by the Special Bench of the ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi ITAT in the case of Biocon Ltd. 35 Taxman 335, wherein the assessee was an intervenor for the A.Y.2006-07 and 2007-08 and completed the assessments. He submitted that the issue be remanded to the file of the AO for passing necessary orders in consonance with the view taken by the A.O. for the A.Y. 2008-09. 7.3. The Ld.D.R. Mr.Amit Mohan Govil, Ld.CIT(A) on the other hand controverted the submissions of the assessee and argued that the mandate given to the TPO is to identify whether there is an international transaction and if so determine its arm’s length price. He referred to the transfer pricing study filed by the assessee and specifically took us through executive summary, wherein it is stated that the provision of management services by the assessee to NDTV Net Works PLC was an international transaction. He pointed out that the assessee itself arrived at the ALP margin of 12.29% based on three years data. He argued that each transaction has to be evaluated on a standalone basis and ALP arrived at and that, the transaction of so called share holder activity cannot be clubbed and evaluated with management services activity. 7.4. He referred to page 4 of the transfer pricing study and submitted that the following issues are not in dispute. (a) That it is a transaction between two Associated Enterprises. (b) That activities were performed (c) That consideration was received and (d) That the transaction is characterized as of international transaction with the transfer pricing study. 7.5. He further argued that the assessee can not at this stage retract and argue that this is not an international transaction. While submitting that the assessee based its opinion on OECD commentary, he relied on the very same commentary in paragraph 7.9 to 7.10 to argue that this activity is an international transaction. He referred to the examples given at para 7.10 of OECD commentary and argued that it is not the case of the assessee that ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi the services mentioned in the example were rendered to NDTV Net Works Plc UK. He drew the attention of the Bench to the order of the TPO at page 6 to demonstrate that the nature of services rendered by the assessee are identical, though the assessee tried to classify them into two parts (a) provision of management services and (b) provision of share holder services. 7.6. He submitted that there are no share holder services as such and it was nothing but management services. He vehemently contended that transactions cannot be clubbed. He found fault with the arguments that, just because cost of share holder activity was reimbursed, there is no requirement of charging a mark up on provision of management services and that such cross subsidisation is not permitted under Transfer Pricing provisions. He relied on the order of the TPO and submitted that no new fact was brought before the Ld.CIT(A). He pointed out that note no.2 to form no.3CEB, which is at page 82, what is recorded was, the opinion of the assessee and not the auditor. On the arguments of the assessee that it was acting as a father to promote the son, he submitted that both the entities are separate jurisdictional entities. He distinguished the decision of the Hon’ble Delhi High Court in the case of M/s Li & Fung India P.Ltd. vs. CIT 361 ITR 85 by submitting that it was a case relating to creation of intangible assets. Regarding Mumbai High Court decision in Vodafone, 368 ITR 1, it was submitted that this decision was rendered in the context of attribution of income and hence not relevant to the case on hand. 7.7. On the issue of disallowance of ESOPs he made elaborate oral and written submissions. On a query from the Bench he submitted that the issue has been considered by the Special Bench of the Tribunal in the case of Biocon (supra) but as the revenue has not accepted the order of the Special Bench, he wants the contentions made by him to be taken on record.

ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi is incurred. However, Hon’ble Delhi High Court has admitted further appeal against the decision of Delhi Bench of the Tribunal in the above referred case, which is pending before the Hon’ble Court for decision. It is pertinent to mention here that Hon’ble Delhi High Court has admitted following questions of law:- (i) Whether on the facts and in the circumstances of the case, the tribunal erred in law in holding that the difference between the price at which stock options were offered to the employees of the appellant company under the ESOP Scheme and the prevailing market price of the stock on the date of grant of such options was not allowable expenditure under Section 37(1) of the Act? (ii) Whether on the facts and in the circumstances of the case, the tribunal erred in law in not holding that the difference between the prevailing market price of the stock and the price at which stock options were offered to the employees under the ESOP Scheme, resulting in benefit to the employees and thus constituting remuneration of the employees was, allowable deduction under Section 37 of the Act? 1.2 Since issue of claim of deduction of ESOP cost u/s 37(1) of the Act which is actually discounted premium is pending before Hon’ble Delhi High Court for adjudication in the case of Ranbaxy Laboratories v DCIT [2009 TIOL 632 ITAT DEL], the decision of the ITAT allowing claim of the assessee that the ESOP cost was allowable as deduction u/s 37(1) of the Act following decision of Special Bench of the ITAT in case of DCIT Vs. Biocon Ltd. (Supra) is not acceptable. 1.3 The Special Bench of Bangalore in the case of DCIT V Biocon Ltd. [Supra) has considered the identical issue and has held that the ESOP cost is deductible u/s 37(1) of the Act to the profit and loss account. The Special Bench laid down following principles: • Discounted premium on the ESOP is neither a short capital receipt nor is a capital expenditure but it is employees cost incurred by the company. • Discounted premium on the ESOP cannot be held as contingent liability. • Legislature has already considered such discounted premium to the employee as a fringe benefit accordingly, the discount on share under ESOP is an allowable deduction. The amount of discount at the stage on granting of ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi option with reference to the market price of the shares at the time of grant of options is always a tentative employee cost because the impossibility of in correctly visualizing the likely market price of shares at the time of exercise of option by the employees which, in turn, would reflect correct employee cost. • Since definite liability is incurred during the vesting period, it has to be quantified on some logical basis. Since the actual amount of employee cost can be precisely determined only at the time of the exercise of option by employee, the provisional amount of discount availed as deduction during vesting period needs to be adjusted in the light of actual discount on the basis of market price of the shares at the time of exercise of option. It can be done by making suitable upward and downward adjustment of the provision at the time of exercise of option.

1.4 Whether guidelines of the SEBI on ESOP stipulate discounted premium on share as employee compensation and an allowable deduction u/s 37(1) of the Act? 1.4.1 Securities and Exchange Board of India (SEBI) has issued guidelines on employee stock option scheme (ESOP) which is known as Securities and Exchange Board of India Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines 1999 up to dated September 3, 2009 (the SEBI Guidelines). The silent features of the guidelines are as under: 1.4.2 Employee compensation does not include ESOP. For the sake of clarity, definition of employee compensation as stipulated under the SEBI guidelines is extracted as under: "(2) employee compensation” means the total cost incurred by the company toward employee compensation including basic salary, dearness allowance, other allowances, bonus and commissions including the value of all perquisites provided, but does not include (a) the fair value of the option granted under an Employee Stock Option Scheme; and (b) the discount at which shares are issued under the Employee Stock Purchase Scheme. (2A) ‘‘Employee Stock Option” means the option given to the ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi whole-time Directors, Officers or employees of a company which gives such Directors, Officers or employees, the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a predetermined price.] ” 1.4.3 Accounting policies of the ESOP have been provided in Schedule 1 to SEBI Guidelines 1999. For the sake of convenience, the relevant part of accounting policies is extracted as under:- “(a) In respect of options granted during any accounting period, the accounting value of the options shall be treated as another form of employee compensation in the financial statements of the company. [(b)] The accounting value of options shall be equal to the aggregate, over all employee stock options granted during the accounting period, of the intrinsic value of the option or, if the company so chooses, the fair value of the option.] [(c) Where the accounting value is accounted for as employee compensation in accordance with clause(b), the amount shall be amortized as under: (i) Where the scheme does not provide for graded vesting, the amount shall be amortized on a straight-line basis over the vesting period. (ii) Where the scheme provides for graded vesting- (1) the vesting period shall be determined separately for each separate vesting portion of the option, as if the option was, in substance, multiple option and the amount of employee compensation cost shall be accounted for and amortized accordingly on a straight-line basis over the vesting period; Or (2) the amount of employee compensation cost shall be accounted for and amortized on a straight-line basis over the aggregate vesting period of the entire option (that is, over the vesting period of the last separately vesting portion of the option): Provided that the amount of employee compensation cost recognized at any date at least equals the fair value or the intrinsic value, as the case may be, of the vested portion of the option at that date.“] (d) When an unvested option lapses by virtue of the employee not conforming to the vesting conditions after the accounting value of the option has already been accounted for as employee compensation, the accounting

“Employee Stock Options Outstanding will appear in the Balance Sheet as part of Net Worth or Shareholders’ Equity. Deferred Employee Compensation will appeal in the Balance Sheet as a negative item as part of Net Worth or Shareholders’ Equity. ’’ 1.4.6 In view of above, the claim of the assessee that the entry in Profit & Loss A/c was made on the recommendation of the SEBI is not correct preposition and contrary to the SEBI guidelines. Even otherwise deduction u/s 37(1) will not be guided by the recommendation of the SEBI. A co-joint reading of provisions of section 78 of the Companies Act, 1956 along with the SEBI guidelines on accounting treatment of ESOP cost has revealed that ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi discounted premium on shares under the ESOP could be met out of premium reserve of the company if any i.e. the ESOP cost which is discounted premium on shares is a balance sheet item which is capital in nature and can only be adjusted against the reserve. The analysis of SEBI guidelines clearly proves that ITAT has mis-directed itself in reaching a conclusion that the SEBI guidelines stipulates that ESOP cost is employee compensation and that the ESOP cost is deductible to Profit & Loss A/c as revenue expenditure on the ground that the SEBI guidelines do not laid down above referred to principles. Without prejudice to above, the provisions of the SEBI guidelines which have been framed for different purpose and intend are not pari materia with the provisions of Income Tax Act cannot be used to interpret scope of provisions of section 37(1) of the Act. 1.5 Whether share premium is a capital receipt? 1.5.1 Section 78 of the Company Act 1956 which is relevant for the assessment year under consideration provide that whether the company issue shares at premium, whether for cash for otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account to be called “the share premium account”; and the provisions of this Act relating to the reduction of share capital of the company shall, except as provided in this section, apply as if the share premium account were paid up share capital of the company. For the sake of clarity provisions of section 78 of the Companies Act 1956 have been extracted below:- “78. Application of premiums received on issue of shares. (1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called” the share premium account”; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid- up share capital of the company. (2) The share premium account may, notwithstanding anything in sub- section (I), be applied by the company-

ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi (a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; fc) in writing off the expenses of or the commission paid or discount allowed on, any issue of shares or debentures of the company; or (d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company. (3) Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act: Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company's reserves within the meaning of Schedule VI, shall be disregarded in determining the sum to be included in the share premium account. ” (Emphasis supplied) 1.5.2 The Indian Accounting Standards 1 stipulates presentation of financial statement of assets and liabilities. It further provides disclosure of each class of share capital on the liability side of the balance sheet. The standard provides that share capital includes additional paid up capital which includes share premium. It is amply clear from the provisions of the Companies Act and the Indian Accounting Standards that share premium or security premium is considered a capital receipt, has to be shown in Reserves and Surplus as an item on liabilities side of the balance sheet and these reserves can be used only in a limited manner permitted by the law. The permitted use of such reserves generally result into increase in share capital or reduction of some specified liabilities on capital account including payments of discount allowed as stipulated under section 78(2)(c) of the Companies Act which covers discounted premium on allotment of share under ESOP. The amount standing in securities premium is either converted into capital or reduces liabilities. Therefore, share premium including discounted share premium cannot be considered revenue receipt or expense at any stage like at the time of receipt or at the time of use. Hon’ble 1TAT Mumbai Bench examining the nature of share premium receipt on issue of shares in case of Green Infra Ltd. Versus

ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi Income-tax Officer 2013 (12) TMI 949 -ITAT Mumbai have held that share premium realised from issue of shares is capital in nature and form part of share capital of the company. In this case the assessee issued equity shares to the employees which resulted in increase in paid up capital by equivalent amount, accordingly, discounted premium on share was capital in nature. It is also a settled proposition of law that any expenditure incurred for the expansion of the capital base of a company is to be treated as a capital expenditure as has been held by the Supreme Court in the cases of Punjab State Industrial Corporation Ltd v. C1T [1997] 225 ITR 792 (SC) and Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 (SC). Thus the expenditure and the receipts directly relating to the share capital of a company are of capital in nature and therefore, cannot be taxed under the Act save for certain exceptions. 1.5.3 Till assessment year 2012-13 share premium received by any company was not deemed as income. Even from AY 2013-14 share premium received by a listed company and some other specified companies is not deemed as income. Deeming provision as per Section56 (vii b) (inserted w.e.f. 01.04.2013) is applicable only in case of shares issued at price higher than fair market price by closely held companies (subject to some exceptions). And this is not applicable to a company which is listed on a recognized stock exchange and some other companies, which are also considered as company in which public is substantially interested. In case of issue of shares at premium by listed companies, share premium is not considered as income. However, in case of un-listed companies premium can be considered as income in case the price charged is more than face value (that is at premium) and is also higher than fair market value. In such case, excess of issue price above the fair market value will be considered as income of issuing price. In case a company issues shares at face value, though market value is lower than face value, the difference between price charged that is issue price and fair market value will not be considered as income. It is evident from above that the above referred to deeming provisions only provide taxation on extra price which may be share premium or value more than the book value even though the receipt was in capital in nature. Since the provisions provide taxation of capital receipt it

ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi was brought to tax under the head “Income from Other Sources”. However, the character of receipt would still remain capital and would not change since the difference was charged to tax under section 56 of the Act. 1.5.4 It is pertinent to mention here that Hon’ble IT AT in case of Biocon Ltd. Vs DC IT (Supra) ignoring the provisions of the Companies Act, Indian Accounting Standards and Legal Precedents on the issues by following erstwhile provisions of Fringe Benefit Tax (FBT) has held that once legislature has treated the very same ESOP as expenditure while taxing it under FBT, it cannot be argued that ESOP cost is not expenditure. Fringe Benefits Tax was introduced as part of the Income Tax Act in Chapter XII-H as a self contained code which included complete scheme of levy of tax and its recovery with effect from A.Y. 2006- 07 only to be abandoned with effect from A.Y. 2010- 2011, so that it was in force for a brief period of four years being 2006-2007, 2007-08, 2008-09 and 2009-2010. The object was to ensure that fringe benefits given by the employer to employees disguised in expenditure is best taxed in the hands of the employer. With the abolition of this Act, the liability on the employees under Rule 3 on all benefits excluding benefit from ESOP was restored. It is evident from above that the FBT was introduced to tax benefits disguised in expenditure and for a limited period which is now repealed. Since provision of FBT were introduced for different intend and purchase the provisions of FBT cannot be used to interpret existing provisions of Section 37 (1) of the Act. The words and expressions defined in one statue as judicially interpreted do not afford a guide to the construction of the same words or expressions in another statue unless both the statues are pari materia legislations or it is specifically provided in one statue to give the same meaning to the words as defined in another statute. In view of above referred to settled legal position on the issue of interpretation of statute, it is respectfully stated that the tribunal has misdirected itself in relying on the provisions of the FBT while examining the nature of share premium u/s 37(1) of the Act. 1.5.5 Since the legislature considers discounted premium to the employees as Fringe Benefit accordingly discounted premium is an expenditure and cannot be treated as short capital receipt.

ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi v^.6 As discussed above, the FBT was in force w.e.f assessment year 2006- 07 to 2009-10 and the object of FBT was to ensure that fringe benefits given by the employer to employees disguised in expenditure is best taxed in hand of employer i.e., to tackle issues of taxation of benefits which were treated as expenditure by the tax payers. For these reasons, employer was required to pay Fringe Benefit Tax on benefit derived by employee from ESOP. The employer was also allowed to recovers such FBT from the employees. It is amply clear from the intend and purpose of the FBT provisions that it was meant to tax benefits including capital benefits disguised as expenditure. In other words, the FBT was applicable both on capital and revenue expenditure accordingly, the provisions of FBT in no way support the conclusion of the Tribunal that ESOP cost cannot be treated as short capital receipt. The provisions do not also support a conclusion of the Tribunal that ESOP cost was expenditure deductible u/s 37(1) of the Act. It is important to highlight here that the assessee as an employer did not pay FBT on ESOP benefit, but had claimed deduction of discounted premium in the grab of expenditure allowable deduction u/s 37(1) of the Act. Since the amount was taxable in hand of employer it could not be taxed in hand of employees. Without paying any tax, the assessee claimed deduction of discounted premium to the Profit & loss A/c. This lead to an irresistible conclusion that the assessee in its return under the FBT did consider ESOP cost as benefit or employee compensation and had not paid taxes on it but had claimed deduction of ESOP cost u/s 37(1) of the Act. In view of above, the conclusion of ITAT that ESOP cost was allowable as deduction u/s 37(1) on the basis of provisions of FBT is without any legal basis and against the rule of construction of the statute. 1.7 In view of above analysis the conclusion of Special Bench that discounted premium on share is neither a short capital receipt or a capital expenditure it is nothing but employee cost incurred by the company and is allowable u/s 37(1) is contrary to the relevant provisions of Income Tax Act, the Companies Act and legal principles as laid by Hon’ble Apex Court on the similar issues. In view of above, it is not logical to plead that premium on share is capital receipt where as discounted premium on share is revenue expenditure. The discounted premium is capital cost or expenditure which ITA 2851/Del/13 and ITA 2752/Del/13 A.Y. 2007-08 New Delhi Television Ltd., New Delhi could not be claimed as deduction u/s 37(1) of the Act. Without prejudice to above that ESOP cost is capital in nature, the other part of judgment of special bench has been discussed in succeeding paragraphs.” 1.8 Whether discounted premium on share issued under ESOP is “expenditure” u/s 37(1) of the Act. 1.8.1 The term “Expenditure” has been judicially interpreted by various Courts including Supreme Court of India. In case of Indian Molasses Company Private Limited Vs. Commissioner of Income Tax, West Bengal [1959] 37 ITR 66, Hon’ble Apex court has held the ‘Spending’ in the sense of ‘paying out or away’ of money is the primary amounting of ‘expenditure’. The term ‘Expenditure’ is what is paid out or away and is something which is given irretrievably. For the sake of clarity the relevant part of judgment is reproduced as under :- ''Expenditure'’ is equal to ‘‘expense: and “expense" is money laid out by calculation and intention though in many uses of the word this element may not be present, as when we speak of a joke at another’s expense. But the idea of ‘spending’ in the sense of ‘paying out or away’ money is the primary meaning and it is with that meaning that we are concerned. ‘Expenditure’ is thus what is ‘paid out or away’ and is something which is gone irretrievably.’ 12.2. He further relied on certain other case laws, which we do not feel it necessary to deal with, as the Special Bench of the ITAT has dealt with the same.