Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: Central Excise rule to resale the machines to a new company :: ACCOUNTING STANDARDS :: empanelment :: due date for vat payment :: ARTICLES ON INPUT TAX CREDIT IN VAT :: cpt :: TDS :: articles on VAT and GST in India :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TAX RATES - GOODS TAXABLE @ 4% :: VAT RATES :: list of goods taxed at 4% :: ACCOUNTING STANDARD :: VAT Audit :: form 3cd
 
 
News Headlines »
 Income Tax Department expands list of deposits, transactions under scrutiny
  Income-tax Act, 1961 read with Rule 114E of Income-tax Rules, 1962
 Master Directions on Access Criteria for Payment Systems
 RBI-Scheduled Bank's Statement of Position in India as on Friday, January 06, 2017 (Revised)
 3 Big Mistakes To Avoid This Tax Season
 The Top 5 Tax Stories Of 2017
 Are multiple service tax rates in the offing?
 All you need to know about claiming tax break on HRA
 How much income tax you should pay on investments in gold?
  Best ways to save tax in 2017
 8 unknown stocks that could yield huge returns

ESOP expense
May, 03rd 2007
If shares have been given in lieu of salary, there is no reason why it should be disallowed.

When a company issues shares to its employees in lieu of salary, it has to debit the salary account. The US GAAP indeed mandates such expensing of ESOP and rightly so given the fact that had cash been paid for the services instead of shares, the salary account would have been debited in any case.

There are reports emanating from the corporate world in India that shares issued to employees are falling by the wayside in the income-tax assessments of the employers the assessing officers (AOs) are disallowing them as expenses presumably on the ground that they do not make the grade under the omnibus residuary Section 37 to which capital expenditures are an anathema.

The I-T department's contention could be that when technically competent people are paid for in the form shares, the company is obtaining an enduring benefit lasting several years. And expenditures giving rise to such benefits must fall by the wayside as ordained by the section, rightly or wrongly.

The AO ought not disallow recompense in the form of shares in the manner of knee-jerk reaction. Instead he ought to go into the substance of the transaction.

If shares have been given in lieu of salary, there is no reason why it should be disallowed merely because:

Salary has been paid in kind and not in cash; and

Shares evoke visions of long-term benefits.

Lasting benefit

For the recipient of salary in shares, what he has received may give a lasting benefit, but for the company itself the issue of shares is in lieu of the services rendered during the year, benefits from which have already accrued to the company.

If, however, shares are issued in lieu of technical knowhow brought to the table by the promoter, it could be disallowed under the law as it stands, which frowns on capital expenditure given the fact that technical knowhow does give a lasting benefit.

But then the company need not lose sleep over it because under Section 32 technical knowhow is one of the intangible assets eligible for depreciation on the written-down value at the rate of 25 per cent. In other words, the value of shares allotted in lieu of knowhow would be amortised over a period of time in the form of depreciation.

The bottomline is: What is disallowed under Section 37 would make the grade under Section 32 in instalments over a period of years.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Desktop Application Development Outsourcing Desktop Application Development Offshore Desk

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions