425
June 29 To July 5, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 13(a) The discount offered under ESOP is not
in the nature of expenditure;
(b) Such discount is not given in the normal
course of business carried on by the
Company;
(c) Such discount merely represents short
receipt of premium on issue of shares.
If the receipt of premium is not taxable,
the short receipt of such premium should
also not be allowed as deduction;
(d) At the most, such discount could be
considered as a short capital receipt or
a sort of capital expenditure.Conversely, the Companies issuing ESOP’s
argue that the primary object of an ESOP is
not to raise share capital but to earn profit
by securing the consistent and concentrated
efforts of its dedicated employees during
the vesting period. Therefore, such discount
should be construed as nothing but a part
of remuneration. Such discounted premium
on shares is a substitute for giving direct
incentive in cash for availing of the services
of the employees.
In order to avoid unnecessary litigations, it
would be prudent for the Finance Minister
to clarify this stand on the tax treatment of
discounts on issue of shares under ESOP.
The industry expects a clarification stating
that the discounts on ESOP scheme should
be amortized over the vesting period.
- Inclusion of carbon credits under
section 2(24)
A new section 115BBG was inserted under
Income-tax Act with effect from assessment
year 2018-19 to provide that where the total
income of the assessee includes any income
from transfer of carbon credit, such income
shall be taxable at the rate of 10% on gross
basis. The amendment was made to avoid
controversy whether the income from sale
of carbon credit shall be treated as capital
receipt or not?
Though the Finance Act has made much
needed amendment through introduction of
section 115BBG. Yet, no amendment has been
made to section 28 to hold that any profit on
transfer of carbon credit would be treated as
business income. Further, no amendment has
been made to the definition of ‘income’ in
section 2( 24 ) to provide that any such sum
received upon transfer of carbon credits is
income. In the absence of such provisions
in the Act and due to various judgments
holding that income on transfer of carbon
credits is capital receipt, it is a moot point
as to whether the amounts received upon
such transfer are taxable as income under
section 2( 24 ) notwithstanding the insertion
of section 115BBG.
So, it is expected that amendment shall be
made to sections 2(24) and 28 to bring the
regularity in the provisions.- Deduction for notice pay
There is no provision under the Income-tax Act
to allow deduction of notice pay forfeited by
the employer when an assessee-employee leaves
his job, without serving the notice period. In
the case of Nandinho Rebello v. DCIT [2017]
80 taxmann.com 297 (Ahmedabad - Trib.),
the Tribunal also held that only actual salary
received by an employee shall be taxed in
his hands. It is a rationale decision by the
Tribunal as an individual should only be
taxed on the amount he has actually earned
and received. Therefore, to avoid any further
litigation, Section 16 must be suitably amended
to allow deduction of notice pay. - Rate of depreciation for intangible
assets in case of power generating units
The Income-tax (Amendment) Act, 1998 has
provided an option to the undertakings
engaged in generation or generation and
distribution of power to claim depreciation
by using straight line method. However,
the Appendix IA to Income-tax Rules, 1962
EXPECTATIONS FROM AND RECOMMENDATIONS FOR UNION BUDGET 2019