My Indian company reimburses its overseas parent for the cost of restricted stock units given to our employees, and we deduct tax on the perquisite in their hands. The Assessing Officer has disallowed the reimbursement as notional and capital. Is it deductible?
It was held deductible on these facts — and the employees' side of this is stage one, the perquisite that arises when the group company's shares reach them, this entry being about the company's mirror-image deduction for the cost it bears. The Delhi Tribunal held that where the overseas group company grants its stock to the Indian company's employees and recovers the cost from the Indian company, the cost is an actual cash outflow and not notional or contingent, and the compensation paid in the form of employee stock option expenditure is allowable as expenditure incurred wholly and exclusively for the purposes of business. Ground 2 of the appeal was allowed.
Decided by the ITAT (Shri S. Rifaur Rahman, Accountant Member and Shri Vimal Kumar, Judicial Member (Income Tax Appellate Tribunal, Delhi Bench 'F')) on 2025-02-14, reported as ITA No. 246/Del/2021, assessment year 2015-16 (ITAT Delhi). It bears on section 37(1), section 17(2)(vi), section 192, section 40(a)(ia) of the Income Tax Act 1961, in Deductions & Disallowances, Salary & Perquisites and TDS Defaults matters.
Two objections are routinely taken to a cross-charge of this kind and both failed here. The first is that the expenditure is notional, because no shares of the Indian company are issued and nothing leaves its hands but a book entry; the Tribunal met that with the finding that the cost was actually recovered by the overseas entity from the Indian company and so was a cash outflow. The second is that the ICAI and SEBI guidelines were not followed; the Tribunal met that with the finding that the shares of the overseas entity are not regulated in India, so those guidelines were inapplicable. The Revenue's further point that there are contradictory rulings and no finality was not accepted. For the employee reader the significance is indirect but real: the deductibility of the cross-charge in the employer's hands is the counterpart of the perquisite in the employee's hands, and the Chennai Tribunal decision in Caterpillar India that this order followed reasoned in terms that if the amount is treated as perquisite valued under s.17 then it is salary to the employees, which is an allowable deduction for the employer, and that a failure to deduct tax at source produces consequences under ss.201 and 201(1A) rather than a disallowance. The limit is that this order decides deductibility only. It says NOTHING about when a restricted stock unit becomes chargeable in the employee's hands.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2015-16 the assessee, an Indian company, paid Rs 24,67,722 to its overseas group company, referred to in the order as ELII, towards restricted stock units provided to certain of its employees. The Assessing Officer disallowed the payment and the Commissioner (Appeals) upheld the disallowance, holding the expenditure capital in nature on the footing that the assessee would obtain an enduring benefit, that there were contradictory rulings so the issue had no finality, and that the ICAI and SEBI rules had not been followed. Before the Tribunal the assessee produced the restricted stock unit agreement, employee-wise details of the units, the invoice raised by ELII and a screenshot of the New York Stock Exchange quotation on the date of allotment, and relied on the Chennai Tribunal's decision in Caterpillar India Pvt. Ltd. and on the Mumbai Tribunal's decisions in DCIT v. Accenture Services Pvt. Ltd. and Goldman Sachs (I) Securities (P) Ltd.
Ground 2 was allowed. The stock of ELII was granted to the assessee's employees under an agreement, and the cost of those shares was recovered by ELII from the Indian company; that cost "is an actual cash outflow and hence, not notional or contingent in nature"; the shares of ELII are not regulated in India so the regulatory authorities' guidelines were inapplicable; and, following Caterpillar India Pvt. Ltd., "the compensation paid in form of expenditure incurred on Employee's Stock Option Plan (ESOP) is held allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business" (paras 8 and 8.1).
On an examination of the record the Tribunal found it clear that the shares of the overseas group company were granted to the assessee's employees under an agreement and that the cost was recovered from the Indian company, the restricted stock unit agreement being on the record; from that it followed that the cost was an actual cash outflow and neither notional nor contingent (para 8). Because the shares of the overseas entity are not regulated in India, the guidelines of Indian regulatory authorities on which the Commissioner (Appeals) had relied were inapplicable, and employee-wise details had in any event been furnished to the Assessing Officer (para 8). Applying the ratio of the Chennai Tribunal's decision in Caterpillar India Pvt. Ltd., which it had reproduced at paragraph 6.2 and which held that where the parent's shares are allotted to employees of the Indian company and the price differential is debited to it by a debit note the expenditure is an ascertained liability in the nature of a staff welfare measure and is allowable, the Tribunal held the expenditure deductible as incurred wholly and exclusively for the purposes of business (para 8.1).
RSO cost is an actual cash outflow and hence, not notional or contingent in nature.
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Handle my notice → Ask a CA on WhatsAppIt was held deductible on these facts — and the employees' side of this is stage one, the perquisite that arises when the group company's shares reach them, this entry being about the company's mirror-image deduction for the cost it bears. The Delhi Tribunal held that where the overseas group company grants its stock to the Indian company's employees and recovers the cost from the Indian company, the cost is an actual cash outflow and not notional or contingent, and the compensation paid in the form of employee stock option expenditure is allowable as expenditure incurred wholly and exclusively for the purposes of business. Ground 2 of the appeal was allowed. This was decided by the ITAT (Shri S. Rifaur Rahman, Accountant Member and Shri Vimal Kumar, Judicial Member (Income Tax Appellate Tribunal, Delhi Bench 'F')) and bears on section 37(1), section 17(2)(vi), section 192, section 40(a)(ia) of the Income Tax Act 1961. It is reported as ITA No. 246/Del/2021, assessment year 2015-16 (ITAT Delhi). Two objections are routinely taken to a cross-charge of this kind and both failed here. The first is that the expenditure is notional, because no shares of the Indian company are issued and nothing leaves its hands but a book entry; the Tribunal met that with the finding that the cost was actually recovered by the overseas entity from the Indian company and so was a cash outflow. The second is that the ICAI and SEBI guidelines were not followed; the Tribunal met that with the finding that the shares of the overseas entity are not regulated in India, so those guidelines were inapplicable. The Revenue's further point that there are contradictory rulings and no finality was not accepted. For the employee reader the significance is indirect but real: the deductibility of the cross-charge in the employer's hands is the counterpart of the perquisite in the employee's hands, and the Chennai Tribunal decision in Caterpillar India that this order followed reasoned in terms that if the amount is treated as perquisite valued under s.17 then it is salary to the employees, which is an allowable deduction for the employer, and that a failure to deduct tax at source produces consequences under ss.201 and 201(1A) rather than a disallowance. The limit is that this order decides deductibility only. It says NOTHING about when a restricted stock unit becomes chargeable in the employee's hands. If it applies to you, the first step is this: Put the group agreement, the invoice or debit note from the overseas entity, and proof of remittance on the record. The finding that turned this appeal was that the cost was actually recovered from the Indian company.
For assessment year 2015-16 the assessee, an Indian company, paid Rs 24,67,722 to its overseas group company, referred to in the order as ELII, towards restricted stock units provided to certain of its employees. The Assessing Officer disallowed the payment and the Commissioner (Appeals) upheld the disallowance, holding the expenditure capital in nature on the footing that the assessee would obtain an enduring benefit, that there were contradictory rulings so the issue had no finality, and that the ICAI and SEBI rules had not been followed. Before the Tribunal the assessee produced the restricted stock unit agreement, employee-wise details of the units, the invoice raised by ELII and a screenshot of the New York Stock Exchange quotation on the date of allotment, and relied on the Chennai Tribunal's decision in Caterpillar India Pvt. Ltd. and on the Mumbai Tribunal's decisions in DCIT v. Accenture Services Pvt. Ltd. and Goldman Sachs (I) Securities (P) Ltd. The matter was decided on 2025-02-14 by the ITAT (Shri S. Rifaur Rahman, Accountant Member and Shri Vimal Kumar, Judicial Member (Income Tax Appellate Tribunal, Delhi Bench 'F')). On those facts the ITAT held as follows. Ground 2 was allowed. The stock of ELII was granted to the assessee's employees under an agreement, and the cost of those shares was recovered by ELII from the Indian company; that cost "is an actual cash outflow and hence, not notional or contingent in nature"; the shares of ELII are not regulated in India so the regulatory authorities' guidelines were inapplicable; and, following Caterpillar India Pvt. Ltd., "the compensation paid in form of expenditure incurred on Employee's Stock Option Plan (ESOP) is held allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business" (paras 8 and 8.1).
On an examination of the record the Tribunal found it clear that the shares of the overseas group company were granted to the assessee's employees under an agreement and that the cost was recovered from the Indian company, the restricted stock unit agreement being on the record; from that it followed that the cost was an actual cash outflow and neither notional nor contingent (para 8). Because the shares of the overseas entity are not regulated in India, the guidelines of Indian regulatory authorities on which the Commissioner (Appeals) had relied were inapplicable, and employee-wise details had in any event been furnished to the Assessing Officer (para 8). Applying the ratio of the Chennai Tribunal's decision in Caterpillar India Pvt. Ltd., which it had reproduced at paragraph 6.2 and which held that where the parent's shares are allotted to employees of the Indian company and the price differential is debited to it by a debit note the expenditure is an ascertained liability in the nature of a staff welfare measure and is allowable, the Tribunal held the expenditure deductible as incurred wholly and exclusively for the purposes of business (para 8.1). In the words reproduced by the source cited on this page: "RSO cost is an actual cash outflow and hence, not notional or contingent in nature." The decision followed or applied Caterpillar India Pvt. Ltd. v. DCIT [2017] 80 taxmann.com 325 (ITAT Chennai) — followed; DCIT v. Accenture Services Pvt. Ltd. (ITAT Mumbai) — reproduced and relied on; Goldman Sachs (I) Securities (P) Ltd. v. DCIT [2016] 69 taxmann.com 386 (ITAT Mumbai) — reproduced and relied on.
It was decided by the ITAT on 2025-02-14 and is reported as ITA No. 246/Del/2021, assessment year 2015-16 (ITAT Delhi). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 37(1), section 17(2)(vi), section 192, section 40(a)(ia), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Ground 2 was allowed. The stock of ELII was granted to the assessee's employees under an agreement, and the cost of those shares was recovered by ELII from the Indian company; that cost "is an actual cash outflow and hence, not notional or contingent in nature"; the shares of ELII are not regulated in India so the regulatory authorities' guidelines were inapplicable; and, following Caterpillar India Pvt. Ltd., "the compensation paid in form of expenditure incurred on Employee's Stock Option Plan (ESOP) is held allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business" (paras 8 and 8.1). It arises in Deductions & Disallowances, Salary & Perquisites and TDS Defaults matters, on section 37(1), section 17(2)(vi), section 192, section 40(a)(ia) of the Income Tax Act 1961, and was decided by Shri S. Rifaur Rahman, Accountant Member and Shri Vimal Kumar, Judicial Member (Income Tax Appellate Tribunal, Delhi Bench 'F'). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. File employee-wise details of the units and the market quotation on the allotment date, as the assessee did here, so the quantum can be tied to identified employees of the Indian company. Meet the ICAI and SEBI guideline objection by showing that the shares are those of a foreign entity and are not regulated in India. Show that the perquisite was brought to tax in the employees' hands and that tax was deducted under s.192; the Caterpillar reasoning this order follows treats the expenditure as salary cost, and a s.40(a)(ia) objection has to be met on the terms of that section as it stood. Do not use this order for the employee's own charging point. It decides the employer's deduction and nothing else.
Still good law. Indian Kanoon's citation graph shows nothing, but a case-name search finds the Delhi Bench following this order in the same assessee's case for the next year: ELCA Cosmetics Pvt. Ltd. v. DCIT, ITA No. 786/Del/2021 (AY 2016-17), order of 11 August 2026, where the RSU cross-charge ground was allowed on the footing that it is covered by the AY 2015-16 order. Note the limits: this is the same assessee before a coordinate Bench, not independent approval, and no other Bench has taken the point up. The Delhi High Court matter in this assessee's name, W.P.(C) 17649/2024 (orders of 7 and 9 May 2025, 28 October 2025, 19 January 2026 and 16 April 2026), is a writ petition instituted in 2024 and is not an appeal against this order; no s.260A appeal was traced. Nothing overruling or doubting it was found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to eighteen numbered paragraphs plus lettered sub-paragraphs and disposes of five grounds; only Ground 2, at paragraphs 6 to 8.1, concerns the restricted stock units, and this entry is confined to that ground. Paragraphs 6.2, 6.3 and 6.4 reproduce, at length, the Chennai Tribunal's order in Caterpillar India Pvt. Ltd., the Mumbai Tribunal's order in DCIT v. Accenture Services Pvt. Ltd. and the Mumbai Tribunal's order in Goldman Sachs (I) Securities (P) Ltd.; every word in those blocks belongs to those other orders and none of it is this Tribunal speaking. The Tribunal's own findings are at paragraphs 8 and 8.1. The report abbreviates the overseas group company as "ELII" without expanding it, and paragraph 8 writes "RSO cost" where "RSU cost" is plainly meant — the sentence quoted in this entry is reproduced with the order's own spelling. The total disallowance in issue across all five grounds was Rs 10,60,20,832; the restricted stock unit component was Rs 24,67,722. I did not read the Caterpillar, Accenture or Goldman Sachs orders themselves and make no statement about them beyond recording that they are reproduced here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Ground 2 was allowed. The stock of ELII was granted to the assessee's employees under an agreement, and the cost of those shares was recovered by ELII from the Indian company; that cost "is an actual cash outflow and hence, not notional or contingent in nature"; the shares of ELII are not regulated in India so the regulatory authorities' guidelines were inapplicable; and, following Caterpillar India Pvt. Ltd., "the compensation paid in form of expenditure incurred on Employee's Stock Option Plan (ESOP) is held allowable deduction as an expenditure incurred wholly and exclusively for the purpose of business" (paras 8 and 8.1).
TaxSphere, “ELCA Cosmetics Pvt Ltd v DCIT — the RSU cost cross-charged by the overseas group company is an actual cash outflow and is deductible under s.37(1)”, https://taxnotice.vittsphere.com/caselaw/case/elca-cosmetics-rsu-cost-cross-charged-by-the-overseas-group-company-is-deductible-under-37-1/ (validity last checked 2026-09-09)
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