Section 17(2)(iiia)

Section 17(2)(iiia) — the law in short

What the courts have decided on section 17(2)(iiia), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Ravi Kumar Sinha v Commissioner of Income Tax High CourtHelps taxpayer
  I got shares under my employer's stock purchase scheme but they were locked in and I could not sell them. Can the department tax me on the difference between the stock exchange price and what I paid?
  No. The Delhi High Court held that where the shares carry a lock-in and cannot be traded or sold, the fair market value cannot be taken above the face value, so on these facts the determinative figure was Rs 15 per share. The quoted stock exchange price was irrelevant because the shares could not be sold in the open market. The valuation report the employer had obtained from its accountants, putting the value at Rs 22.50, was at best a means for the employer to gauge its withholding obligations and could not fix fair market value for the employee. The assessee's appeal was allowed and the Tribunal's order set aside.
• CIT v Biocon Ltd High CourtHelps taxpayerValidity unconfirmed
  My company issued shares to employees under an ESOP at below market price. Can we deduct the discount, even though no cash went out?
  Yes, on this decision. The Karnataka High Court held that the discount on issue of shares under an employees stock option plan - the difference between the market price on the date of grant and the offer price - is allowable under section 37(1). Section 37(1) permits deduction of expenditure laid out or expended and does not require a payout, nor does it envisage expenditure in cash; expenditure includes a loss. Because the options vest at 25 per cent a year, the liability arises in the accounting year and only its quantification is deferred, so it is an ascertained and not a contingent liability. The Revenue's appeal was dismissed.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.