section 2(47) if income tax act..

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GAURAV JAIN (Querist)
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20 August 2010 if company allotes shares to its employee under ESOP than these transaction will not be covered under section 47 of income tax act (i.e. not cover in transaction not regarded as transfer) and it is subject to capital gain but shares issued by company is not capital assets for it, so why will capital gain be arise in the hands of company???plzz explain in detailss and thanx in advance...

Aditya Maheshwari

Aditya Maheshwari (Expert)
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20 August 2010 First of all in case of issue of shares the shres of the company are alloted to persons not sold and there is no cost incurred by the company while issuing shares i. e. cost of acquistion is zero.

Where there is capital gains to the company in case of ESOPS?

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GAURAV JAIN

GAURAV JAIN (Querist)
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21 August 2010 under section 47(iii) of income tax act, if compamy allotes any capital assets being shares, debentures or warrants then it will be termed as transfer in the hands of company..my question is that how capital gain will be calculated in the hands of company and why???

Aditya Maheshwari

Aditya Maheshwari (Expert)
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21 August 2010 (iii) any transfer of a capital asset under a gift6 or will or an irrevocable trust :

7[Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under 8[any Employees’ Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf];]

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GAURAV JAIN

GAURAV JAIN (Querist)
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21 August 2010 it means that shares, debentures or warrants issued by company will be taxable as capital gain bcoz it has not fall in the clause of the above section..so my question is that whether shares, debentures or warrants issued by company under ESOP will be termed as transfer of capital assets or not???plzz clarify me..

Aditya Maheshwari

Aditya Maheshwari (Expert)
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21 August 2010 No company will not be liable for any capital gains tax on issue of shares.

It is allotment of shares not sale of shares. Unissued capital is not an asset so on issue of the same same will not become a capital asset./

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GAURAV JAIN

GAURAV JAIN (Querist)
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21 August 2010 thank u very much sir...

but why it is given in the explanation of above section...it means any transfer of a capital asset under a gift or will or an irrevocable trust will fall in clause of "transaction not regarded as transfer" and exception of this clause will be chargeable to capital gain tax???plzzz explain me sir....

Aditya Maheshwari

Aditya Maheshwari (Expert)
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21 August 2010 What the section states is any transfer of a capital asset under a gift or will or an irrevocable trust will not be considered as transfer but if shares are received in ESOPs then the same is gifted by the employee to some other person then the same will be considered as transfer and will not be covered by the exception.

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