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Nikhil Agarwal

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Associate in the Tax Practice at the Delhi office of Cyril Amarchand Mangaldas. Nikhil specializes in various aspects of direct tax, such as international tax and corporate tax. He can be reached at nikhil.agarwal@cyrilshroff.com

Karnataka HC affirms discount on issue of ESOPs is a tax-deductible business expenditure

Rewarding employees through share-based benefit schemes has been an effective tool for the companies to not just recognise their contribution to the company, but also retain them by imbibing a sense of belonging and ownership. One such scheme, popular among the companies for almost last two decades, has been grant of Employee Stock Option Plans (“ESOPs”). In simple terms, an ESOP is an option and not an obligation, provided by a company to its employees, to purchase its shares at a future date at a pre-determined price, which is ordinarily less than the market price, on satisfaction of certain prescribed conditions. While the issuance of ESOPs entail various tax implications for both the employer and the employees, the scope of this blog is limited to ascertaining the validity of an employer’s right to claim the perceived discount granted on the issue of shares as a tax deductible business expenditure. Recently, the Karnataka High Court (“HC”) affirmed the ruling of the special bench of the Bangalore Income Tax Appellate Tribunal (“ITAT SB”) in the case of Biocon Ltd.[1], wherein it was held that discount on issuance of ESOPs is an allowable business expenditure under Section 37(1) of the Income-tax Act, 1961 (“IT Act”) for the employer.
Continue Reading Karnataka HC affirms discount on issue of ESOPs is a tax-deductible business expenditure

Primacy of family settlements upheld

Family settlements and ensuing documentation have been a subject matter of litigation for various reasons. One such litigious issue is whether the documents pertaining to family settlements are required to be registered under the Registration Act, 1908 (“Act”). If a document, which was otherwise required to be compulsorily registered, has not been registered, then as per Section 49 of the Act, such document would not affect any immovable property comprised therein, or confer any power to adopt, or be received as an admissible evidence of any transaction recorded in the document. The consequential issue that has evolved is whether the documents recording family arrangements are required to be registered. Recently, the Supreme Court (“SC”), in the case of Ravinder Kaur Grewal & Others. v. Manjit Kaur & Ors.,[1] has held that a memorandum of family settlement, which merely records the terms of a family settlement already acted upon by the concerned parties, is not required to be registered.
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Banana for Rs 442 - GST Tax Laws

A recent social media post by an Indian actor depicting an invoice issued by a prominent hotel where he was charged INR 442 for two bananas created widespread furor among the public, industry players and the tax authorities, with certain quarters challenging the legality of levy of Goods and Service Tax (“GST”) itself on the supplies made. The invoice indicated the description of the sale item as a ‘fruit platter’ and the cumulative rate of GST as 18%. The Central Excise & Taxation Department also swung into action, served a show cause notice to the hotel and imposed a penalty of INR 25,000 for levying GST on sale of bananas. According to the department, serving bananas to the customer in a hotel room was an exempt supply of goods, not involving any element of service.

The banana row brings to light the classic conundrum of classification of composite supplies and consequent rate of GST applicable to such supplies. Composite supplies refers to supplies of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply (for example, supply of an air-conditioner coupled with delivery and installation at the customer’s premises would be a composite supply with supply of air-conditioner being the principal supply). The rate of tax in case of a composite supply is the rate applicable to the principal supply.
Continue Reading Banana Bytes: A Classification Conundrum under GST