Question And Answer
Subject: ESOP vs TPO
Querist: BKS
Answered by:
Tags: ,
Date: May 21, 2023
Query asked by BKS

In case the overseas company issues stock options to the employees of the subsidiary and there is no recharge arrangement. Is the Indian company still liable to include the ESOP costs in the cost base (for cost plus method or TNMM with net margin based on cost) in case it renders services to its other AE

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The Hon’ble ITAT – Mumbai bench in the case of Capgemini India (P.) Ltd. v. ACIT [2013] 33 5 (Mumbai – Trib.) held that for the purpose of making a proper comparison of margin under the TNMM method one-time employees stock option plan (ESOP) cost incurred by an assessee on account of acquisition has to be excluded.

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