a) The assessee was a wholly owned subsidiary of NNAS. As per the plan developed by NNAS, its employees and employees of its affiliates were entitled to purchase its shares at a price, lesser than the market price
b) In pursuance of aforesaid plan, assessee framed ESOP, as per which, the difference between fair market value of shares of parent company and price at which those shares were issued by assessee to its employees was reimbursed to its parent company;
c) The sum so reimbursed was claimed as expenditure by assessee as an employee cost. The AO rejected the claim of the assessee on ground that it resulted in capital building of the parent company.
d) The CIT(A) confirmed the order of the AO. The aggrieved-assessee filed the instant appeal.
The Tribunal held in favour of assessee as under:
1) The shares were acquired by the assessee from the parent company and there was an actual outflow of cash from the assessee to the foreign parent company. The price at which shares were issued to the employees was paid by the employee to the assessee who in turn paid it to the parent company;
2) The difference between the fair market value of the shares and the price at which shares were issued to the employees was met by the assessee. This factual position was not disputed at any stage by the revenue;
3) Thus, there was no basis on which it could be said that the expenditure in question was a capital expenditure of the foreign parent company;
4) The impugned expenditure was wholly and exclusively for the purpose of the business of the assessee and the fact that the parent company was also benefited by reason of a motivated work force would be no ground to deny the claim of the assessee for deduction, which otherwise satisfies all the conditions referred to in section 37(1);
5) Thus, the appeal of the assessee was to be allowed. - Novo Nordisk India (P.) Ltd. v. Dy.CIT  42 taxmann.com 168 (Bangalore - Trib.)