2. Facts in brief: The assessee is an employee of Zee Telefilms Ltd. M/s. Zee Telefilms Ltd., offered a scheme under an Employee Stock Option Plan (ESOP) on February 1, 1999. The company issued 3000 warrants held under trust to the assessee. These warrants can be converted into 3000 equity shares subject to certain terms and conditions. The warrants could be converted into equity shares at a conversion price of Rs. 212 per share which is, admittedly, below the market price. The assessee was entitled to convert the warrants into shares within three months from the announcement of the financial results of the company for the year ended March 31, 1999. The assessee was bestowed this right to exercise the option of conversion of warrants into shares upon full payment of the conversion price to Zee Network Employees' Welfare Trust (ZEWT).

3. During the year the assessee had filed the return of income on June 30, 2000 declaring income of Rs. 10,13,860. The same was processed under section 143(1) of the Income-tax Act, 1961. Thereafter notice was issued under section 148 subsequent to which the Assessing Officer completed the assessment under section 143(3) read with section 147 on September 23, 2003. The assessee had contended that the ESOP is not taxable for the assessment year 2000-01 as the amendments regarding the taxability of ESOP, came subsequent to the filing of the return for the assessment year 2000-01. She further explained that the option to receive ESOP was exercised on February 1, 1999, prior to the amendment. The Assessing Officer rejected this contention on the ground that the benefit to the assessee has accrued by way of accretion to her capital due to exercise of her profession and vocation while working in Zee Telefilms Ltd., It was a perquisite within the meaning of section 17(2)(iiia) of the Act. Thus he brought to tax a sum of Rs. 25,77,000. The assessee carried the matter in appeal.

4. The first appellate authority after considering the arguments of the assessee held that the benefits arising out of ESOP are taxable and that in principle the Assessing Officer was duly justified in invoking the provisions of section 17(2)(iiia) of the Act. While holding so the first appellate authority held that the assessee had exercised the option on February 1, 1999, and thus the amount was required to be taxed in her hands in the assessment year 1999-2000 and not in the impugned assessment year. Thus, he granted relief.

5. Aggrieved by the above order of the Commissioner of Income-tax (Appeals), the Revenue is in appeal with the following grounds of appeal :

"1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in accepting the contention of the assessee that the assessed perquisite of Rs. 25.77 lakhs received under the Employee Stock Option Plan did not accrue or arise in the assessment year 2000-01 but in the assessment year 1999-2000 and thereby deleting the addition of Rs. 25.77 lakhs made to the returned income on account of the perquisite value of the stock options.

Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in ignoring the fact that as per the terms and conditions of the Employee Stock Option Plan, the allottees could convert the warrants into shares within 3 months from the announcement of financial results of the company for the year ending March 31, 1999, and the option for conversion of warrants into shares could be exercised only on full payment of the conversion price to Zee Network Employees Welfare Trust and as such the question of exercising the option during the financial year 1998-99 relevant to the assessment year 1999-2000 did not arise at all.

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