I've found that, with patch "e" at any rate:
* The option is sometimes there immediately upon capturing the city (as well as the usual raze/install new governor options) and sometimes it isn't.
* If I do return the city by that mechanism I get no diplomatic bonus for doing so.
* If opt to keep the city (whether I had the option to return control or not) I can, so far, always "Liberate" it later by giving it to the original leader in the trade screen. For this I DO get diplomatic bonuses: +1 You liberated our cities!
I'm not sure if this a bug, several bugs, some dodgy implementation or what. I'm not sure how it works in vanilla BTS either.
To my mind, what SHOULD happen is that the option should always be there to return control to the original owner, and that you should always gain diplomatic merits for doing so, whether you return it straight away or liberate it later through the trade screen.