Section 44E buy-back arrangement did not apply where there was no agreement or option to re-acquire shares.

Section 44E of the Indian Income-tax Act, 1922 applied only where the owner of securities agreed to sell or transfer them and, by the same or a collateral arrangement, agreed to buy them back, or had an option to re-acquire them, so that income from the securities became receivable otherwise than by the owner. On the facts stated, the employees held the shares on their own account, and there was no agreement or option in favour of the assessee to repurchase or re-acquire them. A mere understanding that the assessee would purchase the shares if the holders wished to sell did not satisfy the statutory condition, and section 44E was therefore not attracted.

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Issues: Whether the sale and repurchase of shares attracted section 44E of the Indian Income-tax Act, 1922.

Analysis: Section 44E applied where the owner of securities agreed to sell or transfer them and, by the same or a collateral agreement, agreed to buy back or re-acquire them, or acquired and exercised an option to do so, with the result that income attributable to the securities became receivable otherwise than by the owner. On the facts found, the employees held the shares on their own account and there was no agreement by the assessee to buy back the shares, nor any option in his favour to re-acquire them. The understanding that the assessee would purchase the shares if the holders desired to sell them did not amount to the statutory arrangement contemplated by section 44E.

Conclusion: Section 44E was not attracted and the answer to the referred question was in the negative.

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