Buy-back remittance to a non-resident: no withholding tax where the payment fell within the CBDT circular period.

Remittance for buy-back of shares to a non-resident seller was treated as falling within the period covered by CBDT Circular No. 3/2016, because the payment was made on 31.05.2013. Under that circular, consideration from buy-back transactions during 01.04.2000 to 31.05.2013 is characterised as capital gains in the recipient's hands under section 46A, not as dividend under section 2(22)(iv). As tax withholding under section 195 arises only where the sum paid is chargeable to tax, no withholding obligation survived on the remittance.

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Issues: Whether tax was deductible at source on the remittance made for buy-back of shares to a non-resident seller, and whether the CBDT circular dealing with buy-back transactions prior to 01.06.2013 applied so as to negate the Revenue's demand.

Analysis: The remittance was found to have been made on 31.05.2013, bringing the transaction within the period covered by Circular No. 3/2016. Under that circular, consideration received on buy-back of shares during 01.04.2000 to 31.05.2013 is to be treated as capital gains in the hands of the recipient under section 46A of the Income-tax Act, 1961 and not as dividend under section 2(22)(iv) of that Act. Since tax under section 195 arises only when the sum paid is chargeable to tax, and the transaction fell within the circular and the treaty position relied upon by the first appellate authority, no withholding obligation survived.

Conclusion: The Revenue's challenge failed, and the finding that no tax was deductible at source on the remittance for buy-back of shares was upheld.

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