AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 978
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....o as 'the Act of 1961'), the Assessing Officer (AO) had raised a concern regarding the buyback of shares and applied the provisions of section 56(2)(x) of the Act of 1961. 3. The AO found that during the AY 2018-19, the assessee company made buyback of 28,62,500 equity shares at Rs. 313.40 per share totalling to Rs. 89,71,07,500/-, whereas the fair market value of each share as per Rule 11UA of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules of 1962') was Rs. 370.46. Difference of Rs. 57.06 (Rs. 370.46 - Rs. 313.40) per share, multiplied by the number of shares brought back (28,62,500) being Rs. 16,33,34,250/- was added in the income of the assessee under section 56(2)(x) of the Act of 1961. 4. According to the AO, the buyback of share resulted into acquisition of property, attracting Section 56(2)(x) of the Act of 1961 and Rule 11UA of the Rules of 1962. Resultantly, by way of the assessment order passed on 15.07.2021 under section 153A/143(3) of the Act of 1961, the total income of the assessee was determined at Rs. 1,26,96,35,850/ - including the addition of Rs. 16,33,34,250/-. 5. The AO had made the addition in the hands of the respondent-assesee by i....
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....ual and legal position it is held that the assessing officer was not justified in applying provision of section 56(2)(x) and consequently Rule 11UA of the Act on the transactions of buyback of its own shares by the appellant company. Therefore, the addition of Rs. 16,33,34,250/- made by the assessing officer is deleted and accordingly, these grounds of appeal are allowed. 8. The Department preferred an appeal against the above-referred order of the CIT(A) dated 30.01.2023 and the same came to be rejected by the Tribunal vide its order dated 25.09.2023. 9. While rejecting the appeal, in para No. 11 the Tribunal relied upon judgment of Hyderabad bench of the Tribunal in VITP Private Limited, Hyderabad v. Deputy Commissioner of Income Tax, 2022 (8) TMI 220 to hold that since the respondent-assessee had purchased its own share and not shares of any other company, provisions of Section 56(2) (viia) of the Act of 1961 is inapplicable to the facts. 10. Mr. Vipul Agrawal, learned Senior Standing Counsel for the appellant-department submitted that the assessee company had purchased its own shares at the sum of Rs. 313.40/- per share whereas the fair market value of the shares of th....
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....ssee to generate undisclosed income or income out of books. 18. He nevertheless maintained that as a matter of fact and law, the purchase of shares does not mean purchase of property. 19. Heard learned counsel for the parties. 20. The case in hand involves an interesting issue of law. The facts are not in dispute that what had been purchased by the respondent-company was its own shares under buy back offer. 21. The following part of the assessment order clearly delineates the nature of the transaction and the manner in which the same was undertaken: (i) During, the 'FY 2007-08 (AY 2008-09), Globe Capital Market Ltd. (Henceforth referred, to "GCMIZ or "The Company") raised an amount from Citi Group Venture Capital, Mauritius vide a preferential issue of shares. The Company signed an investor agreement with Citi Group Venture Capital on 2nd February 2008 and the shares were to be allotted in the following manner. Particulars No. of Shares Issue Price Amount (Rs.) Equity shares (FV Rs.10 per share) 2,19,724 5,248/- 115,31,11,552/- Compulsorily convertible Preference shares (FV Rs. 29,150/- per share) ("CCPS") 16,703 29,150/- ....
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....BB of the 1.T. Rules 1962 inserted vide CBDT Notification No.94/2016 Income Tax dt. 17/10/2016 has been paid. The detailed working of the same is given below: Consideration paid by the Company on buy-back of balance 28,62,500 equity shares @ Rs. 313.40 per share Rs. 89,71,07,500/- Less: Amount received by the Company for issue of such shares Nil (since all shares were issued as bonus shares with no consideration) Distributed Income as per provisions of Sec 115QA(1)(ii) Rs. 89,71,07,500/- Tax paid @ 23.07% in accordance with Sec 115QA Rs. 20,69,80,642/ - (vii). The Assessee Company has further submitted that "Since most of the shares tendered for buyback were held by non-residents (65,34,129 shares out of 65,62,500 Shares tendered for buyback), this buyback of shares was regulated by the Foreign Exchange Management Act, 1999 and Reserve Bank of India guidelines. 22. A perusal of the above-quoted para clearly shows that the company had purchased its own shares pursuant to a buy-back offer made in accordance with law at the rate which was fixed by the Board of Directors in its meeting held on 31.05.2016, duly approved by the shareholders in their me....
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....xchange is in accordance with the regulations made by the Securities and Exchange Board in this behalf; and (g) the buy-back in respect of shares or other specified securities other than those specified in clause (f) is in accordance with such rules as may be prescribed: Provided that no offer of buy-back under this sub-section shall be made within a period of one year reckoned from the date of the closure of the preceding offer of buy-back, if any. (3) The notice of the meeting at which the special resolution is proposed to be passed under clause (b) of sub-section (2) shall be accompanied by an explanatory statement stating- (a) a full and complete disclosure of all material facts; (b) the necessity for the buy-back; (c) the class of shares or securities intended to be purchased under the buy-back; (d) the amount to be invested under the buy-back; and (e) the time-limit for completion of buy-back. (4) Every buy-back shall be completed within a period of one year from the date of passing of the special resolution, or as the case may be, the resolution passed by the Board under clause (b) of sub-section (2). ....
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....ecurities, the date of extinguishing and physically destroying the shares or securities and such other particulars as may be prescribed. (10) A company shall, after the completion of the buy-back under this section, file with the Registrar and the Securities and Exchange Board a return containing such particulars relating to the buy-back within thirty days of such completion, as may be prescribed: Provided that no return shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange. (11) If a company makes any default in complying with the provisions of this section or any regulation made by the Securities and Exchange Board, for the purposes of clause (f) of sub-section (2), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to 2 [three lakh rupees]." 24. But for Section 68 of Companies Act and the procedure provided thereunder, there is no way can a company buy its own shar....