The Delhi Bench of the Income Tax Appellate Tribunal (ITAT), ruled that purchase of Own Share under Buy-Back Scheme would not attract 56(2)(viia) of Income Tax Act, 1961. The assessee in the present matter is TPS Infrastructure Ltd.
The Senior Departmental Representative submitted that the CIT (A) has erred in law and on facts in deleting the addition of Rs.5 crores made by the AO by applying the provisions of Section 56(2) (viia) of the Income Tax Act, 1961, without appreciating the detailed reasons given in the assessment order which clearly shows the buy back of its own shares by the assessee company as “property” in hand within the meaning of Section 56(2)(viia) of the Income Tax Act, 1961.
The Counsel appearing for the Department also submitted that the onus was on the assessee to show that the shares purchased by the assessee has been extinguished by reducing the paid-up capital of the assessee and this fact has not been examined at the level of the AO, therefore, for limited purpose, the said facts required to be examined and verified by the AO.
The Counsel for the assessee relying on the judgment in Financial Services Pvt. Ltd. v. ACIT submitted that the provisions of section 56(2)(viia) should be applicable only in cases where the recipient of shares become property in the hands of recipient and the shares shall become property of the recipient only if it is ‘shares of any other company.’
The Counsel further contended that the assessee in the present case has purchased its own shares under buy-back scheme and the same has been extinguished by reducing the capital and, hence, the tests of ‘becoming property’ and also ‘shares of any other company’ fails in the present case.
The Bench comprising Shamim Yahya, Accountant Member and CM Garg, Judicial Member relying on the judgment M/s Vohra Financial Services Pvt. Ltd in observed that “The provisions of section 56(2)(viia) of the Income Tax Act are applicable only in the cases where the purchased share become property in the hands of the buyer company and, if the shares are of any other company. But, in the present case, the assessee purchased its own shares under buyback scheme, and, as per the submissions made by the ld. Counsel at the bar, the same has been extinguished by reducing the paid up capital of the assessee company.”
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