TMI Blog2024 (1) TMI 749X X X X Extracts X X X X X X X X Extracts X X X X ..... June 2013 till 31 May 2016. With effect from 1 June 2016 by the finance act 2016, the definition of buyback under explanation (i) to that section reads that buyback means purchase by a company of its own shares in accordance with the provisions of any law for the time being in force relating to companies. Thus, it is clear that prior to 31st of May 2016 if the company purchases its own shares in accordance with the provisions of section 77A of the companies act, such domestic companies are required to pay tax under section 115QA of the act. After 1/6/2016 if the company purchases its own shares in accordance with any of the provisions of any law relating to the companies, the buyback tax liability will arise in the hence of the company. Thus, it is clear that prior to 1/6/2016 buyback under section 77A of the companies act is covered by the provisions of taxes in the hence of the company under section 115QA of the act. In the present case, the assessee has not carried out the buyback under section 77A of the companies act 1956 but has carried out capital reduction under the provisions of section 100 104 of the companies act. All the conditions of reduction of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86,36,363 shares with Face Value of Rs. 10/-, which amounts to Rs. 8,63,63,630/- of the capital the amount paid to reduce this capital was of Rs. 110/- per share amounting to Rs. 94,99,99,930/- which clearly pin points that the reduction has been made to profit the shareholder. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that if a scheme is allowed as per the directions of the Hon. High Court which was adjudicated on the basis of petition moved by the assessee, it does not imply that tax u/s. 115QA would not be payable. 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate a relevant point submitted by the assessee vide para no 4.19 of the appellate order that the shareholder of the Appellant is an overseas Fund entity and an Investor Advisors entity in India and the investor entity has been given an exit route by such reduction of capital. 5. Whether on the facts and circumstances of the case the Ld.CIT(A) was justified in deleting tax and interest levied under section 115QB of the Act amounting to Rs. 8,56,81,012/- when the A.O. has rightly invoked the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Rs. 86,36,44,409/- was adjusted against security premium account of Rs 369682071/- and revaluation reserve of Rs. 493962338/- . v. There was no surplus in the profit and loss account in the company. 06. The learned Assessing Officer on the above transaction issued a notice on 21st December, 2019, holding that the payment of ₹94,99,99,930/- attracts the provision of Section 115QA of the Income-tax Act, 1961 (the Act) and asked to furnish certain other details. 07. The assessee responded stating that i. capital reduction is by way of order of the Hon'ble Bombay High Court. ii. Such capital reduction has been completed prior to 1st June, 2016. iii. Up to 31st May, 2016, the provision of Section 115QA of the Act would apply only where a buy back is undertaken in accordance with provision of Section 77A of the Companies Act, 1956. iv. The present capital reduction is in terms of scheme approved by Hon'ble High Court and in accordance with Section 100 to 104 of Companies Act, 1956 and v. Therefore, the provision of Section 115QA does not apply. 08. The learned Assessing Officer rejected the contention of the assessee that provision of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sachs (India) Securities Pvt. Ltd. Vs. ITO dated 12th February, 2016, wherein it was held that the conditions provided in section 77A of the Act are applicable only to buy back of shares and further the conditions applicable to Section 100 to 104 and Section 391 of the Companies Act, cannot be imported and made applicable to buy back under Section 77A of the Act. Accordingly, he held that the learned Assessing Officer was not justified in invoking the Provisions of Section 115QA/ QB to the payment made to the shareholders as a result of capital reduction scheme and therefore, he cancelled the tax liability of ₹28,49,39,179/-. The learned Assessing Officer is aggrieved with the same and is in appeal. 010. The learned Departmental Representative stated that i. Section 115QA provides for the levy of additional income tax at the rate of 20% of the distributed income on account of buy back of unlisted shares be a company. ii. It was submitted that the amendment with effect from 1st June, 2016, is only to provide clarity. It was stated that the fact of buy back being in the nature of distribution of income is relevant rather than particular provisions of the law relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buy back of shares and Section 66 with effect from 15th December, 2016, covers the provision by reduction of capital. iii. He further referred to the provisions of Section 115QA of the Act introduced with effect from 1st June, 2013, iv. He submits that earlier even in the buyback of shares as well as in the return of capital there was no incidence of taxation in the hands of the company. Prior to that date, the buyback was taxable in the hands of the shareholder as capital gain under Section 46 A of the Act. The reduction of share capital was taxable in the hands of the shareholders as deemed dividend under Section 2(22) of the Act to the extent of accumulated profit and any balance amount was chargeable to tax in the hands of the share holders on reduction of share capital as capital gain. v. He further stated that after the introduction of Section 115QA of the Act with effect from 1st June, 2013, the buyback tax has to be paid by the Companies Act 115QA of the Act and in the hands of the share holder same is exempt under Section 10(34A) of the Act. vi. He referred to the definition of Buyback where in up to 1/6/2016 only provision of section 77A of the companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of capital gain tax has been paid by the shareholders or not, the assessee submitted a copy of no.15CB, wherein remittance was made to Mauritius shareholding stating that such capital gain on capital reduction is not chargeable to tax in India according to Article 13 of India Mauritius DTAA. He submitted that 15CA and 15CB submitted on 30th May, 2016, whereas the actual amount of remittance of ₹113,47,80,000/- was made. He submitted that there is no query on this issue by the learned Assessing Officer. With respect to Kotak advisor as certificate was submitted stating PAN number that they have offered the gain under the head capital gain in their return of income. Thus, in nutshell, the claim of Assessee is that capital gain arising to the Mauritius shareholder is not subject to tax under Section 115QA of the Act. Further, such income is also not chargeable to tax in India in the hands of such shareholder in terms of Article 13 of the Double Tax Avoidance Agreement. 013. We have carefully considered the rival contention and perused the orders of the lower authorities. The only dispute in this appeal is with respect to the chargeability of taxation under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii. On 30 January 2016, board resolution was passed of proving the capital reduction under section 100 104 of the companies act, which was approved by the Board of Directors. iv. On 30 January 2016, the notice of extraordinary general meeting was issued to the shareholders to convene the meeting on second of February 2016. v. On second of February 2016, the EGM was convened and a spatial resolution passed where shareholders approved the reduction of maximum of 91 lakh shares. vi. On 4 February 2016 a petition was filed before the honourable Bombay High Court for reduction of capital under section 100-104 of the companies act and vii. on 16 April 2016 the honourable High Court has passed its order approving the capital reduction scheme. viii. On 2 May 2016 the shareholders granted their consent to reduce the share capital for which may 2016 board meeting was convened approving the capital reduction of 86,36,363 shares. ix. On 19 May 2016 the registrar of companies registered the scheme of reduction of share capital and x. on 30th of May 2016 bank was requested to make remittance to the shareholders on account of such capital reduction which was made on 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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