Latest - TMI e-Newsletter
New User/ Regiser
2022 (8) TMI 220 - Income Tax
Addition u/s 56(2)(viia) - difference between the Fair Market Value (FMV) of the shares and the consideration paid when they are bought back - company buys back its own shares from the shareholders whereby the liability is reduced - HELD THAT:- As shares should become property of the recipient company in order to apply the provisions under section 56(2)(viia) of the Act and in that case, such shares should be the shares of other company and cannot be its own shares, because a company cannot hold its own shares in order that such shares become its property.
Provisions under section 56(2)(viia) should be applicable only in cases where the receipt of shares become property in the hands of the recipient and the shares shall become property of the recipient only if those are ‘shares of any other company’. With reference to the buying back of own shares by a company which become extinguished by reducing the capital, it is clear that the test of ‘becoming property’ and also ‘shares of any other company’ fails thereby rendering the provisions under section 56(2)(viia) of the Act inapplicable to the cases of buyback of own shares.
No other view of any higher fora is brought to our notice. We, therefore, while respectfully following the view taken in the case of Vora Financial Services (P) Ltd., [2018 (7) TMI 64 - ITAT MUMBAI] hold that the addition made by invoking the provisions u/s 56(2)(viia) of the Act cannot be sustained. We accordingly allow the appeal of the assessee.