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2024 (1) TMI 749 - ITAT MUMBAIChargeability of taxation u/s 115QA - capital reduction carried on by the assessee u/s 100 – 104 of the companies act 1956 on or before 31st of May 2016 - CIT(A) deleting the levying tax u/s 115QA on the capital reduction transaction undertaken by the company during the year made by the AO - as per AO share capital reduction by payments to the shareholders is buy-back of shares and provisions of section 115QA of the Act is attracted - HELD THAT:- According to the provisions of section 115QA of the income tax act if a domestic company distributes any amount on buyback of shares of unlisted shares from its shareholders, the domestic company is required to pay tax, which is an additional income tax at the rate of 20% on the distributed income. What is "buyback” is defined in explanation (i) of the section to show that buyback means purchase by a company of its own shares in accordance with the provisions of section 77A of the companies act 1956. This was the definition of buyback from 1 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 capital were concluded on 31st of May 2016. This event schedule is not in dispute between the parties. Therefore, apparently the capital reduction was completed by the assessee on 31st of May 2016 under the provisions of section 100 – 104 of the companies act. As in case of Capegemeini India private limited in company scheme petition number 434 of 2014 dated 28 April 2015 [2015 (4) TMI 1069 - BOMBAY HIGH COURT] holding that it is open to a company to buy back its own shares by following the procedure prescribed u/s 77A/section 68 or by following the procedure prescribed under section 391 read with section 100-104 of the companies act 1956. Thus we hold that in the present case such capital reduction is not covered in the definition of buyback as per explanation (i) to section 115QA of the income tax act and tax on distributed income to the shareholders is not payable by the assessee company. Hence, we uphold the order of the learned CIT – A. Decided against revenue.
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