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2015 (4) TMI 1069 - BOMBAY HIGH COURT

2015 (4) TMI 1069 - BOMBAY HIGH COURT - TMI - Entitlement to buy back of own shares by means of a scheme - whether buyback of shares must be effected only under Section 77A of the Companies Act, 1956/Section 68 of the Companies Act, 2013? - Held that:- In the present case since it is legally permissible for the company to buy back its shares by following the procedure under Section 391 read with Sections 100 to 104 of the 1956 Act, the fact that the same may not attract income tax will not amoun .....

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nce with the aforesaid circular of the RBI. The Regional Director has not disputed the fair market value of the shares so determined. In these circumstances it is clear that the buyback of shares under the Scheme is in accordance with the RBI Guidelines and that being so, there is no question of there being any draining away of foreign exchange.

In view of the above and particularly the fact that in law the Petitioner is entitled to buy back its own shares by means of a scheme under S .....

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nothing survives in the objections of the Regional Director.

(a) The Scheme of Arrangement as proposed is sanctioned with a clarification that the issues relating to Incometax that may arise out of the Scheme are left open to be dealt with and decided by the Incometax Authorities in accordance with law.

(b) The Petitioner to pay costs of ₹ 10,000/to the Regional Director within a period of four weeks from the date of this order.

(c ) Filing and issuance of .....

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to as the Scheme ) with its Equity Shareholders (hereinafter referred to as the Shareholders ), in accordance with the provisions of Section 391 read with Sections 100 to 103 of the Companies Act,1956 (hereinafter referred to as the Act ), from this Court. As per the Scheme, the Petitioner Company is proposing to purchase not more than 221,231 Equity Shares of the Company either in physical form or dematerialized form of ₹ 100/each fully paid up, representing 30% of the issued, subscribed .....

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he date of dispatch of such option forms to the Shareholders by the Company. The Company shall within 15 (fifteen) days of the receipt of the option forms and documents mentioned therein complete the verification of the option forms along with the relevant supporting documents received from the Shareholders. The Company shall purchase Equity Shares only from Shareholders whose option forms and supporting documents are verified by the Company and considered to be valid. The consideration payable .....

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iii) concerned Income Tax Authority within whose jurisdiction the Petitioner Company's assessment are made (hereinafter referred to as the IT Authority ),(iv) all the unsecured creditors and has also issued a public notice in two local newspapers viz. Free Press Journal in English language and translation thereof in Navashakti in Marathi language. No objection has been raised by the IT Authority. 3. In response to the notice of final hearing, the Regional Director has filed an affidavit on 1 .....

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s effected under Section 77A/Section 68, then the distributed income of the company as defined in Section 115QA of the Income Tax Act would be charged to tax, and it is for this reason that the company is not following the procedure prescribed under Section 77A/Section 68 and has opted for the procedure under Section 391 which would not attract such a tax under Section 115QA of the Income Tax Act. According to the Regional Director by this colourable device the company is evading its liability t .....

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aining to taxation laws. He can do so even if the Income Tax Authorities do not raise any objection. It has been held that this is the duty and obligation of the Regional Director. In view of the aforesaid decision of this Court the objection of the Petitioner with regard to the locus of the Regional Director is untenable and deserves to be rejected. 6. The Petitioner has submitted that it is open to the Petitioner to follow either the procedure under Section 77A/Section 68 or the procedure unde .....

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only manner in 1 Decided on 19th March, 2015 in CSP Nos. 137 and 138 of 2014. which the company can buyback the said shares is by following the procedure under Section 391 read with Sections 100 104 of the 1956 Act. In support of its contentions the Petitioner has relied upon the decision of the Division Bench of this Court in the case of SEBI V/s. Sterilite Industries (India) Limited2. 7. The Division Bench of this Court in the case of Sterilite Industries (supra) has held that a Company may e .....

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visions of subsection( 2) of this section and section 77B, a company may purchase its own shares or other specified securities … shows that section 77A is a facilitating provision which enables companies to buyback their shares without having to approach the court under section 391 and sections 100 to 104 subject to compliance with the provisions of subsections( 2), (3) and (4). Prior to the introduction of section 77A, the only manner in which a company could buyback its shares was by fo .....

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n any financial year subject to compliance with subsections (2), (3) and (4). It does not supplant or take away 2 (2003) 45 SCL 475 any part of the preexisting jurisdiction of the company court to sanction a scheme for such reduction under sections 100 to 104 and section 391. 23. The submission of the appellants that the non obstante clause in section 77A gives precedence to that section over the provisions of sections 100 to 104, section 391 is misconceived. The non obstante clause in section 7 .....

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dily be inferred, such exclusion should be explicitly or clearly implied. There is nothing in the language of section 77 that gives rise to such an inference. We are, therefore, inclined to hold that section 77A is merely an enabling provision and the court s powers under sections 100 to 104 and section 391 are not in any way affected. The conditions provided in section 77A are applicable only to buyback of shares under section 77A. The conditions applicable to sections 100 to 104 and section 39 .....

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ompromise or arrangement in respect of any buyback of securities under this section shall be sanctioned by the Tribunal unless such buyback is in accordance with the provisions of section 68. This provision may have an impact on the law as laid down by this Court in the Sterilite case. However, at present Section 230 has not come into force and hence this question does not arise for consideration in this case and hence the same need not to be considered. At present the law as laid down in Steril .....

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nt to evasion of income tax and outflow of foreign exchange to the tune of ₹ 248 crores and therefore on this ground the Scheme should be rejected. The Regional Director has not furnished any particulars in support of the aforesaid contention. Be that as it may, if the law permits a company to buy back its shares in more than one way, the company cannot be compelled to follow only the method that results in payment of income tax. It is well settled that an assessee can always manage his af .....

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ce it is held that the procedure adopted by the company is permissible in law. Moreover, the Regional Director has not shown that the law prohibits the transfer of shares by a nonresident to resident. In fact, he does not dispute that the same is permissible. The Petitioner has placed on record RBI s Circular No.49 dated 4th May 2010 which provides that shares of an unlisted Indian company can be transferred by a nonresident to a resident under the general permission of the RBI if the transfer p .....

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stion of there being any draining away of foreign exchange. 8. In view of the above and particularly the fact that in law the Petitioner is entitled to buy back its own shares by means of a scheme under Section 391 read with Sections 100 - 104 of the 1956 Act, the scheme cannot be said to be a colourable device to evade income tax. It is a legally permissible procedure which the Petitioner is entitled to follow to buy back its shares. 9. In support of his contention that the Scheme is a device t .....

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