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TMI Blog2022 (8) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... its own 28 Lakh shares at face value, namely, Rs. 100/- per equity share from its parent company i.e., Ascendas Property Fund (India) Pvt. Limited (APFI), who is the shareholder, in accordance with the provisions of section 77A of the Companies Act, 1956 and also created Capital Redemption Reserve amounting to Rs. 28 Crores being the sum equal to the nominal value of the shares that were brought back by transferring the amount from the surplus available in the Profit & Loss Account (P&L Account). 3. During the course of assessment proceedings, learned Assessing Officer asked the assessee as to why the provisions of section 56(2)(viia) of the Act cannot be invoked in this case to bring the difference between the Fair Market Value (FMV) of the shares and the consideration paid when they are bought back. Assessee explained that the provisions under section 56(2)(viia) of the Act have no application to the buy back of the shares, for the reasons that, - As the company would not be holding the shares, post buy-back, it would be inferred that it did not 'receive' the shares, hence the taxability of same under section 56(2)(viia) does not arise. Section 56(2)(viia) of the Act require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res subsequent to the buying back is immaterial. 5. Learned Assessing Officer, therefore, applied the provisions under section 56(2)(viia)(ii) of the Act to make an addition of Rs. 13,10,87,600/- to tax. 6. Aggrieved by such an action of the learned Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A) and reiterated similar contentions as raised before the learned Assessing Officer. Ld. CIT(A) also, however, did not agree with the contentions of the assessee and dismissed the appeal holding that the exceptions to the applicability of section 56(2)(viia)(i) of the Act are that the allotment of rights shares or bonus shares to the shareholders, but the buying back of shares is not excluded under section 56(2)(viia) of the Act. According to the Ld. CIT(A) also, the destruction/extinction of the bought back shares is an irrelevant consideration, inasmuch as section 46A of the Act taxes the capital gains arising to a shareholder on buy-back of the shares by the company and section 115QA of the Act taxes the profits arising to a shareholder out of buy-back of shares by a domestic un-listed company. Ld. CIT(A) further held that even the reduction of the liability is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the case of Vora Financial Services (P) Ltd., (supra) in the light of the provisions section 56(2)(viia) of the Act and the legislative intent. For the sake of ready reference and completeness, we deem it appropriate to extract the relevant portion which is as under, - ...........Accordingly the Ld A.R submitted that the above said provisions only deal with the case of buy back of shares and hence the AO was not correct in invoking the provisions of sec. 56(2)(viia) of the Act in the instant case. In this regard, the Ld A.R placed reliance on the Memorandum Explaining the provisions in Finance Bill, 1999 available in (1999) 236 ITR (St.) 155. 26. He submitted that the provisions of sec.56(2)(vii) were introduced as counter evasion mechanism as explained in the Memorandum Explaining the provisions in the Finance Bill, 2010 (2010)(321 ITR (St.) 110)", which is extracted below:- "B. The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly after abolition of the Gift Tax Act. The provisions were intended to extend the tax net to such transactions in kind. The inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an individual or an HUF, without consideration or at a price lower than the fair market value does not attract the anti-abuse provision. In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, it is proposed to amend section 56 to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested)." 31. A combined reading of the provisions of sec. 56(2)(viia) and the memorandum explaining the provisions would show that the provisions of sec. 56(2)(viia) would be attracted when "a firm or company (not being a company in which public are substantially interested)" receives a "property, being shares in a company (not being a company in which public are substantially interested)". Therefore, it follows the shares should become "property" of recipient company and in that case, it should be shares of any other company and could not be its own shares. Because own shares cannot be becom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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