| COURT: | ITAT Mumbai |
| CORAM: | B. R. Baskaran (AM), Pawan Singh (JM) |
| SECTION(S): | 56(2)(viia) |
| GENRE: | Domestic Tax |
| CATCH WORDS: | buyback of shares, gift |
| COUNSEL: | K. Gopal, Neha Paranjpe |
| DATE: | June 29, 2018 (Date of pronouncement) |
| DATE: | July 5, 2018 (Date of publication) |
| AY: | 2014-15 |
| FILE: | Click here to view full post with file download link |
| CITATION: | |
| S. 56(2)(viia) is a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts. The primary condition for invoking S. 56(2)(viia) is that the asset gifted should become a “capital asset” and property in the hands of recipient. If the assessee-company has purchased shares under a buyback scheme and the said shares are extinguished by writing down the share capital, the shares do not become capital asset of the assessee-company and hence s. 56(2)(viia) cannot be invoked in the hands of the assessee company | |
The provisions of sec. 56(2)(viia) should be applicable only in cases where the receipt of shares become property in the hands of recipient and the shares shall become property of the recipient only if it is “shares of any other company”. In the instant case, the assessee herein has purchased its own shares under buyback scheme and the same has been extinguished by reducing the capital and hence the tests of “becoming property” and also “shares of any other company” fail in this case. Accordingly we are of the view that the tax authorities are not justified in invoking the provisions of sec. 56(2)(viia) for buyback of own shares
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