| Question And Answer | |
|---|---|
| Subject: | Buyback of shares |
| Category: | Income-Tax |
| Querist: | Ruchi Bhansali |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | buy back of shares, Buyback of shares, rate of tax |
| Date: | December 29, 2021 |
Assessee company is a private limited company and has issued its shares of Rs. 100/- each fully paid up at a premium of Rs. 80/- in the year 2010. As on today the value of the shares is Rs.500/-. the articles of association of the company has a clause for giving option in case of transfer of shares by any shareholder to the existing shareholders only. None of the existing shareholder are ready to buy the said shares from the shareholder who is interested in selling. In this situation can company being a private limited company buy back the shares at same value on which those have been issues i.e Rs.180/-? What will be tax implication under income tax act?
Assuming all the conditions under the Companies Act, 2013 are fulfilled. Section 115QA of the Income-tax Act, 1961 (Act) shall be applicable on buy back of shares by an unlisted company. The tax liability will be on the Company. The difference between the Market value of the share and the issue price will be the buy back gain and the same would be taxed at the rate of 20 per cent.
section 115 QA mentions about “any Distribution” . It is no where mentioning Fair value of shares . Hence it is possible that unlisted company can buyback its shares at the same price at which it has received at the time of issue of shares. One may argue that 56(2)(x) shall come into play but in case of VORA Financial services, ITAT Mumbai has held that In buy back shares section 56(2)(x) does not apply
I think no valuation is prescribed under the Income-tax Act, 1961 for buying back of shares of private limited company. Hopwever as per the Companies Act, 2013, one SHOULD obtain valuation from either chartered accountant or registered valurs.
115QA is a deeming provisions for taxing for distribution of profits as it is done out of reserves.
Hence, there is no question of fair value that comes into play there.
TWO THREE YEARS AGO THE BHARAT NIDHI BUYBACK ISSUES TRAVELLED TO COURTS ETC ABOUT VARIOUS ISSUES INCLUDING THE VALUATIONS ETC.ONE CAN GO THROUGH IT.