Allowing the appeal of the assessee the Tribunal held that , 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 .( ITA No. 532/Mum/2018, dt. 29.06.2018) (AY. 2014-15)
Vora Financial Service P. Ltd. v. ACIT ( 2018) 171 ITD 646/ 194 TTJ 746/ 65 ITR 77 (SN)/( 2019) 178 DTR 58 ( Mum)(Trib), www.itatonline.org
S. 56: Income from other sources- by back of shares – 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 [ S.56(2)(viia)]
A