Case Law Details
Capital gain on buy-back of shares is taxable under Section 46A of the Act in the hands foreign company
It was argued that Section 45 of the Act alone was the charging section and section 46A cannot be resorted to, to tax the capital gains arising out of such transaction. Sec 47 of the Income-tax Act contains a non-obstante clause as it were only in respect of Sec 45 of the Act. It says “nothing contained in Sec 45 shall apply to the following transfers” That means two things. One, it does not override Sec46A and two, by virtue of Sec 47, a transfer is not deemed to be not a transfer.
It is only an exempted transfer. Therefore in the context of Sec 77A of The Companies Act, it is a permissible transfer attracting Sec 46A of the Income-tax Act. It may be noted that Sec 77A was introduced with effect from 31-10-1998 and Sec 46A was inserted with effect from 1-4-2000. Specific securities used in the section is explained as having the meaning assigned to it in Sec 77A of the Companies Act It is therefore clear that Sec 46A was introduced in the context of permitting such transfers in the teeth of Sec 77 of the Companies Act. The words of Sec46A are plain and clear. It is only subjected to Sec 48 of the Act. It has application when the event referred to therein occurs. It says that the difference between the cost of acquisition and the value of consideration received shall be deemed to be the capital gains arising to the seller. There appears to be no reason to go into an enquiry as to whether it is a charging section or not and whether we can only understand Sec 45 as the charging section. The section says what the capital gains is, arising out of such a transaction and mandates resort to Sec 48. Sec 48 only deals with the mode of computation and Sec 46A having determined the capital gains, the tax needs alone to be computed as provided for therein. Even if we accept the plea of the applicant to read „or‟ as „and‟ in Section 47(iv) of the Act, it is of no avail to the applicant in our view that Section 46A of the Act would be applicable in the case of a buyback of shares and Section 46A is not subjected to Section 47 which at best only overrides Section 45. We are, therefore, of the view, that in the case of a buyback of shares, section 46A of the Act will be attracted and resort to Section 45 is not warranted.
BEFORE THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX)
27th Day of February, 2012
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