Case Law Details
DCIT Vs TPS Infrastructure Ltd (ITAT Delhi)
Undisputedly, the assessee company, during the relevant financial period had purchased its own 130915 shares @ Rs.78/- per share from its associate concerns in the month of March, 2013. The AO picked up the issue and made addition u/s 56(2)(viia) of the Act by taking out of Rs.292/- per share. It is the claim of the assessee before the ld.CIT(A) that the assessee company has bought back its own shares under buy back scheme and the same has to be extinguished by reducing the paid-up capital of the assessee company.
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 become property of the recipient company.
Accordingly we are of the view that 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.
ITAT held that provisions of section 56(2)(viia) of the Act are applicable only in the cases where the purchased share become property in the hands of the buyer company and, if the shares are of any other company. But, in the present case, the assessee purchased its own shares under buyback scheme, and, as per the submissions made by the ld. Counsel at the bar, the same has been extinguished by reducing the paid up capital of the assessee company. Therefore, the facts and circumstances of the present case are identical to the facts and circumstances noted by the coordinate Bench of the ITAT Mumbai Bench in the case of M/s Vohra Financial Services Pvt. Ltd. (supra). However, the fact remains that the factum of extinguishment of the purchased shares by reducing the paid up capital of the assessee company has not been examined and verified at the level of the AO. Therefore, the issue is restored to the file of the AO for a limited purpose of examining and verifying the fact of extinguishment of shares by reducing the paid-up capital of the assessee in the accounts of the assessee. The AO is directed to delete the addition in case the said fact is found to be correct.
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