The appeal under consideration stems from a dispute regarding the order dated 30.01.2023 issued by the Commissioner of Income Tax (Appeals)-26, New Delhi, pertaining to the Assessment Year 2018-19. The Revenue has contested several grounds, challenging the Commissioner’s decision to annul the addition of Rs. 16,33,34,250/-, which was initially imposed by the Assessing Officer under section 56(2)(x) of the Income Tax Act, 1961. The crux of the Revenue’s contentions revolves around the Commissioner’s findings on the deemed income arising from the buyback of the company’s shares.
The grounds raised by the Revenue encompass a spectrum of issues, including:
- The Commissioner’s decision to delete the addition under section 56(2)(x) related to the buyback of shares.
- The Commissioner’s approval of the assessee’s appeal, arguing that the buyback of shares does not fall under the ambit of the definition of “Property” as outlined in section 56(2)(vii) of the Act.
- The Commissioner’s disregard of the applicability of Section 56(2)(x) on the buyback of shares, asserting that such provisions do not extend to these transactions.
- The Commissioner’s alleged oversight of the fact that the shares, during the buyback, possessed characteristics akin to immovable property.
- An overarching challenge to the Commissioner’s order on the grounds of its legal tenability.
Facts
The backdrop of this case involves a search operation conducted under section 132 of the Income Tax Act in 2018. Subsequent to this operation, a notice under section 153A of the Act was served on the assessee, leading to the filing of its return for the Assessment Year 2018-19 on 9.3.2020. The declared income from business was Rs. 93,82,63,010/-, consistent with the original return filed on 30.10.2018. This return was processed under section 143(1) of the Act on 21.12.2019, resulting in an income of Rs. 1,10,63,01,600/-.
The assessee, primarily engaged in share broking and clearing of trades, found itself in the midst of assessment proceedings under section 153A. The Assessing Officer (AO), during these proceedings, raised the issue of the buyback of shares and the applicability of section 56(2)(x) of the Act. The AO noted that the assessee company had engaged in the buyback of 2,862,500 equity shares at Rs. 313.40 per share, totaling Rs. 89,71,07,500/-. According to Rule 11UA of the Income Tax Rules, 1962, the fair market value per share was determined as Rs. 370.46. The AO, consequently, calculated a difference of Rs. 57.06 per share (Rs. 370.46 – Rs. 313.40), amounting to a total of Rs. 16,33,34,250/-. The AO contended that this difference represented income under section 56(2)(x) of the Act, given that the buyback of shares was tantamount to the acquisition of property.
In an exhaustive assessment order dated 15.07.2019 under section 153A/143(3) of the Act, the AO determined the total income of the assessee at Rs. 1,26,96,35,850/-, which included the disputed addition of Rs. 16,33,34,250/- under section 56(2)(x).
Dissatisfied with this outcome, the assessee appealed to the Commissioner, who, in turn, deleted the contentious addition. The Commissioner, in his order, scrutinized the facts, the AO’s observations, and the appellant’s written submission. The key consideration was whether the provisions of section 56(2)(x) and Rule 11UA were applicable to the buyback of the assessee’s shares.
CIT Order:
The Commissioner emphasized that Rule 11UA’s applicability is contingent upon the applicability of section 56(2)(x). The provisions of section 56(2)(x), as outlined, pertain to the receipt of money or immovable property without consideration, where the aggregate value exceeds a specified limit. The definition of “property” under section 56(2)(x) aligns with the explanation to section 56(2)(vii), covering various capital assets, including immovable property, shares and securities, jewellery, and others.
The crux of the Commissioner’s decision lay in the interpretation that the buyback of the assessee’s own shares did not result in the acquisition of “property” as defined in the relevant sections. Instead, it led to a reduction in the company’s share capital. Citing the decision of the Hon’ble Delhi Bench of ITAT in the case of DCIT versus TPS Infrastructure Ltd. (2022), the Commissioner argued that section 56(2)(via) was not applicable to the buyback of shares, as these shares were extinguished by reducing the company’s paid-up capital. Similar decisions from Mumbai and Hyderabad Tribunals were also invoked to support this position.
In response, the Revenue, dissatisfied with the Commissioner’s order, appealed before the Tribunal, presenting various grounds of challenge. The Legal Counsel for the Revenue contended that the Commissioner’s decision lacked legal merit and factual support. Conversely, the assessee’s Legal Counsel relied on the Commissioner’s order, reinforcing it with decisions from Delhi, Mumbai, Hyderabad, and Chennai Tribunals that favored the assessee’s position.
Tribunal Order
The Tribunal, after careful consideration of the submissions and a thorough review of legal and factual aspects, upheld the Commissioner’s order. The Tribunal highlighted the absence of any contrary views from higher judicial fora and emphasized the consistent decisions from co-ordinate benches. Consequently, the Tribunal dismissed the Revenue’s appeal, affirming the decision to delete the addition of Rs. 16,33,34,250/- made by the Assessing Officer under section 56(2)(x).
DCIT,Central Circle-New Delhi vs Globe Capital Market Limited, ITA No. 967/Del/2023 Asstt. Year: 2018-19
Following Judgement were relied upon:
The Hon’ble Delhi Bench of ITAT in the case of DCIT versus TPS Infrastructure Ltd. 2022 (12) TMI 693- ITAT Delhi Vide its decision dated 14/12/2022 has held that provision of section 56(2) (via) are not applicable in respect of buy back of shares as shares bought back are to be extinguished by reducing the paid up capital of the company and that provision of section 56(2) (via) of the Act are applicable only in the cases where the purchased shares become property in the hands of the buyer company and if the shares are of any other company.
In the case of Vora Financial Services P. Ltd. v. ACIT 2018 (7) TMI 64 ITA Mumbai the Mumbai bench of ITAT vide its decision dated 29/06/2018 has held that provisions of section 56(2) (viia) of the Act cannot be invoked in respect of transactions of buy-back.
In the case of VITP Private Limited, Hyderabad Versus Deputy Commissioner Of Income Tax, 2022 (8) TMI 220 ITAT Hyderabad the Hyderabad bench of ITAT vide its decision dated 03/08/2022 has held that provisions of section 56(2)(viia) are not applicable to the cases of buy back of shares. The Hon’ble Bench held that provisions of section 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 those are “shares of any other company”. –
The Chennai bench of ITAT in the case of DCTT, Versus Venture Lighting India Ltd. 2022 (12) TMI 696 – ITAT Chennai has held that provisions of section 56(2)(viia) are not applicable to transactions of buyback of shares.
