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TMI Blog2022 (8) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... ns under section 56(2)(viia) of the Act inapplicable to the cases of buyback of own shares. No other view of any higher fora is brought to our notice. We, therefore, while respectfully following the view taken in the case of Vora Financial Services (P) Ltd., [ 2018 (7) TMI 64 - ITAT MUMBAI] hold that the addition made by invoking the provisions u/s 56(2)(viia) of the Act cannot be sustained. We accordingly allow the appeal of the assessee. - ITA Nos. 67 And 76/Hyd/2018 - - - Dated:- 3-8-2022 - Shri Rama Kanta Panda, Accountant Member And Shri K.Narasimha Chary, Judicial Member For the Assessee : Shri Percy Pardiwala, AR For the Revenue : Shri Solgy Kottaram, CIT-DR ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order(s) passed by the Learned Commissioner of Income Tax (Appeals)-5, Hyderabad ( Ld. CIT(A) ) in the case of VITP Private Limited ( the assessee ) for the AYs. 2013-14 2014-15, assessee filed these appeals. Since the grounds and question of fact and law are identical in both the appeals, we dispose of these appeals by way of this common order, taking the appeal for the assessment year 2013-14 as a lead case. 2. Brief facts relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no benefit which is accruing to the company on account of buyback, whether real or notional, hence there cannot be any question of taxability under the provisions of the Act. 4. Learned Assessing Officer, however, did not agree with the assessee and held that,- nowhere under section 56(2)(viia)(ii) of the Act or any other section of the Income Tax Act, it is stated that the provisions of section 56(2)(viia)(ii) of the Act are not applicable in the case of buy-back of shares; the gist of section 56(2)(viia)(ii) of the Act is that if a closely held company, on or after 01/06/2010 receives shares of another closely held company, for a consideration which is less than the FMV of such shares, then the difference between the FMV and the consideration paid should be brought to tax as income from other sources ; in this case, the assessee is a closely held company and it received 18 Lakh shares of another closely held company i.e., APFI for a consideration of Rs. 18 Crores at Rs. 100/- per share which is less than FMV of Rs. 146.817 per share and, therefore, the provisions under section 56(2)(viia)(ii) of the Act are applicable; and the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing another company s shares but purchasing its own shares. He placed reliance on the decision of a Coordinate Bench of Mumbai Tribunal in the case of Vora Financial Services (P) Ltd., vs. ACIT (2018) 96 taxmann.com 88 (Mumbai Trib.) in support of its contention that no property the bought back shares are not property in the hands of the company, whose shares are bought back and they will be property when they belong to some other company. 8. Learned DR placed heavy reliance on the orders of the authorities below and submitted that there is nothing in Income Tax Act to exempt the buying back of company s own shares from the provisions of section 56(2)(viia) of the Act. 9. We have gone through the record in the light of the submissions made on either side. Facts are undisputed. APFI, the holding company of the assessee-company made investments in the equity shares of the assessee-company. During the year under consideration the assessee bought back its equity shares consisting of 28 Lakh equity shares of Rs. 100/- each from its holding company. The said equity shares bought back by the assessee at the face value (Rs. 28,00,00,000/-) whereas the book value of such shares was R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he record. The provisions of sec. 56(2)(viia) reads that where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested The words firm or a company any property, being shares of a company are important here. In this regard, we may refer to the Memorandum explaining the insertion of Provisions of sec. 56(2)(viia) by the Finance Act, 2010, which reads as under:- Under the existing provisions of section 56(2)(vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of the prescribed limit of Rs. 50,000) by an individual or an HUF is chargeable to income-tax in the hands of recipient under the head 'income from other sources'. However, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. The existing definition of property for the purposes of section 56(2)( vii) includes immovable property being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56(2)(viia) of the Act and in that case, such shares should be the shares of other company and cannot be its own shares, because a company cannot hold its own shares in order that such shares become its property. It is also clear from the above that the provisions under section 56(2)(viia) of the Act should be applicable only in cases where the receipt of shares become property in the hands of the recipient and the shares shall become property of the recipient only if those are shares of any other company . With reference to the buying back of own shares by a company which become extinguished by reducing the capital, it is clear that the test of becoming property and also shares of any other company fails thereby rendering the provisions under section 56(2)(viia) of the Act inapplicable to the cases of buyback of own shares. 12. No other view of any higher fora is brought to our notice. We, therefore, while respectfully following the view taken by a Co-ordinate Bench of Mumbai Tribunal in the case of Vora Financial Services (P) Ltd., (supra), hold that the addition made by invoking the provisions under section 56(2)(viia) of the Act cannot be sustained. We accordingly allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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