India: Buyback of shares subject to dividend distribution tax (tribunal decision)

A tribunal decision concerning buyback of shares subject to dividend distribution tax

A tribunal decision concerning buyback of shares subject to dividend distribution tax

The Chennai Bench of the Income-tax Appellate Tribunal held that a buyback of shares by the taxpayer company was, in intent and effect, a distribution of accumulated profits taxable as a deemed dividend within the meaning of Section 2(22) of the Income-tax Act, 1961 and thus subject to dividend distribution tax under Section 115-O.

The tribunal found that the real intent of the transaction was to transfer the capital base of the company to Mauritius-based shareholders and distribute the company's accumulated profits to non-resident shareholders without coming within the ambit of any of the provisions relating to taxation of payments made for the purchase of its own shares.

The case is: Cognizant Technology Solutions India Pvt Ltd.

Read a September 2023 report [PDF 461 KB] prepared by the KPMG member firm in India


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