India: Buy-back of shares is not taxable "receipt of property" under section (High Court decision)
Buy-back extinguished shares and thus could not be treated as receipt of property.
The Delhi High Court held that a company's buy-back of its own shares does not constitute a taxable "receipt of property" under section 56(2)(x) of the Income-tax Act, 1961.
The tax authority argued that the buy-back resulted in an acquisition of property for a price less than its fair market value (FMV) and the difference was thus a taxable receipt of property under section 56(2)(x). However, the court concluded that a buy-back, carried out in accordance with section 68 of the Companies Act, 2013, is in substance a reduction of share capital that involves the extinguishment of the shares, which is fundamentally incompatible with the concept of acquiring an asset.
The case is: PCIT v. Globe Capital Market Limited (ITA 364/2024)
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