DCIT, Central Circle-15, New Delhi V. Globe Capital Market Limited, New Delhi

ITA 967/DEL/2023

AI Insights

The case revolves around the appeal by the Revenue against the order of the CIT(A) which deleted the addition made by the Assessing Officer (AO) under section 56(2)(x) of the Income Tax Act, 1961, concerning the deemed income from the buyback of shares by Globe Capital Market Limited. The AO had treated the difference between the buyback price and the fair market value of the shares as income under section 56(2)(x). However, the CIT(A) found that the buyback did not result in the acquisition of 'property' by the company, as the shares were extinguished by reducing the paid-up capital, and thus, section 56(2)(x) was not applicable. The Tribunal, referencing decisions from various ITAT benches, concurred with the CIT(A) and dismissed the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302741 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-08-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 02-04-2023
• Other Referred Cases: DCIT vs. TPS Infrastructure Ltd., Vora Financial Services P. Ltd. v. ACIT, VITP Private Limited vs. Deputy Commissioner Of Income Tax, DCTT vs. Venture Lighting India Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMIT GOEL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Search and seizure; Deemed to accrue or arise in india; Fair market value
• Section: 132; 50C; 56(2); 153A; 143(1); 64

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”: NEW DELHI BEFORE DR. BRR KUMAR, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 967/Del/2023 Asstt. Year: 2018-19 O R D E R PER ASTHA CHANDRA, JM The appeal filed by the Revenue is directed against the order dated 30.01.2023 of the Ld. Commissioner of Income Tax (Appeals)-26, New Delhi (“CIT(A)”) pertaining to Assessment Year (“AY”) 2018-19. 2. The Revenue has raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct on facts and in law in deleting the addition of Rs. 16,33,34,250/- made by AO u/s 56(2)(x) of the 1. T. Act, 1961 being deemed income on buy back of its shares. 2 Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct on facts and in law in allowing the appeal of the assessee, ignoring the fact that assessee company had acquired DCIT, Central Circle- 15, New Delhi. Vs. M/s. Globe Capital Market Limited, 609, Ansal Bhawan, 16, KG Marg, New Delhi – 110 001 PAN AAACG4267G (Appellant) (Respondent) Assessee by: Shri Amit Goel, CA Shri Pranav Yadav, Advocate Department by: Shri T. James Singson, CIT, DR Date of Hearing: 31.08.2023 Date of pronouncement: 25.09.2023 ITA No. 967/Del/2023 2 it's own shares through buyback of shares @ Rs.313.40 per share against the fair market value of Rs. 370.46 per share determined as per Rule 11UA. 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct on facts and in law in ignoring the applicability of Section 56(2)(x) of the Income Tax Act, 1961 on the transaction of buy back of shares at a price less than its Fair Market Value by holding that provisions of section 56(2)(x) of the Act are not applicable on buy back of shares. 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct on facts and in law in allowing the appeal of the assessee by holding that buy back shares does not fall under the category of acquisition of "Property" as defined in section 56(2)(vii) of the Act, as it results in reduction in capital by ignoring the fact that such reduction of it's share capital would lead to increase in value of per share of the company and thereby enhancing its valuation. 5. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct in ignoring the fact that at the time of buy back, the shares being bought back actually were in the nature of immovable property. 6. (a) Where on law and facts of the case the order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing.” 3. It is a search case. Search and seizure operation under section 132 of the Income Tax Act, 1961 (the “Act”) was conducted on 20.07.2018 on Globe Group of cases and the assessee was also covered. Accordingly, notice under section 153A of the Act was issued and duly served upon the assessee. In response, the assessee filed its return for AY 2018-19 on 9.3.2020 online declaring income from business at Rs. 93,82,63,010/-, same as filed in original return on 30.10.2018 which was processed under section 143(1) of the Act on 21.12.2019 at income of Rs. 1,10,63,01,600/-. 4. The assessee is engaged in the business of share broking and clearing of trades. During the course of assessment proceedings under section 153A of the Act, the Ld. Assessing Officer (“AO”) raised the issue of buyback of shares and applicability of provisions of section 56(2)(x) of the Act. The Ld. ITA No. 967/Del/2023 3 AO found that during the year the assessee company made buyback of 2862500 equity shares @313.40 per share totalling to Rs. 89,71,07,500/-. The fair market value as per Rule 11UA of the Income Tax Rules, 1962 (the “Rules”) was Rs. 370.46 per share. There was thus difference of Rs. 57.06 (Rs. 370.46 – Rs. 313.40) per share. The Ld. AO held that the difference of Rs. 16,33,34,250/- (2862500 shares @ Rs. 57.06) is income of the assessee under section 56(2)(x) of the Act as buyback of share results into acquisition of property, namely shares and therefore section 56(2)(x) and Rule 11UA squarely apply to the assessee. Accordingly in his elaborate assessment order passed on 15.07.2019 under section 153A/143(3) of the Act, the Ld. AO determined the total income of the assessee at Rs. 1,26,96,35,850/- including therein an addition of Rs. 16,33,34,250/- under section 56(2)(x) of the Act. 5. Aggrieved, the assessee filed appeal before the Ld. CIT(A) who deleted the impugned addition by observing and recording his findings in para 7.3 of his appellate order as under:- “7.3 I have carefully considered the facts of the case, observations of the assessing officers made in the assessment order and also the written submission of the appellant. The issue for consideration here is whether provisions of section 56(2)(x) of Income Tax Act, 1961 or Rule 11UA of Income Tax Rules 1962 are applicable on the transactions of buyback of its own shares by the appellant company. In fact, applicability of Rule 11UA is consequential to applicability of the provisions of section 56(2)(x) of the Act. The pre- requisite for applicability of Rule 11UA is the applicability of the provisions of section 56(2)(x) of the Act. The provisions of section 56(2)(x) of the Act are as under:- "where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017- (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum: (b) any immovable property,- (A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; ITA No. 967/Del/2023 4 (B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:-- (i) the amount of fifty thousand rupees, and (ii) the amount equal to [five] per cent of the consideration: Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause: Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account 14[or through such other electronic mode as may be prescribed], on or before the date of agreement for transfer of such immovable property: Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections; (c ) any property, other than immovable property.- (A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (B) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Further the definition of the term 'property' as provided in explanation to section 56(2)(x) is same as in clause (d) of explanation to section 56(2)(vii) which is as under: - d) "property" means the following capital asset of the assessee, namely:- (i) (immovable property being land or building or both; ITA No. 967/Del/2023 5 (ii) shares and securities (iii) jewellery: (iv) archaeological collections; (v) drawings: (vi) paintings: (vii) sculptures; (viii) any work of art, or (ix) bullion; From the perusal of aforesaid provisions, it is evident that the aforesaid provisions are applicable when an assessee acquires any property (as defined above) which is the capital asset of the company. The present case of the appellant is buyback of its own shares. In the transaction of buyback of its own shares, the appellant company does not acquire any "property" leave alone the question of that property to be "capital assets". The transaction of buyback of share results into reduction of share capital of the company and not the acquisition of any "capital Assets". 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. In view of the above factual and legal position, it is held that the assessing officer was not justified in applying provision of section 56(2)(x) and consequently Rule 11UA of the Act on the transactions of buyback of its own shares by the appellant company. Therefore, the addition of Rs. ITA No. 967/Del/2023 6 16,33,34,250/- made by the assessing officer is deleted and accordingly, these grounds of appeal are allowed.” 6. Dissatisfied, the Revenue is in appeal before the Tribunal and all the grounds relate thereto. 7. The Ld. CIT-DR supported the order of the Ld. AO and emphasised that the order of the Ld. CIT(A) is not tenable in law and on facts. The Ld. AR on the other hand relied upon the order of the Ld. CIT(A) who followed the decisions rendered by Delhi, Mumbai, Hyderabad and Chennai Tribunals in favour of the assessee. 8. We have considered the submissions of the parties and perused the records. The facts are not in dispute. The only issue for consideration is whether buyback of its own share by a closely held company is hit by the provisions of section 56(2)(x) of the Act. Section 56(2)(x) has been inserted by the Finance Act, 2017 w.e.f. 1.4.2017. It applies to ‘any person’ who is recipient whereas section 56(2)(vii) inserted by the Finance (No. 2) Act, 2009 w.e.f. 1.10.2009 applies to ‘an individual’ or ‘HUF’ who is recipient and section 56(2)(viia) inserted by the Finance Act, 2010, w.e.f. 1.6.2010 applies to a ‘firm’ or a ‘company not being a company in which the public are substantially interested’ who is recipient. Otherwise, the provisions of the aforesaid sections are pari-materia and similarly worded. There is no dispute on this. 9. Identical issue came up for consideration before co-ordinate Benches of Delhi, Mumbai, Hyderabad and Chennai Tribunals. In DCIT Circle-25(2), New Delhi vs. TPS Infrastructure Ltd., the Delhi Tribunal in its order dated 14.12.2022 in ITA No. 6433/Del/2018 reported in 2022(12) TMI 693 followed the order of Mumbai Bench of the Tribunal in the case of M/s Vohra Financial Services Pvt. Ltd. 2018 (7) TMI 64 and held that the provisions of section 56(2)(viia) of the Act are applicable only in the cases where the purchased shares became property in the hands of the buyer company and, if the shares are of any other company. However, in the case ITA No. 967/Del/2023 7 under consideration 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. 10. We observe that, before Chennai Bench of the Tribunal, it was argued by the Ld. Counsel of the assessee in an identical case that the pre-requisite conditions contemplated in section 56(2)(viia) are not attracted as the buy- back of shares would only amount to reduction/redemption of the existing share capital and the assessee receiving shares as contemplated in section 56(2)(viia) of the Act does not arise. Further, the other condition, namely a property being shares of a company is also not fulfilled in the context of buy back of shares since the shares of the assessee’s own case by no stretch of imagination be treated as property in its own hands. It was also argued that there cannot be any asset accretion in the hands of the company arising out of the buy back of its own shares since the adjustment would be effected only between its share capital and reserves and surplus. On consideration of the above arguments, Chennai Bench of the Tribunal held in its decision rendered on 14.12.2022 in ITA No. 3171/CHNY/2019 in DCIT, Corporate Circle 3(2) v. Venture Lighting India Ltd. 2022 (12) TM 696 that “we do not agree that on the issue of buy back of shares, assessee has acquired any share of any other company which would become property of the recipient company. Actually it will be reduction in capital and nothing more.” 11. Hyderabad Bench of the Tribunal in VITP Private Limited V. DCIT 2022 (8) TMI 220 followed the decision in Vohra Financial Services Pvt. Ltd. (supra) of Mumbai Tribunal and held that with reference to 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 of section 56(2)(viia) of the Act inapplicable to the cases of buy back of own shares. ITA No. 967/Del/2023 8 12. Respectfully following the decisions (supra) of the Co-ordinate benches and in the absence of any contrary view of any higher judicial fora brought on record by the Ld. CIT-DR, we uphold the order of the Ld. CIT(A) and reject the appeal of the Revenue. 13. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 25 th September, 2023. sd/- sd/- (DR. BRR KUMAR) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25/09/2023 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order