In law, petitioner is entitled to buy back its own shares by means of a scheme under section 391 read with sections 100 – 104 of the Companies Act, 1956 [corresponding to Sections 230 to 232 of Companies Act, 2013], scheme cannot be said to be a colourable device to evade income tax, it is a legally permissible procedure which petitioner is entitled to follow to buy back its shares
a) The Petitioner filed plea seeking sanction of the Scheme of Arrangement with its Equity Shareholders in accordance with the provisions of Section 391 read with Sections 100 to 103 of the Companies Act,1956 [corresponding to Sections 230 to 232 of Companies Act, 2013].
b) As per the Scheme, the Petitioner-Company proposed to buy-back Equity Shares of the Company representing 30% of the issued, subscribed and paid up share capital. There was no compulsory purchase. An option, was given to the equity shareholders under the Scheme
c) Regional Director's objected to the saying that scheme was a colorable device intended to evade buy-back distribution tax (BBT) liability under the Income Tax Act,
d) According to the Regional Director, if a buyback of shares is effected under Section 77A/Section 68, then the distributed income of the company as defined in Section 115QA of the Income Tax Act would be charged to tax, and it is for this reason that the company is not following the procedure prescribed under Section 77A/Section 68 and has opted for the procedure under Section 391 which would not attract such a tax under Section 115QA of the Income Tax Act.