Thursday, October 20, 2016

CBDT notifies final rules on buy back of shares

Section 115-O provides for levy of Dividend Distribution Tax(‘DDT’) on the company at the time when company distributes, declares or pays any dividend to its shareholders. Consequent to the levy of DDT the amount of dividend received by the shareholders is not included in the total income of the shareholder.

However, the consideration received by a shareholder on buy-back of shares by the company is not treated as dividend but is taxable as capital gains under section 46A. 

Unlisted Companies, as part of tax avoidance scheme, were resorting to buy-back of shares instead of payment of dividends in order to avoid payment of tax by way of DDT particularly where the capital gains arising to the shareholders were either not chargeable to tax or were taxable at a lower rate.

HC pulls up tax dept. for issuing unlawful block assessment notice; imposed costs on dept.


This Petition challenges a notice issued by the AO under Section 158BC calling upon the Petitioner to file his return of income within a period of 15 days of service of the notice.

The High Court held as under:

1) It was clear that no incriminating documents were found during the course of search. In any case the appraisal report would indicate that no notice under Section 158BC of the Act could be issued to the Petitioner as the condition precedent to issue such notice (viz, undisclosed income found during the search proceedings) was not satisfied.

2) This action on the part of the Respondents-revenue to issue the impugned notice ignoring the appraisal report was highly deplorable. We live in a Country governed by laws. The Officers of the Income Tax Department are obliged to proceed in accordance with the statutory provisions and not on their whim and fancy.

3) The Officers hold power in trust and must ensure that no citizen is harassed by sending him notices, when on the basis on its own record, such notices are not sustainable. We trust that the Income Tax Department would adopt a standard operating procedure which would provide for appropriate safeguards before issuing notices under Chapter XIVB of the Act. This alone would ensure that Officers of the Revenue act in terms of the mandate provided in the Act.

4) Thus, the Respondent-revenue was directed to pay the costs of Rs. 20,000 to the Petitioner within four weeks from today. - [2016] 74 128 (Bombay)