Pr. Commissioner Of Income Tax, Central - Ii, New Delhi vs M/S Globe Capital Market Ltd.

$~1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 07.04.2026
+ ITA 364/2024
PR. COMMISSIONER OF INCOME TAX, CENTRAL - II, NEW
DELHI .....Appellant
Through: Mr. Vipul Agrawal, SSC, Mr. Lakshi
Shriwal, JSC, Ms. Harshita Kotru and
Mr. Gaoraang Ranjan, Advs.
versus
M/S GLOBE CAPITAL MARKET LTD. .....Respondent
Through: Mr. Sumit Lalchandani and Ms.
Ananya Kapoor, Advs.
CORAM:
HON'BLE MR. JUSTICE DINESH MEHTA
HON'BLE MR. JUSTICE VINOD KUMAR
JUDGMENT
REPORTABLE
Per DINESH MEHTA, J. ( Oral )
1. The order under challenge is the one, passed by the Income Tax
Appellate Tribunal Delhi Bench “F”: New Delhi (hereinafter referred to as
‘the Tribunal’) whereby the appeal filed by the Income Tax Department
against the order dated 30.01.2023 passed by the Commissioner of Income
Tax (Appeals) ( hereinafter referred to as ‘CIT(A)’ ) was rejected.
2. The appeal before the CIT(A) was preferred by an assessee engaged
in the business of share broking and clearing of trades, in which case, during
the course of assessment proceedings under section 153A of the Income Tax
Act, 1961 (hereinafter referred to as ‘the Act of 1961’), the Assessing
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KUMAR VATS
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Officer (AO) had raised a concern regarding the buyback of shares and
applied the provisions of section 56(2)(x) of the Act of 1961.
3. The AO found that during the AY 2018-19, the assessee company
made buyback of 28,62,500 equity shares at Rs.313.40 per share totalling to
Rs.89,71,07,500/-, whereas the fair market value of each share as per Rule
11UA of the Income Tax Rules, 1962 (hereinafter referred to as ‘the Rules
of 1962’) was Rs.370.46. Difference of Rs. 57.06 (Rs. 370.46 - Rs.313.40)
per share, multiplied by the number of shares brought back (28,62,500)
being Rs.16,33,34,250/- was added in the income of the assessee under
section 56(2)(x) of the Act of 1961.
4. According to the AO, the buyback of share resulted into acquisition of
property, attracting Section 56(2)(x) of the Act of 1961 and Rule 11UA of
the Rules of 1962. Resultantly, by way of the assessment order passed on
15.07.2021 under section 153A/143(3) of the Act of 1961, the total income
of the assessee was determined at Rs.1,26,96,35,850/ - including the
addition of Rs.16,33,34,250/-.
5. The AO had made the addition in the hands of the respondent-assesee
by invoking Section 56(2)(x) of the Act of 1961 read with Rule 11UA of the
Rules of 1962 inter alia holding that the shares which the company had
purchased maybe of its own, but constitute a capital asset as defined under
Clause (x) of Section 56(2) and since the shares were purchased at a rate
lower than the fair market value, the difference amount was liable to be
added in respondent-assessee’s income.
6. Feeling aggrieved with the said assessment order dated 15.07.2021,
the respondent preferred an appeal before the CIT(A), who vide order dated
30.01.2023 allowed the appeal. While allowing the appeal, the CIT(A) dealt
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with the nature of transaction and held that the transaction in question was
not a purchase of shares simpliciter but was a purchase of its own shares
under buy-back offer, which amounts to reduction of share capital rather
than purchase of capital asset.
7. The CIT(A) recorded its finding in para No. 7.3 of its order. Relevant
extract of said para is given hereunder :-
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
prerequisite 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:-
--- --- --- ---
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;
ii) shares and securities;
--- --- --- ---
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 of the company.
--- --- --- ---
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
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the transactions of buyback of its own shares by the appellant
company. Therefore, the addition of Rs.16,33,34,250/- made
by the assessing officer is deleted and accordingly, these
grounds of appeal are allowed.
8. The Department preferred an appeal against the above-referred order
of the CIT(A) dated 30.01.2023 and the same came to be rejected by the
Tribunal vide its order dated 25.09.2023.
9. While rejecting the appeal, in para No. 11 the Tribunal relied upon
judgment of Hyderabad bench of the Tribunal in VITP Private Limited,
Hyderabad v. Deputy Commissioner of Income Tax , 2022 (8) TMI 220
to hold that since the respondent-assessee had purchased its own share and
not shares of any other company, provisions of Section 56(2) (viia) of the
Act of 1961 is inapplicable to the facts.
10. Mr. Vipul Agrawal, learned Senior Standing Counsel for the
appellant-department submitted that the assessee company had purchased its
own shares at the sum of Rs.313.40/- per share whereas the fair market value
of the shares of the company was Rs.370.46/- per share.
11. He took the Court through the definition of property given under
section 56(2)(x)(c) of the Act of 1961 and argued that the definition clause
of property does not create any distinction between the shares of the
assessee company itself or of any other company.
12. He argued that if the definition of property as given in clause x(c) of
Section 56(2) of the Act of 1961 is taken into account, it is apparent that if
shares of a company which are considered property are purchased at a lesser
rate than the fair market value, provisions of Section 56(2) of the Act of
1961 would apply. And hence, the AO had committed no error of law in
making the addition.
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KUMAR VATS
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13. He further argued that the Tribunal has relied upon the judgment of
Hyderabad Bench in which the recourse to provisions of Section 56(2)(viia)
of the Act was taken for the purpose of setting aside the addition, whereas in
the case in hands, the AO had resorted to Section 56(2)(x) of the Act of
1961. He added that the scope of Section 56(2)(x) of the Act is much wider
than the Section 56(2)(viia) of the Act of 1961.
14. In this regard, he invited Court’s attention towards the explanatory
note of the Finance Bill, 2017 and submitted that the amendment was
introduced in order to widen the scope of income from other sources.
15. He argued that when the provisions contained in Section 56(2)(x) of
the Act of 1961, does not create a distinction between the shares of any other
company viz-a-viz shares of its own, no distinction could have been drawn
by the CIT(A). He added that by virtue of deeming fiction given in Section
56(2)(x) of the Act of 1961, the difference amount was rightly added in the
hands of the respondent-assessee.
16. Mr. Sumit Lalchandani, learned counsel for the respondent-assessee
on the other hand, argued that the CIT(A) so also the Tribunal has rightly
dealt with the facts of the case in the light of the statutory provision
applicable and has taken a view that the buy-back of shares of the company
does not amount to purchase of any asset or property.
17. He also argued that pursuant to buy-back offer which was made in the
spirit of provision of Section 68 of the Companies Act, 2013 (hereinafter
referred to as ‘ The Companies Act’) that too after following due process, it
cannot be said that some ploy was adopted by the respondent-assessee to
generate undisclosed income or income out of books.
18. He nevertheless maintained that as a matter of fact and law, the
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purchase of shares does not mean purchase of property.
19. Heard learned counsel for the parties.
20. The case in hand involves an interesting issue of law. The facts are
not in dispute that what had been purchased by the respondent-company was
its own shares under buy back offer.
21. The following part of the assessment order clearly delineates the
nature of the transaction and the manner in which the same was undertaken:

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(vii). The Assessee Company has further submitted that
"Since most of the shares tendered for buyback were held by
non-residents (65,34,129 shares out of 65,62,500 Shares
tendered for buyback), this buyback of shares was regulated
by the Foreign Exchange Management Act, 1999 and
Reserve Bank of India guidelines.
22. A perusal of the above-quoted para clearly shows that the company
had purchased its own shares pursuant to a buy-back offer made in
accordance with law at the rate which was fixed by the Board of Directors in
its meeting held on 31.05.2016, duly approved by the shareholders in their
meeting dated 27.06.2016. It can also be found that the payment was made
out of free reserves and security premium.
23. Section 68 of the Companies Act is the fountain head under which a
company can purchase its own share and hence, it is being reproduced
hereunder :-
“68. Power of company to purchase its own securities.—(1)
Notwithstanding anything contained in this Act, but subject to the
provisions of sub-section (2), a company may purchase its own shares
or other specified securities (hereinafter referred to as buy-back) out
of—
(a) its free reserves;
(b) the securities premium account; or
(c) the proceeds of the issue of any shares or other specified securities:
Provided that no buy-back of any kind of shares or other specified
securities shall be made out of the proceeds of an earlier issue of the
same kind of shares or same kind of other specified securities.
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(2) No company shall purchase its own shares or other specified
securities under sub-section (1), unless—
(a) the buy-back is authorised by its articles;
(b) a special resolution has been passed at a general meeting of the
company authorising the buy-back:
Provided that nothing contained in this clause shall apply to a case
where—
(i) the buy-back is, ten per cent. or less of the total paid-up equity
capital and free reserves of the company; and
(ii) such buy-back has been authorised by the Board by means of a
resolution passed at its meeting;
(c) the buy-back is twenty-five per cent. or less of the aggregate of
paid-up capital and free reserves of the company: Provided that in
respect of the buy-back of equity shares in any financial year, the
reference to twenty five per cent. in this clause shall be construed
with respect to its total paid-up equity capital in that financial
year;
(d) the ratio of the aggregate of secured and unsecured debts owed
by the company after buy-back is not more than twice the paid-up
capital and its free reserves: Provided that the Central Government
may, by order, notify a higher ratio of the debt to capital and free
reserves for a class or classes of companies;
(e) all the shares or other specified securities for buy-back are fully
paid-up;
(f) the buy-back of the shares or other specified securities listed on
any recognized stock exchange is in accordance with the
regulations made by the Securities and Exchange Board in this
behalf; and
(g) the buy-back in respect of shares or other specified securities
other than those specified in clause (f) is in accordance with such
rules as may be prescribed:
Provided that no offer of buy-back under this sub-section shall be made
within a period of one year reckoned from the date of the closure of the
preceding offer of buy-back, if any. (3) The notice of the meeting at
which the special resolution is proposed to be passed under clause (b)
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of sub-section (2) shall be accompanied by an explanatory statement
stating—
(a) a full and complete disclosure of all material facts;
(b) the necessity for the buy-back;
(c) the class of shares or securities intended to be purchased under
the buy-back;
(d) the amount to be invested under the buy-back; and
(e) the time-limit for completion of buy-back.
(4) Every buy-back shall be completed within a period of one year from
the date of passing of the special resolution, or as the case may be, the
resolution passed by the Board under clause (b) of sub-section (2).
(5) The buy-back under sub-section (1) may be—
(a) from the existing shareholders or security holders on a
proportionate basis;
(b) from the open market;
(c) by purchasing the securities issued to employees of the company
pursuant to a scheme of stock option or sweat equity.
(6) Where a company proposes to buy-back its own shares or other
specified securities under this section in pursuance of a special
resolution under clause (b) of sub-section (2) or a resolution under item
(ii) of the proviso thereto, it shall, before making such buy-back, file
with the Registrar and the Securities and Exchange Board, a
declaration of solvency signed by at least two directors of the company,
one of whom shall be the managing director, if any, in such form as
may be prescribed and verified by an affidavit to the effect that the
Board of Directors of the company has made a full inquiry into the
affairs of the company as a result of which they have formed an opinion
that it is capable of meeting its liabilities and will not be rendered
insolvent within a period of one year from the date of declaration
adopted by the Board: Provided that no declaration of solvency shall be
filed with the Securities and Exchange Board by a company whose
shares are not listed on any recognised stock exchange.
(7) Where a company buys back its own shares or other specified
securities, it shall extinguish and physically destroy the shares or
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securities so bought back within seven days of the last date of
completion of buy-back.
(8) Where a company completes a buy-back of its shares or other
specified securities under this section, it shall not make a further issue
of the same kind of shares or other securities including allotment of
new shares under clause (a) of sub-section (1) of section 62 or other
specified securities within a period of six months except by way of a
bonus issue or in the discharge of subsisting obligations such as
conversion of warrants, stock option schemes, sweat equity or
conversion of preference shares or debentures into equity shares.
(9) Where a company buys back its shares or other specified securities
under this section, it shall maintain a register of the shares or securities
so bought, the consideration paid for the shares or securities bought
back, the date of cancellation of shares or securities, the date of
extinguishing and physically destroying the shares or securities and
such other particulars as may be prescribed.
(10) A company shall, after the completion of the buy-back under this
section, file with the Registrar and the Securities and Exchange Board
a return containing such particulars relating to the buy-back within
thirty days of such completion, as may be prescribed: Provided that no
return shall be filed with the Securities and Exchange Board by a
company whose shares are not listed on any recognised stock exchange.
(11) If a company makes any default in complying with the provisions
of this section or any regulation made by the Securities and Exchange
Board, for the purposes of clause (f) of sub-section (2), the company
shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to three lakh rupees and every officer of
the company who is in default shall be punishable with fine which shall
not be less than one lakh rupees but which may extend to 2 [three lakh
rupees].”
24. But for Section 68 of Companies Act and the procedure provided
thereunder, there is no way can a company buy its own shares. Because
buying of own shares is otherwise alien to concept of corporate entity and
the provisions of the Companies Act. Securities or shares of a Company can,
in a given case be a property in the hands of a Corporate entity but for the
issuing company, it is a certificate issued to its members in lieu of the
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contribution they have made towards the capital or for subscribing to the
shares. Buy-back of shares essentially means reduction of capital of the
company, which otherwise is impermissible, if recourse to Section 68 of the
Companies Act is not taken.
25. One has to bear in mind that sub-section (vii) of section 68 of the
Companies Act mandates that after the completion of the buy-back under
this Section, the company shall extinguish and physically destroy the shares
or security so bought back.
26. In other words, section 68 of the Companies Act in so many words
expresses that the buy-back of share is reduction of the share capital. There
can be no doubt that as per sub-section (vii), the respondent-company must
have mutilated or destroyed the shares or so-called property which the AO
has sought to tax.
27. A person cannot be taxed for so-called deemed profit from the
property (shares) which accrues to it consequent to destruction of the very
same property. Because, once the shares are bought back, the purported
property extinguishes or vanishes. Hence, the very hypothesis that the
respondent-company had acquired an asset at lesser rate than the fair market
value has no legs to stand on. Buy-back of its own shares is antitheses to
buying an asset.
28. The interpretation which Mr. Agrawal seeks to give to Section
56(2)(x) of the Act of 1961 at first blush appears to be attractive, but if the
same is tested on the anvil of principles of Companies Act, common
prudence and provisions of Income Tax Act, the same turns out to be
holding no water.
29. We however, accept the contention of Mr. Agrawal that the Tribunal’s
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reliance upon judgment of its Hyderabad Bench was misplaced, because the
applicable provisions therein was Section 56(2)(viia) and not Section
56(2)(x) of the Act of 1961, which the AO has resorted to in the extant case.
Be that as it may, the Tribunal’s reliance upon its Hyderabad Bench decision
is only incidental. Otherwise the Tribunal has deliberated upon the issue and
affirmed the well-reasoned order of the CIT(A).
30. For what we have observed hereinabove, we are of the considered
opinion that the CIT(A) was perfectly justified in allowing the appeal. The
view which the AO had taken in treating the buy-back of shares of the
company to be a transaction leading to generation of profit/deemed profit is
clearly flawed and untenable in the eye of law.
31. The appeal therefore, fails.
DINESH MEHTA, J
VINOD KUMAR, J
APRIL 7, 2026/ ss
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