Rationalisation of the definitions of “buyback” and “distributed income” for the purpose of levy of additional income-tax on income distributed by a company on buyback of unlisted shares from a shareholder[Section 115QA]
Effective from: 1st June, 2016
(i) Section 115QA provides for the levy of additional income-tax@20% of the distributed income on account of buy back of unlisted shares by a company.
(ii) Clause (i) of the Explanation to section 115QA defines “buyback” to mean the purchase of a company of its own shares in accordance with the provisions of section 77A of the Companies Act, 1956.
(iii) Clause (ii) of the Explanation to section 115QA defines “distributed income” to mean the consideration paid by the company on buy back of shares as reduced by the amount which was received by the company for issue of such shares.
(iv) Since the definition of buyback makes reference to section 77A of the Companies Act, 1956, the effect of buybacks undertaken by the company under different provisions of the Companies Act, 2013 and applicability of provisions of section 115QA to such transactions is an issue requiring clarification.
(v) Further, another issue relates to the lack of clarity in determination of consideration received by the company at the time of issue of shares being bought back by the company. There are situations where shares may have been issued by the company in tranches, for different considerations, at different point of time or may have been issued in lieu of existing shares of another company under amalgamation, merger or demerger.
(vi) For ensuring clarity and removing any ambiguity in relation to these issues, section 115QA has been amended to provide that the provisions of this section shall apply to any buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to section 77A of the Companies Act, 1956.
(vii) Further, for the purpose of computing distributed income, the amount received by the company for issue of shares being bought back shall be determined in the prescribed manner. The Rules to be framed would provide for manner of determination of the amount in various circumstances including shares being issued under tax neutral reorganisations and in different tranches.
(viii) Definitions:
|
Term |
Upto 31.5.2016 |
With effect from 1.6.2016 |
| Buy-back
|
Purchase by a company of its own shares in accordance
with the provisions of section 77A of the Companies Act, 1956 |
Purchase by a company of its own shares in accordance with any law for the time being in
orce relating to companies |
| Distributed income | The consideration paid by the company on buy-back of shares as reduced by the amount which was received by the company for issue of such shares. | The consideration paid by the company on buy-back of shares as reduced by the amount which was received by the company for issue of such share determined in the manner asmay be prescribed |