The CBDT specify Income- Tax (28th
Amendment ) Rules, 2016 regarding “ Special provisions relating to Tax on
Distributed income of Domestic Company for Buy-Back of Shares” .
The said rules shall come into force from 1st
June 2016.
In the Income Tax Rules, 1962 after PART –VII B, the
following part shall be inserted:-
‘PART
VII-BA
Special Provisions
Relating to Tax on Distributed income of Domestic Company for Buy-Back of
Shares
40BB. Amount received
by the company in respect of issue of share. (1) For the purposes of clause
(ii) of the Explanation to sub-section (1) of section 115QA, the amount
received by a company in respect of the share issued by it, being the subject
matter of buy-back referred to in the said section, shall be determined in
accordance with this rule.
(2) Where the share has
been issued by a company to any person by way of subscription, amount actually
received by the company in respect of such share including any amount actually
received by way of premium shall be the amount received by the company for
issue of such share.
(3) Where the company
had at any time, prior to the buy-back of the share, returned any sum out of
the amount received in respect of such share the amount as reduced by the sum
so returned shall be the amount received by the company for issue of said
share:
Provided that if the
sum or any part of it so returned was chargeable to additional income- tax
under section 115-O and the company has paid such additional income tax then
such sum or part thereof, as the case may be, shall not be reduced.
(4) Where the share has
been issued by a company under any plan or scheme under which an employees’
stock option has been granted or as part of sweat equity shares, the fair
market value of the share as computed in accordance with sub-rule (8) of rule
3, to the extent credited to the share capital and share premium account by the
company shall be deemed to be the amount received by the company for issue of
said share:
Explanation.- For the
purposes of this sub-rule the expression “sweat equity shares” shall have the
meaning assigned to it in clause (b) of the Explanation to sub-clause (vi) of
clause (2) of section 17.
(5) Where the share has
been issued by a company being an amalgamated company, under a scheme of
amalgamation, in lieu of the share or shares of an amalgamating company, then,
the amount received by the amalgamating company in respect of such share or
shares determined in accordance with this rule, shall be deemed to be the
amount received by the amalgamated company in respect of the share so issued by
it.
(6) The amount received
by a company, being a resulting company in respect of shares issued by it under
a scheme of demerger, shall be the amount which bears the amount received by
the demerged company in respect of the original shares determined in accordance
with this rule in the same proportion as the net book value of the assets
transferred in a demerger bears to the net worth of the demerged company
immediately before such demerger.
(7) The amount received
by the demerged company in respect of the original shares in the demerged company
shall be deemed to have been reduced by the amount as so arrived under sub-rule
(6).
(8) Where the share has
been issued or allotted by the company as part of consideration for acquisition
of any asset or settlement of any liability then the amount received by the
company for issue of such share shall be determined in accordance with the
following formula-
Amount received = A/B
Where,
A= an amount being
lower of the following amounts-
(a) the amount which
bears to the fair market value of the asset or the liability, as determined by
a merchant banker, the same proportion as the part of consideration being paid
by issue of shares bears the total consideration;
(b) the amount of
consideration for acquisition of the asset or settlement of the liability to be
paid in the form of shares, to the extent credited to the share capital and
share premium account by the company;
B= the number of shares
issued by the company as part of consideration:
Explanation.- For the
purposes of this sub-rule, the term “merchant banker” shall have the meaning
assigned to in sub-clause(b) of clause (iv) of sub-rule (8) of rule 3.
(9) Where the shares
have been issued or allotted by a company on succession or conversion, as the
case may be, of a firm into the company or succession of sole proprietary
concern by the company, then the amount received by the company for issue of
shares shall be determined in accordance with the following formula-
Amount received = A-B/C
A= book value of the
assets in the balance-sheet as reduced by any amount of tax paid as deduction
or collection at source or as advance tax payment as reduced by the amount of
tax claimed as refund under the Income-tax Act and any amount shown in the
balance-sheet as asset including the unamortized amount of deferred expenditure
which does not represent the value of any asset;
Explanation.-For
determining book value of the assets, any change in the value of the assets
consequent to their revaluation shall be ignored.
B= book value of
liabilities shown in the balance-sheet, but does not include the following
amounts, namely:-
(a) capital, by
whatever name called, of the proprietor or partners of the firm, as the case
may be;
(b) reserves and surpluses,
by whatever name called, including balance in profit and loss account;
(c) any amount
representing provision for taxation, other than amount of tax paid, as
deduction or collection at source or as advance tax payment as reduced by the
amount of tax claimed as refund under the Income-tax Act, if any, to the extent
of the excess over the tax payable with reference to the book profits in
accordance with the law applicable thereto;
(d) any amount
representing provisions made for meeting liabilities, other than ascertained
liabilities;
and
(e) any amount
representing contingent liabilities,
C= number of shares
issued on conversion or succession.
(10) Where the share
has been issued or allotted, without any consideration, on the basis of
existing shareholding in the company, the
consideration in respect of such share shall be deemed to be “Nil”.
(11) Where the shares
have been issued on conversion of preference shares or bond or debenture,
debenture-stock or deposit certificate in any form or warrants or any other
security issued by the company, the amount received by the company in respect
of such instrument as so converted.
(12) Where the share
being bought back is held in dematerialised form and the same cannot be
distinctly identified, the amount received by the company in respect of such
share shall be the amount received for the issue of share determined in
accordance with this rule on the basis of the first-in-first-out method.
(13) In any other case,
the face value of the share shall be deemed to be the amount received by the
company for issue of the share.’.
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