My client claimed the buy-back proceeds as exempt under section 10(34A). The Assessing Officer says the company paid too little buy-back tax, so he has denied the exemption and assessed the whole gain under section 46A. Can he do that?
No — on a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Rajkot held that neither s.115QA nor s.10(34A) empowers the Assessing Officer to withdraw the shareholder's exemption on the ground that the company paid too little, and that the remedy for short payment lies against the company and its principal officer under s.115QC. The Tribunal also held that the officer had used the wrong base: "distributed income" under the Explanation to s.115QA(1) read with Rule 40BB is the buy-back consideration less the amount the COMPANY received on issue of the shares, including premium — here Rs.26 less Rs.25 — and not the buy-back price less the tendering shareholder's cost of Rs.2. The addition of Rs.46,46,469 was deleted.
Decided by the ITAT (Dr. Arjun Lal Saini, Accountant Member and Shri Dinesh Mohan Sinha, Judicial Member) on 2025-08-21, reported as ITA Nos. 779 and 780/RJT/2024 (assessment years 2011-12 and 2016-17); date of hearing 5 June 2025; pronounced at Rajkot on 21 August 2025. It bears on section 10(34A), section 115QA, section 115QC, section 46A, section 48, section Rule 40BB, section 143(2), section 143(3), section 147, section 68 of the Income Tax Act 1961, in Capital Gains Exemptions, Capital Gains and Assessment & Scrutiny matters.
This is the answer to a recurring notice. The Assessing Officer's move — deny the shareholder's exemption because the company's buy-back tax looks short — is attractive to the department because the shareholder is the easier target, and it is the move the Tribunal held he has no jurisdiction to make. Three propositions come out of the order and each is usable on its own. First, the trigger: the exemption "triggers the moment the buyback of shares falls under section 115QA of the Act and the company becomes liable for payment of tax under the said section", and "is not further dependent upon the actual tax payment by the company". Second, the forum: once the company's own s.115QA compliance has been accepted in the company's case, "there was no justification for the AO to question the same in the case of the assessee, shareholder", and "the AO cannot have any jurisdiction to decide whether the company has properly paid the buyback tax u/s 115QA or not, in the assessment of the assessee". Third, the arithmetic: Rule 40BB(2) puts share premium into the amount received by the company, so the charge on the company is measured from the issue price including premium. The limits should be stated too. This is a Tribunal decision, not binding beyond its own bench; it concerns AY 2016-17, squarely inside the pre-October-2024 regime; and it does not decide what happens where the company's own s.115QA position has NOT been accepted — here the Tribunal recorded that the buy-back tax paid by the company "has been accepted in their case". For a buy-back on or after 1 October 2024 the whole framework is different: s.115QA is switched off, s.10(34A) has nothing to attach to, and the proceeds are a deemed dividend in the shareholder's hands under s.2(22)(f).
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, a Hindu undivided family deriving income from transportation, filed its return for AY 2016-17 on 30 May 2016 declaring total income of Rs.42,53,750. The case was selected for complete scrutiny and notice under s.143(2) issued on 3 July 2017. The assessee had acquired 2,08,500 shares of Garg Logistics Pvt. Ltd. from other shareholders at Rs.2 per share; those shares had originally been issued by the company at Rs.25 per share (face value Rs.10 plus share premium Rs.15). The company bought the shares back at Rs.26 per share, paying the assessee Rs.54,21,000 in total, and paid buy-back tax under s.115QA on Rs.1 per share, being the difference between the buy-back price and the amount it had received on issue. The assessee claimed the receipt as exempt under s.10(34A), producing the company's resolution, audited accounts, share account, MCA filings and the company's tax challan. The Assessing Officer held that the company should have paid buy-back tax on Rs.50,04,000 — the difference between the assessee's own purchase cost of Rs.4,17,000 and the buy-back consideration — that the company had not followed Rule 40BB, and that the exemption therefore failed; he computed long-term capital gains under s.46A of Rs.46,46,469 after indexing the cost of Rs.4,17,000 to Rs.7,74,531. The Commissioner (Appeals) confirmed, holding that the assessee had given contradictory per-share costs (Rs.2 in one paragraph of the statement of facts and Rs.25 in another) so that the ground could not be adjudicated. Before the Tribunal the Departmental Representative argued that the assessee was not the original shareholder and so was not entitled to the exemption.
Both appeals were allowed and the addition of Rs.46,46,469 was deleted. On the buy-back appeal the Tribunal held that the company had correctly computed distributed income under s.115QA read with Rule 40BB by deducting the amount it had received on issue of the shares, Rs.25 including premium, and not the assessee's cost of Rs.2; that once the company's compliance with s.115QA had been accepted in the company's own case there was no justification for the Assessing Officer to question it in the shareholder's assessment, and that the officer had no jurisdiction to decide in the shareholder's assessment whether the company had properly paid buy-back tax; and that there is no provision in either s.115QA or s.10(34A) empowering the Assessing Officer to withdraw the shareholder's exemption on the ground of improper tax payment by the company, the remedy for which lies against the company and its principal officer under s.115QC.
The Tribunal set out the Explanation to s.115QA(1), which defines distributed income as the consideration paid on buy-back reduced by the amount received by the company for issue of the shares determined in the prescribed manner, and Rule 40BB(2), which requires the amount actually received including premium to be taken; on those provisions the company had correctly paid tax on Rs.1 per share and there was no violation. The Assessing Officer's contrary computation, from the shareholder's own purchase cost, was "in complete violation of the provisions of section 115QA". The Tribunal then treated the jurisdictional question separately: the buy-back tax paid by the company had been accepted in the company's case, so the officer had no occasion to reopen it in the shareholder's assessment, and in any event had no jurisdiction to do so there. Finally it examined whether any provision permitted the exemption to be withdrawn for the company's default, found none, set out s.115QC to show that the statute directs recovery against the principal officer and the company, and held that in the absence of an enabling provision the exemption could not be denied to the shareholder.
The exemption u/s 10(34A) triggers the moment the buyback of shares falls under section 115QA of the Act and the company becomes liable for payment of tax under the said section. This exemption is not further dependent upon the actual tax payment by the company.
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Handle my notice → Ask a CA on WhatsAppNo — on a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Rajkot held that neither s.115QA nor s.10(34A) empowers the Assessing Officer to withdraw the shareholder's exemption on the ground that the company paid too little, and that the remedy for short payment lies against the company and its principal officer under s.115QC. The Tribunal also held that the officer had used the wrong base: "distributed income" under the Explanation to s.115QA(1) read with Rule 40BB is the buy-back consideration less the amount the COMPANY received on issue of the shares, including premium — here Rs.26 less Rs.25 — and not the buy-back price less the tendering shareholder's cost of Rs.2. The addition of Rs.46,46,469 was deleted. This was decided by the ITAT (Dr. Arjun Lal Saini, Accountant Member and Shri Dinesh Mohan Sinha, Judicial Member) and bears on section 10(34A), section 115QA, section 115QC, section 46A, section 48, section Rule 40BB, section 143(2), section 143(3), section 147, section 68 of the Income Tax Act 1961. It is reported as ITA Nos. 779 and 780/RJT/2024 (assessment years 2011-12 and 2016-17); date of hearing 5 June 2025; pronounced at Rajkot on 21 August 2025. This is the answer to a recurring notice. The Assessing Officer's move — deny the shareholder's exemption because the company's buy-back tax looks short — is attractive to the department because the shareholder is the easier target, and it is the move the Tribunal held he has no jurisdiction to make. Three propositions come out of the order and each is usable on its own. First, the trigger: the exemption "triggers the moment the buyback of shares falls under section 115QA of the Act and the company becomes liable for payment of tax under the said section", and "is not further dependent upon the actual tax payment by the company". Second, the forum: once the company's own s.115QA compliance has been accepted in the company's case, "there was no justification for the AO to question the same in the case of the assessee, shareholder", and "the AO cannot have any jurisdiction to decide whether the company has properly paid the buyback tax u/s 115QA or not, in the assessment of the assessee". Third, the arithmetic: Rule 40BB(2) puts share premium into the amount received by the company, so the charge on the company is measured from the issue price including premium. The limits should be stated too. This is a Tribunal decision, not binding beyond its own bench; it concerns AY 2016-17, squarely inside the pre-October-2024 regime; and it does not decide what happens where the company's own s.115QA position has NOT been accepted — here the Tribunal recorded that the buy-back tax paid by the company "has been accepted in their case". For a buy-back on or after 1 October 2024 the whole framework is different: s.115QA is switched off, s.10(34A) has nothing to attach to, and the proceeds are a deemed dividend in the shareholder's hands under s.2(22)(f). If it applies to you, the first step is this: Get the company's own s.115QA record — its computation, its challan and, if it exists, the acceptance of its position in its own assessment. The Tribunal's reasoning turns on the company's compliance having been accepted in the company's case.
The assessee, a Hindu undivided family deriving income from transportation, filed its return for AY 2016-17 on 30 May 2016 declaring total income of Rs.42,53,750. The case was selected for complete scrutiny and notice under s.143(2) issued on 3 July 2017. The assessee had acquired 2,08,500 shares of Garg Logistics Pvt. Ltd. from other shareholders at Rs.2 per share; those shares had originally been issued by the company at Rs.25 per share (face value Rs.10 plus share premium Rs.15). The company bought the shares back at Rs.26 per share, paying the assessee Rs.54,21,000 in total, and paid buy-back tax under s.115QA on Rs.1 per share, being the difference between the buy-back price and the amount it had received on issue. The assessee claimed the receipt as exempt under s.10(34A), producing the company's resolution, audited accounts, share account, MCA filings and the company's tax challan. The Assessing Officer held that the company should have paid buy-back tax on Rs.50,04,000 — the difference between the assessee's own purchase cost of Rs.4,17,000 and the buy-back consideration — that the company had not followed Rule 40BB, and that the exemption therefore failed; he computed long-term capital gains under s.46A of Rs.46,46,469 after indexing the cost of Rs.4,17,000 to Rs.7,74,531. The Commissioner (Appeals) confirmed, holding that the assessee had given contradictory per-share costs (Rs.2 in one paragraph of the statement of facts and Rs.25 in another) so that the ground could not be adjudicated. Before the Tribunal the Departmental Representative argued that the assessee was not the original shareholder and so was not entitled to the exemption. The matter was decided on 2025-08-21 by the ITAT (Dr. Arjun Lal Saini, Accountant Member and Shri Dinesh Mohan Sinha, Judicial Member). On those facts the ITAT held as follows. Both appeals were allowed and the addition of Rs.46,46,469 was deleted. On the buy-back appeal the Tribunal held that the company had correctly computed distributed income under s.115QA read with Rule 40BB by deducting the amount it had received on issue of the shares, Rs.25 including premium, and not the assessee's cost of Rs.2; that once the company's compliance with s.115QA had been accepted in the company's own case there was no justification for the Assessing Officer to question it in the shareholder's assessment, and that the officer had no jurisdiction to decide in the shareholder's assessment whether the company had properly paid buy-back tax; and that there is no provision in either s.115QA or s.10(34A) empowering the Assessing Officer to withdraw the shareholder's exemption on the ground of improper tax payment by the company, the remedy for which lies against the company and its principal officer under s.115QC.
The Tribunal set out the Explanation to s.115QA(1), which defines distributed income as the consideration paid on buy-back reduced by the amount received by the company for issue of the shares determined in the prescribed manner, and Rule 40BB(2), which requires the amount actually received including premium to be taken; on those provisions the company had correctly paid tax on Rs.1 per share and there was no violation. The Assessing Officer's contrary computation, from the shareholder's own purchase cost, was "in complete violation of the provisions of section 115QA". The Tribunal then treated the jurisdictional question separately: the buy-back tax paid by the company had been accepted in the company's case, so the officer had no occasion to reopen it in the shareholder's assessment, and in any event had no jurisdiction to do so there. Finally it examined whether any provision permitted the exemption to be withdrawn for the company's default, found none, set out s.115QC to show that the statute directs recovery against the principal officer and the company, and held that in the absence of an enabling provision the exemption could not be denied to the shareholder. In the words reproduced by the source cited on this page: "The exemption u/s 10(34A) triggers the moment the buyback of shares falls under section 115QA of the Act and the company becomes liable for payment of tax under the said section. This exemption is not further dependent upon the actual tax payment by the company."
It was decided by the ITAT on 2025-08-21 and is reported as ITA Nos. 779 and 780/RJT/2024 (assessment years 2011-12 and 2016-17); date of hearing 5 June 2025; pronounced at Rajkot on 21 August 2025. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 10(34A), section 115QA, section 115QC, section 46A, section 48, section Rule 40BB, section 143(2), section 143(3), section 147, section 68, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Both appeals were allowed and the addition of Rs.46,46,469 was deleted. On the buy-back appeal the Tribunal held that the company had correctly computed distributed income under s.115QA read with Rule 40BB by deducting the amount it had received on issue of the shares, Rs.25 including premium, and not the assessee's cost of Rs.2; that once the company's compliance with s.115QA had been accepted in the company's own case there was no justification for the Assessing Officer to question it in the shareholder's assessment, and that the officer had no jurisdiction to decide in the shareholder's assessment whether the company had properly paid buy-back tax; and that there is no provision in either s.115QA or s.10(34A) empowering the Assessing Officer to withdraw the shareholder's exemption on the ground of improper tax payment by the company, the remedy for which lies against the company and its principal officer under s.115QC. It arises in Capital Gains Exemptions, Capital Gains and Assessment & Scrutiny matters, on section 10(34A), section 115QA, section 115QC, section 46A, section 48, section Rule 40BB, section 143(2), section 143(3), section 147, section 68 of the Income Tax Act 1961, and was decided by Dr. Arjun Lal Saini, Accountant Member and Shri Dinesh Mohan Sinha, Judicial Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Rebuild "distributed income" from the company's issue records under Rule 40BB(2): consideration paid on buy-back less the amount actually received on issue INCLUDING premium. Put that computation in the reply and contrast it with the officer's. Take the jurisdictional point expressly: the officer is not deciding the company's liability in the shareholder's assessment, and the statutory route for a short payment is s.115QC, which makes the principal officer and the company assessees in default. Do not let the exemption and the s.46A computation be argued as alternatives on the merits. Where s.10(34A) applies, s.46A produces no charge; the fight is about whether the buy-back fell within s.115QA at all. Watch the reverse case. If the buy-back price was BELOW the amount the company received on issue, there is no distributed income and s.115QA does not apply — which also means s.10(34A) does not apply and a capital loss may be available. Keep documentation of shareholding consistent. The first appellate authority here refused to adjudicate because the assessee had put forward two different per-share costs in the same statement of facts.
Still good law. Followed by the same Rajkot bench in Pravinchandra P. Agarwal (HUF) v. ACIT/DCIT, ITA No. 883/RJT/2024, assessment year 2016-17, heard 19 March 2026 and pronounced 8 April 2026, another shareholder of the same company, where the appeal was allowed "In the result, the appeal filed by the assessee is allowed". I read that later order's header, bench, dates and disposal on indiankanoon but did not transcribe it in full, so its reasoning is not independently verified here. No decision doubting or dissenting from the 21 August 2025 order was located; I did not run a systematic later-treatment search, and there is no indication either way of an appeal by the Revenue under s.253(2) or s.260A. The decision governs the pre-1 October 2024 regime only. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order disposes of two appeals: ITA No. 779/RJT/2024 for AY 2011-12, on reopening under s.147 and an addition under s.68 in respect of Vax Housing Finance Corporation shares, and ITA No. 780/RJT/2024 for AY 2016-17, which is the buy-back appeal this entry is about. Both were allowed. The order runs to forty numbered paragraphs and the disposal at paragraph 40 was reached; paragraphs 25 to 32 set out the Assessing Officer's reasoning, the CIT(A)'s reasoning and the submissions of counsel and of the Departmental Representative, and the Tribunal's own reasoning begins at paragraph 33 with "We have heard both the parties and perused the material available on record" — the propositions quoted in this entry are all from paragraphs 33 to 40 and are the Tribunal speaking. The order reproduces s.46A, s.115QA(1) to (5), s.10(34A), Rule 40BB(1) to (3) and s.115QC; the s.115QA text it sets out includes the second proviso disapplying the section from 1 October 2024, which had no application to AY 2016-17 and is reproduced only as the section stood when the order was written. Paragraphs 25 and 29 quote s.10(34A) in two different forms — the AO's version carries the words "(other than shares listed on a recognized stock exchange)" and counsel's version does not — which reflects the removal of the listing restriction and not an error in the order. I have not verified the ITA numbers or dates against a Tribunal-site copy of the order; they are as printed in the two indiankanoon documents. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both appeals were allowed and the addition of Rs.46,46,469 was deleted. On the buy-back appeal the Tribunal held that the company had correctly computed distributed income under s.115QA read with Rule 40BB by deducting the amount it had received on issue of the shares, Rs.25 including premium, and not the assessee's cost of Rs.2; that once the company's compliance with s.115QA had been accepted in the company's own case there was no justification for the Assessing Officer to question it in the shareholder's assessment, and that the officer had no jurisdiction to decide in the shareholder's assessment whether the company had properly paid buy-back tax; and that there is no provision in either s.115QA or s.10(34A) empowering the Assessing Officer to withdraw the shareholder's exemption on the ground of improper tax payment by the company, the remedy for which lies against the company and its principal officer under s.115QC.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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How much am I actually required to disclose — and can they reopen because the officer drew the wrong conclusion?