What the courts have decided on section Rule 40BB, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Bhikhalal Prahladrai Agarwal (HUF) v ACIT (ITAT Rajkot) — a shareholder's s.10(34A) buy-back exemption cannot be withdrawn because the Assessing Officer thinks the company underpaid s.115QA tax, and "distributed income" is measured from the ISSUE price including premium, not the shareholder's cost
ITATHelps taxpayer
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.
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Statutory position — Rule 40BB: how the "amount received by the company" is computed for s.115QA buy-back tax, sub-rule by sub-rule, including bonus shares at nil and dematerialised shares on FIFO
CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
The Assessing Officer has computed my client company's buy-back tax by deducting what the tendering shareholder paid for the shares. Which figure does the Act actually require, and where is it laid down?
Rule 40BB matters only for buy-backs governed by s.115QA — that is, buy-backs before 1 October 2024, since the second proviso to s.115QA(1) switches that section off from that date. It prescribes, for clause (ii) of the Explanation to s.115QA(1), "the amount received by a company in respect of the share issued by it, being the subject matter of buy-back", and that figure — not the shareholder's cost — is what is deducted from the buy-back consideration to give the "distributed income" charged at twenty per cent. The general rule in sub-rule (2) is the amount actually received on subscription "including any amount actually received by way of premium"; sub-rule (13) makes the face value the amount received in any case the rule does not otherwise cover.
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Statutory position — s.10(34A): the shareholder's exemption for buy-back proceeds, what it covered from AY 2014-15, why it stopped mattering for buy-backs on or after 1 October 2024, and the one thing it does not do
CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
For a buy-back completed before 1 October 2024 my client claimed the whole receipt as exempt under section 10(34A). The officer says the company got its section 115QA computation wrong, so the exemption goes. Is that right — and does the exemption still exist for a buy-back done now?
Section 10(34A) is a provision about buy-backs BEFORE 1 October 2024: it exempts in the shareholder's hands "any income arising to an assessee, being a shareholder, on account of buy back of shares by the company as referred to in section 115QA", and because the second proviso to s.115QA(1) switches that section off for any buy-back taking place on or after 1 October 2024, a buy-back from that date is no longer one "referred to in section 115QA" and the exemption has nothing to attach to — the proceeds are instead a deemed dividend under s.2(22)(f). The clause was inserted by the Finance Act, 2013 with effect from 1 April 2014, that is from AY 2014-15, and as originally enacted it was confined to buy-back of shares "(not being listed on a recognised stock exchange)"; the words of limitation had gone by the time the Tribunal reproduced the clause in 2024 and 2025, matching the parallel deletion of the same words from s.115QA with retrospective effect from 5 July 2019.
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Statutory position — s.115QA: the twenty per cent buy-back tax on the COMPANY, the 5 July 2019 extension to listed shares, and the second proviso that switches the section off for buy-backs on or after 1 October 2024
CBDT Circulars & InstructionsCuts both ways
The department has raised a demand on my client company under section 115QA on a buy-back. Which buy-backs does the section actually reach, at what rate, on what figure, and is it still alive?
Section 115QA charges the COMPANY, not the shareholder, and it governs buy-backs from 1 June 2013 up to and including 30 September 2024 only: the second proviso to sub-section (1), inserted by Act No. 15 of 2024 with effect from 1 October 2024, provides that the sub-section "shall not apply in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024". Within that window a domestic company is liable, in addition to the income-tax on its total income, to additional income-tax at twenty per cent on the "distributed income" — defined by the Explanation as the consideration paid on the buy-back reduced by the amount received by the company for issue of those shares, determined in the manner prescribed (Rule 40BB). Two dates cut across the window: until 5 July 2019 the section applied only to shares not listed on a recognised stock exchange, and the first proviso preserves that exclusion for a listed buy-back whose public announcement was made on or before 5 July 2019.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.