The Delhi High Court in the case of Globe Capital market has ruled that a company’s buy-back of its own shares cannot be taxed under Section 56(2)(x) of the Income Tax Act merely because the buy-back price is below fair market value. Dismissing the tax department’s appeal, the Court held that buy-back results in reduction of share capital, not acquisition of property.
Since bought-back shares are extinguished, the company does not acquire any capital asset capable of generating income. Thus, the deemed gift provisions do not apply.
While this ruling offers clarity for unlisted companies, the evolving buy-back tax framework and the new Income Tax Act, 2025 now require case-specific evaluation of applicable provisions.
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