In a recent case, the Mumbai Income Tax Tribunal ruled in favor of Lupin Investments Pvt. Ltd., stating that buyback of a company’s own shares is not taxable under Section 56(2)(viia) of the Income Tax Act.
🔍 Background
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In 2016, Lupin bought back its own shares from shareholders and cancelled them.
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The tax officer (AO) claimed the shares were bought at a lower value than their fair market value and tried to apply Section 56(2)(viia) to tax the difference.
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The officer calculated a tax addition of ₹34.71 crore.
🧾 Tribunal's View
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Section 56(2)(viia) applies only when a company or firm receives shares of another company at a lower value.
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Since Lupin bought back its own shares, the shares didn’t become its “property,” and they weren’t from another company.
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So, this section doesn’t apply to buybacks.
🏛️ Issue of Assessment Order
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The first tax order was issued in the name of Zyma Laboratories, which no longer existed after merging with Lupin.
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That order was unsigned and considered invalid.
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A second, signed order was issued in Lupin’s name and was accepted as valid.
✅ Key Takeaways
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Buybacks of own shares are not taxable under Section 56(2)(viia).
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Tax orders must be properly issued in the name of the correct and existing company.
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