Buy-back, dividend or capital reduction: SEBI route and GAAR

This is Part 4 of a four-Part series on the taxation of a buy-back of shares, and it is the last: Part 1 carries the company-law foundation, the extinguishment obligation and the regime that ran to 30 September 2024, Part 2 the deemed dividend under section 2(22)(f) and the capital loss it manufactures, and Part 3 the Income-tax Act, 2025, the Finance Act, 2026 reversal and whether the company itself can be taxed; this Part compares the three routes for returning capital, takes the SEBI route for a listed company, preference and employee shares, and the general anti-avoidance rule.

A shareholders’ agreement signed in 2025 says the exiting founder will be paid out by a reduction of capital, because at the time a buy-back would have been taxed in his hands on the whole price. For a distribution made now that clause is drafted the wrong way round, unless the founder is a promoter. The board has three ways to return the cash, the amount leaving the company is now the same on each, and the tax is different on each and different again according to when the distribution takes place. So the route is chosen with the calendar open, and it is chosen before the treasury department is asked anything.

The calendar matters because two of the three routes moved and the third did not. A buy-back was the company’s own charge to 30 September 2024, a dividend in the shareholder’s hands on the whole payment to 31 March 2026, and an ordinary capital gains computation with his cost allowed from the tax year beginning 1 April 2026. A distribution on a reduction of capital has sat in the same place throughout: dividend to the extent of the company’s accumulated profits and no further. The consequence is that for a shareholder who is not a promoter the route punished in the second regime is the favoured route in the third, while for a promoter the additional income-tax under section 69(2) of the Income-tax Act, 2025 and the twelve per cent surcharge that rides on it fall on a buy-back and not on a reduction, so the comparison is run on his own figures and on the company’s accumulated profits.

For a listed company there is a second layer, and the commentary on it written in the last two years is now wrong in two places rather than one. The open market route through the stock exchange was not discontinued; it was barred for a period and reopened on 1 August 2026 at less than fifteen per cent, measured on different words from the rest of the regulation. And SEBI no longer prescribes a cooling-off period of its own, regulation 4(vii) having been substituted so that it defers to the period prescribed under the Companies Act. Behind both sits the anti-avoidance machinery, where a company that had cleared the Approving Panel found the same transaction taxed under a deeming provision, and the Tribunal left the wider question undecided.

Key points

• Whether a route is open comes before what it costs. Section 70(1) of the Companies Act, 2013 bars a buy-back through a subsidiary or an investment company, and bars one altogether until the default has been remedied and three years have elapsed after it ceased to subsist, the defaults running from deposits and the interest on them to the redemption of debentures or preference shares, the payment of dividend to any shareholder and a term loan or interest owed to a financial institution or banking company. A reduction has no comparable list, the proviso to section 66(1) reaching only arrears of deposits and the interest on them, but it needs a special resolution and the Tribunal’s confirmation under section 66 with every creditor discharged, determined, secured or consenting, which a buy-back does not.
• The comparison is run on the shareholder’s post-tax receipt, not on a headline rate, because in the regime now in force the whole of the difference falls on him. The regime is selected by the date the distribution takes place and not by the date the policy was framed, and within the third regime the answer splits again by promoter status, because the additional income-tax under section 69(2) of the Income-tax Act, 2025 and the surcharge that rides on it fall on a buy-back and not on a reduction. In the first regime the comparison ran differently, because the buy-back charge fell on the company itself.
• The cap is not the same on all three routes. A distribution on a reduction is dividend only to the extent of accumulated profits, under section 2(22)(d) and now section 2(40)(d); a dividend declared and paid is taxable in the shareholder’s hands in full, the accumulated-profits measure being a feature of the deemed-dividend sub-clauses and not of a dividend simpliciter, though company law allows a dividend to be paid only out of profits. Section 2(22)(f) carried no such cap and Explanation 2 to section 2(22) was not extended to it, so in the window from 1 October 2024 to 31 March 2026 a company with no accumulated profits could distribute by reduction with no dividend charge and by buy-back with a dividend charge on every rupee, which is the firm’s reading of the words and is contested, as Part 2 sets out. The 2025 Act keeps that asymmetry and reverses its direction: sub-clause (f) of section 2(40) was omitted with effect from 1 April 2026 while sub-clause (d) survives unamended on the same measure, so a section 68 buy-back is now capital gains under section 69 with cost allowed while a reduction stays within the dividend charge.
• Cost relief separates the routes more sharply than any rate. A dividend, and a reduction so far as it is dividend, gives no credit for what the shareholder paid; for a section 2(22)(f) buy-back dividend clause 24 of the Finance (No. 2) Act, 2024 carved that species of dividend out of section 57(i) and added an express prohibition on any deduction. Withholding under section 194 of the 1961 Act was at ten per cent of the dividend with no reduction for cost, and that section’s enumeration names sub-clause (d) as well as sub-clause (f); from the tax year beginning 1 April 2026 a payment on a section 68 buy-back is not a dividend at all, so a provision that withholds on dividend does not reach it.
• Not every retirement of a preference share is a buy-back. Section 67(4) of the Companies Act, 2013 preserves the right to redeem preference shares issued under that Act or under any previous company law, and a redemption on the terms of issue is not a purchase under section 68; whether it is a purchase within the main limb of section 46A, or within section 69(1) of the 2025 Act, neither of which is keyed to section 68, is open. The firm’s view is that it is not, because “purchase” imports a bargain for the acquisition of the share while a redemption performs the terms on which it was issued. What turns on the answer is which computation applies, and with it whether the proviso to section 46A, section 50CA and section 79 of the 2025 Act come into play at all.
• The promoter charge is route-specific. Section 69(2) of the 2025 Act applies only where the company purchases its own securities in accordance with section 68 of the Companies Act, 2013, so a reduction attracts neither the additional income-tax nor the twelve per cent surcharge that rides on it, while remaining exposed to the dividend charge on accumulated profits.
• Two things about a reduction are open. How the part of the distribution that exceeds accumulated profits is taxed, which neither sub-clause answers; and whether the receipt-of-property charge in section 56(2)(x), or section 92(2)(m) of the 2025 Act, can reach a distribution on a reduction in the company’s hands at all, the extinguishment reasoning that defeats it on a buy-back resting on an obligation in section 68(7) that a reduction does not carry.
• The SEBI open market route through the stock exchange was not discontinued. It ran down a glide path to less than five per cent until 31 March 2025, was not allowed from 1 April 2025 until 31 July 2026 under the second proviso to regulation 4(iv)(b), and is permitted again from 1 August 2026 at less than fifteen per cent under a third proviso. The two limbs are measured differently on their own words: “whichever sets out a lower amount” in the glide-path proviso, “based on both standalone and consolidated financial statements” in the reopened one.
• SEBI no longer prescribes a cooling-off period of its own. Regulation 4(vii) was substituted with effect from 1 August 2026 to defer to the period prescribed under the Companies Act, 2013, and that period, in the proviso at the foot of section 68(2), is one year reckoned from the date of closure of the preceding offer. The length is unchanged, but the source and the reckoning point have both moved, and closure of the offer is not the expiry of the defined buy-back period where payment runs on afterwards.
• The two limbs of the tax provisions were amended unevenly in the 2024 window. Section 2(22)(f) reached a payment on purchase of a company’s “own shares” and the proviso to section 46A zeroed the consideration only on a buy-back “of shares”, while the main limb of section 46A, which covers other specified securities, was untouched, so on the text an instrument that is not a share falls outside both, which is the reading this series takes, question 7 in Part 2 setting out the Revenue’s answer.
• Section 68(5)(c) permits a buy-back of securities issued to employees under a stock option or sweat equity scheme, but regulation 4(iv) of the SEBI (Buy-Back of Securities) Regulations, 2018 carries no employee-securities limb and regulation 4(vi) bars a purchase through negotiated deals or any private arrangement. How they sit together is open, and because compliance with section 68 conditions the tax consequences the question is worked out while the scheme is drafted and not after an offer is announced; the firm’s view is that a route the Act states in terms is not removed by a list of methods that does not mention it.
• On the anti-avoidance question the wider proposition is undecided. In Sanjana Cryogenic the Approving Panel directed that the arrangement was not impermissible and the officer then taxed it under section 56(2)(x); the Tribunal expressly declined to decide whether a Panel rejection excludes every other provision, and deleted the addition on the provision’s own ingredients. The firm’s view has two parts on different footings: that there is no jurisdictional bar is the firm’s reading, on which the Tribunal decided nothing; that the Panel’s findings of fact bind the authorities under section 144BA, so another provision may be applied only on a premise consistent with them, is how the Tribunal itself put the limit at paragraph 17.

Buy-back against a dividend and against a capital reduction

The cash leaving the company is the same on all three routes, save in the first regime, where a buy-back carried a charge on the company itself. Everything else differs: the provision, the base, the person charged, and the date that selects the regime.

Route	1 June 2013 to 30 September 2024	1 October 2024 to 31 March 2026	Tax year beginning 1 April 2026
Dividend declared and paid	a dividend without needing any of the deemed-dividend sub-clauses of section 2(22), so no accumulated-profits cap applies in the charge; the shareholder’s charge is under section 56(2)(i), “Income from other sources”; section 10(34) exempted “any income by way of dividends referred to in section 115-O” while the company-level charge under section 115-O stood	dividend in the shareholder’s hands under section 56(2)(i) on the whole amount declared, the accumulated-profits measure belonging to the deemed-dividend sub-clauses and not to a dividend simpliciter	dividend under section 2(40)(a) to (e) of the Income-tax Act, 2025, included in the tax year under section 7(2)(a); no company-level charge on distributed profits survives, the Department’s navigator, a Bill-stage mapping document, marking section 115-O of the 1961 Act, “Tax on distributed profits of domestic companies”, “Redundant” with no successor section
Buy-back under section 68	the company pays additional income-tax at twenty per cent of distributed income under section 115QA; the shareholder is exempt under section 10(34A)	the whole payment is dividend under section 2(22)(f), with no accumulated-profits limit on the firm’s contested reading of the words; consideration deemed nil for section 46A, so the cost survives only as a capital loss, which on a share other than a quoted share section 50CA may reduce, remove or reverse by substituting a prescribed fair market value for the purposes of section 48, a collision Part 2 argues both ways	ordinary capital gains under section 69 of the 2025 Act, cost allowed, computed on the consideration received, which on unquoted shares section 79 of that Act can displace by substituting a prescribed fair market value for the purposes of section 72; a promoter also pays the additional income-tax under section 69(2)(b) and the twelve per cent surcharge under section 3(6) of the Finance Act, 2026
Distribution on a reduction of capital	dividend under section 2(22)(d), but only “to the extent to which the company possesses accumulated profits”	section 2(22)(d) is untouched by the 1 October 2024 amendments and operates on the same measure	section 2(40)(d) of the 2025 Act is in force and unamended: “any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether capitalised or not”

The base is the next thing to settle, and it is not the same on all three routes. The reduction route is limited by accumulated profits as a matter of the tax measure itself: section 2(22)(d) reaches the distribution “to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not”, and Explanation 2 to section 2(22) extends “accumulated profits” in sub-clauses (a), (b), (d) and (e) to all profits up to the date of the “distribution or payment referred to in those sub-clauses”, which on sub-clause (e) is the date of payment. A dividend declared and paid is in a different position: it is dividend without needing any of those sub-clauses and is charged in the shareholder’s hands in full, so what bounds it is company law, which permits a dividend to be paid only out of profits, and not the accumulated-profits measure in the definition. Section 2(22)(f) carried no such limit, and Explanation 2 was not extended to it. A company with no accumulated profits could therefore distribute by reduction with no dividend charge and by buy-back with a dividend charge on every rupee. That is the firm’s reading of the words, and the contrary argument, that the cap belongs to the definition rather than to each limb, is run against it.

The 2025 Act keeps that asymmetry and reverses its direction. Sub-clause (f) of section 2(40) was omitted with effect from 1 April 2026 and its slot still prints as an omitted sub-clause, while sub-clause (d) survives on the same accumulated-profits measure, the 1933 reference of the 1961 text not being carried forward. From the tax year beginning 1 April 2026 a section 68 buy-back is outside the dividend definition and taxed as capital gains under section 69 with the shareholder’s cost allowed, while a distribution on a reduction remains dividend to the extent of accumulated profits. For a shareholder who is not a promoter the route that was punished in the second regime is the favoured route in the third. For a promoter it is not so simple, because the additional income-tax under section 69(2) and the twelve per cent surcharge that rides on it fall on a section 68 buy-back and not on a reduction, so a shareholders’ agreement drafted in 2025 to prefer a reduction may be drafted the wrong way round, and whether it is turns on his own figures and on the company’s accumulated profits.

Cost relief, and who receives the cash

Cost relief separates the routes more sharply than any rate. A dividend, and a reduction so far as it is dividend, gives the shareholder no credit for what he paid for the shares, and for a section 2(22)(f) buy-back dividend the position was stricter again: clause 24 of the Finance (No. 2) Act, 2024 carved that species of dividend out of the deduction limb of section 57(i) and then added, with effect from 1 October 2024, the prohibition that “no deduction shall be allowed in case of dividend income of the nature referred to in sub-clause (f) of clause (22) of section 2”. For an ordinary dividend the section 57(i) limb remains available in its own terms. Under section 69 of the 2025 Act the computation is a capital gains computation, so cost is allowed in the ordinary way.

Who receives the cash is a structural difference rather than a rate difference. A dividend goes to the shareholders as a body, while a buy-back has to be fitted into one of the three routes section 68(5) names: the buy-back under sub-section (1) “may be” “from the existing shareholders or security holders on a proportionate basis”, “from the open market”, or “by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity”. Those three are the whole of the field, because section 68 is the only source of the power and a route it does not name is a route the company does not have; the point is a construction of permissive words and not an express prohibition. The first of them is expressed as a proportionate basis, so a buy-back aimed at retiring one holder is not simply directed at him; on that construction it has to be brought within one of the three, and for a listed company regulation 4(vi) bars a purchase from any person through negotiated deals or any private arrangement. Where the object is to retire one holder rather than reward all of them, that is the first question on the file, and the real comparison is between a buy-back so structured and a reduction of capital.

Withholding follows the characterisation, which matters because the company must act before anyone computes the shareholder’s liability. Under the 1961 Act, section 194 names the sub-clauses it covers, and its enumeration includes “sub-clause (d)” as well as “sub-clause (f)”, so both an ordinary dividend and a reduction distribution that is dividend under section 2(22)(d) attracted deduction at ten per cent of the dividend, with no reduction for cost. From the tax year beginning 1 April 2026 a payment on a section 68 buy-back is not a dividend at all, sub-clause (f) of section 2(40) having been omitted and the range in section 7(2)(a) closed to “(a) to (e)”, so a provision that withholds on dividend does not reach it; for a non-resident the withholding route under the 2025 Act is section 393(2), Table serial number 17, at rates in force. The promoter charge, by contrast, is route-specific: section 69(2) of the 2025 Act applies only where the company purchases its own securities “in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013)”, so a reduction attracts neither the additional income-tax nor the surcharge that rides on it, while remaining exposed to the dividend charge under section 2(40)(d) on the accumulated profits.

Both Acts exclude from “dividend” a distribution made under sub-clause (c) or sub-clause (d) “in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets”. A reduction that returns capital on a class of shares answering that description is outside the dividend charge on the express words, whatever the accumulated profits, and whether an instrument answers it turns on the terms of issue and the articles rather than on argument.

Company law: the two mechanisms are not interchangeable

A reduction of capital and a buy-back are not interchangeable mechanisms, and company law puts them under different authorities and different conditions before any tax question is reached. A reduction is governed by section 66 of the Companies Act, 2013, and section 66(1) makes it “Subject to confirmation by the Tribunal on an application by the company”: the company passes a special resolution and then has to obtain an order. The power is wide in its forms, because the company may “reduce the share capital in any manner and in particular, may” extinguish or reduce the liability on shares not paid up, cancel paid-up capital “which is lost or is unrepresented by available assets”, or pay off paid-up capital “which is in excess of the wants of the company”; the three limbs are illustrative and the words “in any manner” are the operative grant. What the section does not carry is any requirement of proportionality, so nothing in it answers to the proportionate-basis limb that constrains a buy-back under section 68(5)(a), and on its words a reduction can operate on one class, or on the holding of one member, if the Tribunal confirms it and the creditors are protected. The proviso to section 66(1) bars a reduction altogether where the company “is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon”.

The gates are the Tribunal’s and the creditors’. Under section 66(2) the Tribunal gives notice of the application to the Central Government, the Registrar, the Securities and Exchange Board in the case of listed companies, and the creditors of the company, and takes into consideration the representations, if any, made to it by them “within a period of three months from the date of receipt of the notice”: on those words the three months is the window for making representations rather than a time limit on the Tribunal, which is how the proviso reads it, and the proviso provides that where no representation is received in that period it is presumed there is no objection. Section 66(3) permits a confirming order only where the Tribunal is satisfied that the debt or claim of every creditor “has been discharged or determined or has been secured or his consent is obtained”, and its proviso requires the accounting treatment proposed for the reduction to conform to the accounting standards specified in section 133 “or any other provision of this Act”, certified to that effect by the company’s auditor and filed with the Tribunal. Section 66(4) requires the confirming order to be published by the company in such manner as the Tribunal may direct. Section 66(5) then requires a certified copy of the order, and of a minute approved by the Tribunal setting out the amount of share capital, the number of shares, the amount of each share and the amount deemed paid up on each, to be delivered to the Registrar within thirty days of receipt of the copy of the order. On a file with a date to meet that sequence is costed before the tax comparison is run, because a buy-back turns on resolutions the company controls and a reduction turns on an order it does not.

Section 66(6) provides that “Nothing in this section shall apply to buy-back of its own securities by a company under section 68”, so none of that machinery reaches a section 68 buy-back: no application, no confirming order on the reduction, no creditor-consent condition and no auditor’s certificate on the accounting treatment. What answers for creditor protection on the buy-back route is the post-buy-back debt test in section 68(2)(d), which requires the aggregate of secured and unsecured debts owed by the company after the buy-back to be not more than twice its paid-up capital and free reserves, subject to a proviso permitting the Central Government to notify a higher ratio for a class or classes of companies, together with the capital redemption reserve in section 69. The Tribunal is displaced only as to confirmation of a reduction. A buy-back embedded in a scheme of compromise or arrangement still comes before it, and section 230(10), set out below, conditions the sanction on compliance with section 68.

The disqualifications, and which route each one bars

The disqualifications run the other way, and are wider on the buy-back route. Section 70(1) of the Companies Act, 2013 provides that no company shall directly or indirectly purchase its own shares or other specified securities “(a) through any subsidiary company including its own subsidiary companies; (b) through any investment company or group of investment companies; or (c) if a default, is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company”. The proviso is attached to clause (c) and speaks of “the default”: “Provided that the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.” A company caught by clause (a) or clause (b) is not cured by remedying anything. Clause (c) is a long list and the proviso is a long wait, and two of its limbs are not the width they are usually given. The term loan limb is narrower: it reaches a term loan, or interest on one, owed “to any financial institution or banking company”, so a default on an inter-corporate or promoter loan is not within it on these words. The debenture limb is wider: it extends to the redemption of preference shares as well as of debentures.

What the reduction route carries by way of a comparable bar is the arrears of deposits and the interest on them, and nothing else. So a company caught by clause (c) is barred from buying back until that default has been remedied and three years have elapsed after it ceased to subsist, both limbs of the proviso having to be satisfied, and is not barred from reducing its capital, though it will still have to satisfy the Tribunal that the debt or claim of every creditor has been discharged, determined or secured, or that his consent has been obtained, which on those facts is where the application will be fought. That is a company-law fork taken before the three-route tax comparison set out above is of any use, because it can remove a route altogether, and section 70(1) binds every company, whether its shares are listed or not.

There is no route to a buy-back on terms other than those section 68 allows, and the Tribunal cannot supply one. Section 230(10) of the Companies Act, 2013 provides: “No compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68.” The cross-reference is to plain section 68, with no sub-section or clause qualifier, so a condition that cannot be met outside a scheme cannot be met inside one.

The sequence on a file is short, and it does not begin with the tax. Establish first which of the three routes is open at all, because the disqualifications set out above can close the buy-back route and the reduction route, and then what the open route costs in time, a reduction needing the Tribunal’s order and a buy-back not. After that, fix the date on which the distribution will take place, because that alone selects the regime; establish the accumulated profits, because that figure caps the dividend charge on a reduction, limits what can lawfully be declared as a dividend at all, and was irrelevant to the buy-back charge in the second regime; and identify whether the exiting holder is a promoter within section 69(3).

The three routes compared on one set of facts

The comparison can be run to a figure on one set of facts, and they are the facts of the first worked example in Part 2, with the date moved into the regime now in force and three particulars added. A shareholder holds 10,000 equity shares of an unlisted Indian private company that cost him Rs 100 each, so his cost of acquisition is Rs 10,00,000; he subscribed for them on issue, which matters only to the first regime, where the subtrahend is what the company received; he has held them for more than twenty-four months; and Rs 50,00,000 is to be returned to him. Assume the company’s accumulated profits are at least Rs 50,00,000, so the whole of a distribution on a reduction falls within the accumulated-profits cap and the whole of a dividend could lawfully be declared, assume the distribution takes place in the tax year beginning 1 April 2026, and assume both routes are open on the company’s own position, since section 70(1) of the Companies Act, 2013 can close the buy-back route and the proviso to section 66(1) the reduction route. The rates are assumptions for the arithmetic and not statements of the rate: take his effective rate on dividend income, inclusive of surcharge and cess, at 30 per cent, and the long-term capital gains rate at the twelve and a half per cent in section 197 of the Income-tax Act, 2025, taken bare of surcharge and cess, so the capital gains column is the lower bound of what the shareholder pays and whatever surcharge and cess his own total income attracts is added to it; on a real file each figure comes from the Finance Act for the year applied to his own total income. The promoter layer is not an assumption: it is the additional income-tax under section 69(2)(b) increased by the twelve per cent surcharge in section 3(6) of the Finance Act, 2026 and the cess above it, which comes to 11.0656 per cent of the gain for a promoter that is a domestic company and 20.384 per cent for one that is not.

Route, and who the shareholder is	What is charged	Tax	Left with the shareholder
Dividend declared and paid	dividend of Rs 50,00,000, no credit for cost	Rs 15,00,000	Rs 35,00,000
Distribution on a reduction of capital	dividend of Rs 50,00,000 under section 2(40)(d), no credit for cost	Rs 15,00,000	Rs 35,00,000
Buy-back under section 68, holder not a promoter	long-term capital gain of Rs 40,00,000	Rs 5,00,000	Rs 45,00,000
Buy-back under section 68, promoter that is a domestic company	the same gain, and the additional income-tax on it	Rs 5,00,000 plus Rs 4,42,624	Rs 40,57,376
Buy-back under section 68, promoter other than a domestic company	the same gain, and the additional income-tax on it	Rs 5,00,000 plus Rs 8,15,360	Rs 36,84,640

What the table compares is the tax on the same Rs 50,00,000 leaving the company, and the three routes are not otherwise identical for the shareholder: on a dividend he keeps his shares, while on a buy-back or a reduction his rights in them are extinguished in whole or in part. On these facts the buy-back is the cheaper route for every class of shareholder, and two things drive the Rs 10,00,000 difference between the first and third rows. The Rs 10,00,000 he paid for the shares is deductible on the buy-back and deductible on neither of the other two, which is worth Rs 3,00,000 at the assumed dividend rate; and the Rs 40,00,000 gain bears the capital gains rate rather than the rate on dividend income, which on the assumed figures is worth the other Rs 7,00,000. The promoter layer narrows that difference and does not close it. It would close it only where the ordinary tax on the gain, with whatever surcharge and cess it attracts in his own hands, reached 17.116 per cent of the gain, at which point the worst-placed promoter’s total meets the Rs 15,00,000 the other two routes cost.

Change one input and the answer changes. Where the company’s accumulated profits are smaller than the amount to be returned, two things change. The dividend route narrows, because the company law conditions on declaring a dividend are tested against the same profits, so the first row of the table may not be available for the whole sum. And on a reduction the dividend charge is capped at the accumulated profits, with how the excess is taxed open, which is question 18 below, so the comparison on those facts cannot be carried to a single figure. On the firm’s view the excess falls within capital gains with the cost available against it, and on that view a reduction can be the cheaper route for a promoter, because a layer of up to 20.384 per cent of the gain falls on a section 68 buy-back and does not fall on a reduction at all.

The same facts under the earlier regimes

The same facts in the earlier regimes produce different arithmetic and a different taxable person. In the window from 1 October 2024 to 31 March 2026 a buy-back on these facts made the whole Rs 50,00,000 a dividend, taxed at the assumed rate at Rs 15,00,000, and left a long-term capital loss of Rs 10,00,000 usable only against long-term capital gains; a reduction on the same facts produced the same Rs 15,00,000 and no stranded loss, so in that window the two routes converged on the tax and differed on the loss. Before 1 October 2024 the shareholder’s receipt was exempt under section 10(34A) and the charge fell on the company, on distributed income of Rs 40,00,000, being the consideration paid less the Rs 10,00,000 the company received when it issued the shares, so the comparison in that regime was run on the company’s outlay and not on the shareholder’s receipt, and what the company paid turned on the surcharge and the cess for the year of the buy-back.

Listed companies and the SEBI route

For a listed company the company-law conditions are not the whole of the law. Section 68(2)(f) requires that “the buy-back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the regulations made by the Securities and Exchange Board in this behalf”, and section 68(2)(g) sends everything else to prescribed rules. The SEBI (Buy-Back of Securities) Regulations, 2018, as consolidated to 6 July 2026, state their reach in regulation 3: “These regulations shall be applicable to buy-back of shares or other specified securities of a company in accordance with the applicable provisions of the Companies Act.” Regulation 3 has no Explanation of its own; the Explanation that follows it belongs to regulation 4 and reads “the term ‘shares’ shall include equity shares having superior voting rights”, so a superior-voting-rights class is not outside the Regulations.

The permitted methods and the twenty-five per cent ceiling

The permitted methods are in regulation 4(iv), and the list is shorter than it was. A company may buy back “from the existing share holders or other specified securities holders on a proportionate basis through the tender offer”, with a proviso that where a member of the promoter or promoter group has declared its intention not to participate, that member’s shares are left out of the entitlement ratio. It may also buy back “from the open market through” a “book-building process” or “the stock exchange”. The odd-lot method is gone: what was clause (c), “from odd-lot holders”, was omitted with effect from 9 March 2023, and regulation 12 is printed as omitted.

The open market route through the stock exchange is where commentary written in the last two years is now wrong, and not on a detail. The route was not discontinued. It was put on a descending glide path, closed for a period, and then reopened at the fifteen per cent limit the glide path had started from.

Period	Open market through the stock exchange
until 31 March 2023	permitted, limit less than fifteen per cent of paid-up capital and free reserves
until 31 March 2024	permitted, limit less than ten per cent
until 31 March 2025	permitted, limit less than five per cent
1 April 2025 to 31 July 2026	not allowed
from 1 August 2026	permitted again, limit less than fifteen per cent

The closure and the reopening are in successive provisos to regulation 4(iv)(b). The second proviso reads “Provided further that buy-back from the open market through the stock exchange shall not be allowed with effect from April 1, 2025 till July 31, 2026”. The third, inserted with effect from 1 August 2026, reads “Provided further that with effect from August 1, 2026, the buy-back from the open market through the stock exchange shall be less than fifteen per cent of the paid up capital and free reserves of the company, based on both standalone and consolidated financial statements of the company.”

The two limbs are measured differently, and the difference is in the text. The glide-path proviso takes the lower of two figures, being computed on “the standalone or consolidated financial statements of the company, whichever sets out a lower amount”. The reopened limb is computed “based on both standalone and consolidated financial statements of the company”. The “whichever sets out a lower amount” formula is the one the 2023 and 2024 amendments put into the twenty-five per cent cap in regulation 4(i) and into the board-approval threshold in regulation 5(i)(b), so the reopened proviso reverts to the older of the two formulae while the rest of the regulation uses the newer one. Where the two sets of figures diverge, the fifteen per cent ceiling is computed on the words of the third proviso and not on the formula used elsewhere.

The ceiling for every method is in regulation 4(i): “The maximum limit of any buy-back shall be twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company”, computed on the standalone or consolidated statements, whichever sets out a lower amount. Its Explanation changes the denominator for equity: “In respect of the number of equity shares bought back in any financial year, the maximum limit shall be twenty-five per cent and be construed with respect to the total paid-up equity share capital of the company in that financial year.” Section 68(2)(c) carries the same twenty-five per cent ceiling and a proviso to the same effect for equity, so what SEBI adds is the financial-statements test and, in the Explanation, the words “the number of equity shares bought back”, which the Act’s proviso does not use. On a buy-back priced above face value that difference is not cosmetic, because twenty-five per cent of paid-up equity capital measured in rupees is a far smaller figure than twenty-five per cent of the shares. Regulation 4(ii) carries SEBI’s version of the post-buy-back debt test at a ratio of two to one, with a separate limb under which the financial statements of subsidiaries that are non-banking financial companies and housing finance companies regulated by the Reserve Bank of India or the National Housing Bank may be excluded; that limb carries its own proviso, permitting a buy-back “only if all such excluded subsidiaries have their ratio of aggregate of secured and unsecured debts to the paid-up capital and free reserves of not more than 6:1 on standalone basis”, so a group whose excluded subsidiaries are more highly geared than that cannot use the exclusion. Section 68(2)(d) requires in the Act’s own words that debt after the buy-back is “not more than twice the paid-up capital and its free reserves”. Regulation 4(iii) and section 68(2)(e) both require the securities to be fully paid-up.

Authorisation, delisting and the small-shareholder reservation

The authorisation has to be in place before the board meets. Regulation 5(i) bars the company from authorising a buy-back unless it is authorised by the articles, a special resolution has been passed at a general meeting, and the company has obtained the prior consent of its lenders in case of a breach of any covenant with them, the Explanation requiring the letter of offer to disclose that consent specifically. The proviso to regulation 5(i)(b) gives the board-only route where the buy-back is “ten per cent or less of the total paid-up equity capital and free reserves of the company, based on the standalone or consolidated financial statements of the company, whichever sets out a lower amount”. The proviso to section 68(2)(b) sets the same ten per cent threshold with neither the financial-statements refinement nor the lender-consent condition. Completion is capped at one year by both regulation 5(ii) and section 68(4), running from the authorising resolution.

Regulation 4(v) bars a listed company from making a buy-back “so as to delist its shares or other specified securities from the stock exchange”. Regulation 4(vi) bars one “from any person through negotiated deals, whether on or off the stock exchange or through spot transactions or through any private arrangement”, which removes the selectivity an unlisted company has. Regulation 4(x) reproduces section 70(1) of the Companies Act, 2013, set out above, down to its proviso lifting the bar only where the default has been remedied and three years have lapsed after it ceased to subsist, so on this one the regulation adds nothing a listed company is not already bound by. Regulation 4(xi), inserted with effect from 1 August 2026, bars an offer that “results in the breach of the minimum public shareholding requirements” prescribed under the Securities Contracts (Regulation) Rules, 1957 or specified under the Listing Obligations and Disclosure Requirements Regulations, 2015. Funding is confined by regulation 4(ix) to free reserves, the securities premium account or the proceeds of an issue, with a proviso barring the proceeds of an earlier issue of the same kind of securities, which reproduces section 68(1).

The small-shareholder reservation is in regulation 6: a tender offer may be made to existing holders on a proportionate basis, “provided that fifteen per cent of the number of securities which the company proposes to buy-back or number of securities entitled as per their shareholding, whichever is higher, shall be reserved for small shareholders”. A small shareholder is defined in regulation 2 as one whose shares or other specified securities have a market value, on the closing price on the recognised stock exchange with the highest trading volume in those securities as on the record date, “not more than two lakh rupee”. Because the reservation is the higher of two figures, it cannot be cut down by pointing to the small shareholders’ modest aggregate holding.

The extinguishment obligation itself, section 68(7) of the Companies Act, 2013 and regulation 11(i), is taken in Part 1; what belongs here is the compliance trail it leaves, because that trail is the evidence a company produces when the character of the transaction is in issue. Regulation 11(iii) requires a certificate to SEBI certifying compliance with the extinguishment obligation, certified and verified by the registrar, or the merchant banker where there is no registrar, by two directors one of whom shall be the managing director where there is one, and by the secretarial auditor, within seven working days of the extinguishment and destruction; regulation 21 carries the obligation into the open market stock exchange route and regulation 23 into book building. On the Act’s side, section 68(6) requires a declaration of solvency signed by at least two directors, one of whom is the managing director if any, verified by affidavit, section 68(9) requires a register recording both the date of cancellation and the date of extinguishing and physically destroying the securities, and section 68(10) requires a return to the Registrar and to SEBI within thirty days of completion. Both of those filings with SEBI are the listed company’s own burden, for the reason taken in the next section.

The cooling-off period and the change of 1 August 2026

The cooling-off position changed on 1 August 2026, and it is the second place in this Part where the familiar proposition has been overtaken. Regulation 4(vii) previously ran in SEBI’s own terms: no offer of buy-back “within a period of one year reckoned from the date of expiry of buyback period of the preceding offer of buy-back, if any”, “buy-back period” being defined in regulation 2 as running from the authorising resolution to the date on which consideration is paid to accepting shareholders. That text was substituted with effect from 1 August 2026, and the regulation now reads: “A company shall not make any offer of buy-back within such period as may be prescribed under the Companies Act, 2013, from the date of closure of the preceding offer of buy-back, if any.” SEBI no longer prescribes a period of its own. The period is the Act’s, in the proviso at the foot of section 68(2): “Provided that no offer of buy-back under this sub-section shall be made within a period of one year reckoned from the date of the closure of the preceding offer of buy-back, if any.” The length is still one year, so a statement that the wait is a year happens to be right, but both the source and the reckoning point have moved, from SEBI to the Act and from expiry of the defined buy-back period to the date of closure of the preceding offer. Those are not the same date where payment runs on after the offer closes, and on a second offer timed close to the limit the difference decides whether the offer may be made at all.

The tax law now depends on a chain of SEBI definitions that does not close on its own words. Section 69(3)(a) of the Income-tax Act, 2025 takes the meaning of “promoter”, for a company listed on a recognised stock exchange in India, from “regulation 2(k)” of these Regulations; the definitions sit under sub-regulation (i) of regulation 2, so the clause is printed as 2(i)(k) and cited interchangeably as 2(1)(k). It provides that “‘promoter’ means promoter as defined in clause (s) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”, and the Takeover Regulations as published provide that “‘promoter’ has the same meaning as in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and includes a member of the promoter group”. Those 2009 Regulations have been succeeded by the Issue of Capital and Disclosure Requirements Regulations, 2018, whose regulation 2(1)(oo) carries the current definition and whose second proviso keeps certain institutional holders outside it merely by reason of holding twenty per cent or more of the equity share capital. The chain as printed still points at the 2009 Regulations, and that is how it is put in a submission rather than by substituting the later set and reading on.

The unlisted company: section 68(2)(g) and the prescribed rules

Clause (g) of section 68(2) is where an unlisted company’s procedure comes from: a buy-back “in respect of shares or other specified securities other than those specified in clause (f)”, which is the clause that covers listed securities, must be “in accordance with such rules as may be prescribed”. So for a company whose securities are not listed, the condition in section 68(2) is compliance with the prescribed rules and not with SEBI’s regulations. The ceiling, the post-buy-back debt test, the ten per cent board-only threshold, the one-year gap before a further offer, the one-year period for completion and the permitted funding sources all reach it through section 68 itself; the prohibitions on purchasing through a subsidiary or an investment company, and on buying back while a default of the kind clause (c) describes is unremedied, reach it through section 70(1), quoted earlier in this Part; and its procedure reaches it through the rules prescribed under clause (g).

The restrictions that look like SEBI’s are not all SEBI’s. The ceiling in regulation 4(i) and the ten per cent threshold in the proviso to regulation 5(i)(b) have their counterparts in section 68(2)(c) and in the proviso to section 68(2)(b), and it is those provisions of the Act that bind a company whose shares are not listed. Restrictions often treated as general are SEBI’s alone and have no counterpart in section 68, in particular the bar in regulation 4(vi) on a buy-back of shares or other specified securities from any person through negotiated deals, whether on or off the stock exchange or through spot transactions or through any private arrangement. Others run the other way and are often taken for SEBI’s own when they are not: the prohibitions in regulation 4(x) reproduce section 70(1) of the Companies Act, 2013, so what looks like a regulatory bar is a statutory one. Section 68 carries no bar of the kind regulation 4(vi) imposes, so the selectivity regulation 4(vi) removes from a listed company is not removed from one whose shares are not listed. An unlisted company’s room to choose the holder it buys from is therefore governed by section 68(5) alone, which names three routes, a proportionate offer to the existing shareholders or security holders, the open market, and the purchase of securities issued to employees under a scheme of stock option or sweat equity. The open market in clause (b) presupposes a market in the shares, so in a company whose shares are not listed what is left is the proportionate basis in clause (a) and, where the securities were issued to employees under such a scheme, clause (c), which for an unlisted company is clear of the regulation 4(iv) method list and of the regulation 4(vi) bar that make question 20 a question for a listed company at all.

The unlisted company files nothing with the Board. The proviso to section 68(6) provides that no declaration of solvency shall be filed with the Securities and Exchange Board by a company whose shares are not listed on any recognised stock exchange, and the proviso to section 68(10) provides that no return shall be filed with it either. So the unlisted company’s record is what it files with the Registrar, what it keeps in the register under section 68(9) recording the date of cancellation and the date of extinguishing and physically destroying the securities, and what it put to its own members before the resolution.

That last document is where section 68(3) earns its place. The notice of the meeting at which the special resolution is proposed must be accompanied by an explanatory statement stating “(a) a full and complete disclosure of all material facts; (b) the necessity for the buy-back; (c) the class of shares or securities intended to be purchased under the buy-back; (d) the amount to be invested under the buy-back; and (e) the time-limit for completion of buy-back”. Clause (b) is the one that is read years later. It is the company’s own contemporaneous statement of why the buy-back was done, and on an enquiry of the kind taken in the anti-avoidance section below it is the first document an assessing officer or an Approving Panel asks for. It is drafted on that footing and not as a formality.

Preference shares, convertible preference shares and ESOP shares

Not every retirement of a preference share is a purchase by the company of its own shares, and on a preference share that is the question taken first, because the answer selects the charging provision. Section 67(4) of the Companies Act, 2013 provides that “Nothing in this section shall affect the right of a company to redeem any preference shares issued by it under this Act or under any previous company law”, so section 67(1) does not stand in the way of a redemption. A redemption of redeemable preference shares is made under the Companies Act’s own machinery for them and not under section 68, and section 67(4) saves the operation of section 67 alone, so it is the source of the redemption power that answers the point and not section 67(4) by itself. The tax consequence is argued both ways. For the assessee, section 2(22)(f) reached a payment “on purchase of its own shares” and section 69(2) of the Income-tax Act, 2025 is keyed to a purchase “in accordance with the provisions of section 68 of the Companies Act, 2013 (18 of 2013)”, so a redemption answers neither, and what is left is an ordinary capital gains computation on the extinguishment of the holder’s rights with his cost allowed. For the Revenue, section 67(4) preserves a company-law right and says nothing about which tax provision applies; the main limb of section 46A is keyed to consideration received “for purchase of its own shares or other specified securities” and not to section 68 at all, so a company that pays the holder and cancels the instrument can be said to answer it on the words; and section 69(1) of the 2025 Act is not conditioned on compliance with section 68 either, as Part 3 sets out.

Where it stands: open, and it is the Revenue’s reading of the main limb of section 46A that has to be answered, the section 68-keyed limbs plainly not reaching a redemption at all. The firm’s view is that a redemption is not a purchase within that limb either, because “purchase” imports a bargain for the acquisition of the share, while a redemption is the performance of the terms on which the share was issued: the company discharges an obligation it took on at the time of issue, and the amount is the one the instrument fixed rather than one the parties agree. On that view the charge is the ordinary capital gains charge on the extinguishment of the holder’s rights, with cost allowed, rather than the computation in section 46A or section 69(1). The promoter layer in section 69(2) falls away on either view, because that sub-section is keyed to a purchase in accordance with section 68 and a redemption is not one, so nothing turns on this question for a promoter; what turns on it is which computation applies, and with it whether the deeming provisions that attach to those computations, the proviso to section 46A in the 2024 window, section 50CA on a share other than a quoted share in the years it reaches, and section 79 of the 2025 Act, come into play at all. The reasoning is not the same as the one that keeps a reduction of capital outside the main limb, which is question 18 below, where the further point is that on a reduction no instrument need come back to the company at all. Where the holder is paid more than the terms of issue provide for, the excess is where the characterisation will be fought, because to that extent the payment is agreed and not fixed by the instrument.

What the tax provisions say about instruments that are not equity shares

The tax provisions do not speak only of equity. Section 46A of the 1961 Act applies where “a shareholder or a holder of other specified securities receives any consideration from any company for purchase of its own shares or other specified securities”, section 69(1) of the 2025 Act repeats the formula, and section 68(1) of the Companies Act, 2013 permits a company to purchase “its own shares or other specified securities”. The expression carries work, because the provisions take their meaning of it from different places: the Explanation to section 46A provides that “‘specified securities’ shall have the meaning assigned to it in Explanation to section 77A of the Companies Act, 1956 (1 of 1956)”, a repealed Act, while section 69(3)(c) of the 2025 Act takes the same expression from Explanation 1 to section 68 of the Companies Act, 2013. On a buy-back of anything other than an ordinary equity share the question is which limb, “shares” or “other specified securities”, the instrument answers, and under which Act’s definition.

That question is not academic in the second regime, because the two limbs were amended unevenly. Section 2(22)(f) reached “any payment by a company on purchase of its own shares from a shareholder”, and the proviso to section 46A zeroed the consideration only “in respect of any buy-back of shares”. Neither mentions other specified securities, and the main limb of section 46A, which covers them, was left untouched. On the text, a buy-back of specified securities that are not shares, completed between 1 October 2024 and 31 March 2026, falls outside the deemed-dividend charge and outside the nil-consideration deeming, and is computed under the unamended main limb on the actual consideration less cost. On that reading a company that applied the nil-consideration proviso across the board in that window has reported the wrong figure for any instrument that is not a share. The reading is contested, and question 7 in Part 2 sets out the Revenue’s answer.

Section 69 of the Companies Act, 2013, which is a different provision from the identically numbered buy-back charge in the Income-tax Act, 2025, bites hardest on a preference share buy-back. Where a company purchases its own shares out of free reserves or the securities premium account, “a sum equal to the nominal value of the shares so purchased shall be transferred to the capital redemption reserve account and details of such transfer shall be disclosed in the balance sheet”, and sub-section (2) names one application for that reserve, “in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares”. Two of the three funding sources in section 68(1) therefore lock up reserves equal to the nominal value bought back. The transfer is driven by nominal value and not by the consideration, so on a preference share with a high nominal value relative to the price paid the reserve consumed can be out of proportion to the cash paid, and since the ceiling in section 68(2)(c) is measured on paid-up capital and free reserves, each buy-back funded this way narrows the room for the next.

Convertible preference shares and the timing question

Convertible instruments raise a timing question, and the 2025 Act answers the part that matters. Conversion of preference shares into equity shares is a transaction not regarded as a transfer under section 70(1)(zb) of the Income-tax Act, 2025, that section being the counterpart of section 47 of the 1961 Act, so the conversion is not the taxable event. The period for which the preference shares were held is then carried into the equity: section 2(101)(c)(B)(VIII) requires the period for which “the preference shares were held by the assessee” to be included in determining the holding period of the equity shares acquired on that conversion, section 2(42A) of the 1961 Act being the counterpart. On a buy-back of equity that came out of a conversion the holding period therefore runs from the acquisition of the preference shares, which on the twenty-four month test for unlisted shares often decides whether the gain under section 69 of the Income-tax Act, 2025 is long-term, and with it whether the second row of the section 69(2) Table reaches a promoter at all: the first row is confined to short-term gains “referred to in section 196”, and a short-term gain on an unquoted share is not charged under that section.

Employee shares and section 68(5)(c)

Employee shares have their own gateway. Section 68(5)(c) permits a buy-back “by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity”, so the Act contemplates the company retiring employee shares as a distinct route alongside the proportionate offer and the open market. For a listed company that has to be read with regulation 4(iv) of the Buy-Back Regulations, whose methods run to the tender offer and the two open market methods and carry no employee-securities limb, and with regulation 4(vi), which bars purchase from any person through negotiated deals or any private arrangement. How those sit together is open, and question 20 below argues it both ways and states the firm’s view; the question is worked out while the scheme is drafted rather than after an offer is announced. On the shareholder’s side the holding period is reckoned under section 2(101)(c)(C)(V) of the 2025 Act from “the date of allotment or transfer of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees)”, and the definitions in section 2(101) treat “specified security” as the securities defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956, including, where an employees’ stock option has been granted, the securities offered under that plan or scheme. It is a different defined expression from the “specified securities” of section 69(1) and section 69(3)(c), which is keyed to the Companies Act, and the two must not be run together in a computation.

The first regime had its own answers for these instruments, and they sat in the rule rather than in the section. Where the share bought back had been issued under a plan or scheme under which an employees’ stock option was granted, or as part of sweat equity shares, rule 40BB(4) of the Income-tax Rules, 1962 took the fair market value of the share computed under sub-rule (8) of rule 3, “to the extent credited to the share capital and share premium account by the company”, as the amount received by the company, and that limitation is where the argument on an ESOP buy-back was. Where the share had been issued on conversion of preference shares, bonds, debentures, debenture-stock, deposit certificates, warrants or any other security, rule 40BB(11) took the amount received by the company on the converted instrument. Rule 40BB(10) deemed the consideration nil for a share issued without consideration on the basis of existing shareholding, so bonus shares issued on a converted holding carried nothing into the subtrahend, and rule 40BB(12) identified a dematerialised holding that cannot be distinctly identified on a first-in-first-out basis.

Section 68(8) bars a further issue of the same kind of shares or other securities for six months after a buy-back, but not an issue “by way of a bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares”. A company that has bought back equity while holding outstanding convertible preference shares, warrants or a live option pool can therefore allot against those instruments inside the six months.

Warehousing shares: why an employee trust is not a buy-back

Where the object is to warehouse shares rather than retire them, the law does not use the company. It uses a separate legal person, and the limits on that person are instructive, though for a listed company they come from the regulator and not from the Act. Under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, as last amended on 4 December 2025, which bind a company whose shares are listed and not one whose shares are not, a company may implement a scheme “either directly or by setting up an irrevocable trust(s)”. The Companies Act makes room for funding such a trust, and it does so as an express exception rather than by silence. Against the prohibition in section 67(2) on a public company giving financial assistance for a purchase of or subscription for any shares in the company or in its holding company, section 67(3)(b) excepts “the provision by a company of money in accordance with any scheme approved by company through special resolution and in accordance with such requirements as may be prescribed, for the purchase of, or subscription for, fully paid-up shares in the company or its holding company, if the purchase of, or the subscription for, the shares held by trustees for the benefit of the employees or such shares held by the employee of the company”. Section 67(3)(c) separately excepts the giving of loans to persons in the employment of the company “other than its directors or key managerial personnel”, for an amount not exceeding “their salary or wages for a period of six months”, to enable them to purchase or subscribe for fully paid-up shares in the company or its holding company “to be held by them by way of beneficial ownership”, with a proviso requiring disclosure in the Board’s report of voting rights not exercised directly by the employees in respect of shares to which the scheme relates. Two features of those exceptions are read on a file: the shares must be fully paid up, and clause (b) runs to shares held by trustees for the benefit of the employees or held by the employee, so the money may fund an acquisition held for employees and not an acquisition held by the company. Secondary acquisition by the trust in a financial year “shall not exceed two per cent of the paid up equity capital of the company as at the end of the previous financial year”. The total held by the trust under secondary acquisition at any point of time is capped, as a percentage of paid-up equity capital at the end of the financial year immediately prior to the year in which shareholders’ approval for the secondary acquisition is obtained, at five per cent for the schemes in Parts A, B and C of Chapter III, two per cent for those in Parts D and E, and five per cent for all the schemes in aggregate. Shares so acquired must be held for a minimum period of six months, subject to the transfers the Regulations themselves require.

The holder there is a trust, which buys the shares from existing holders in the market. The company neither acquires nor holds its own shares, the shares remain in issue, and nothing is extinguished.

An officer will put section 67(3)(b) the other way, and at its strongest his argument starts outside company law. It is that a trust the company settles, funds and controls is consolidated with it, and that the shares the trust holds are presented in the group accounts as a deduction from equity, so in substance the company does hold its own shares and the proposition that there is no moment at which it does so is true of legal title alone. Section 67(3)(b) is then said to show that the Act is content with that result, because it permits the company’s own money to pay for the holding. Two answers. The first is that the no-asset proposition in this series is a proposition about what the company acquires and can keep, and consolidation does not give the company a capital asset: the shares remain in issue, the trust holds them for the employees, and on a buy-back the shares are destroyed and nobody holds them at all. The second is in the words of the exception. Money may be provided for the purchase of shares “held by trustees for the benefit of the employees or such shares held by the employee of the company”, so what clause (b) permits is the funding of an acquisition held for somebody else; it permits no acquisition held by the company, and clause (c) likewise funds shares “to be held by them by way of beneficial ownership” by the employees themselves. No decision has tested the argument, so it is open. The firm’s view is that the exception confirms the rule instead of qualifying it, because the beneficial holding clause (b) permits is always somebody else’s, and because where the law wants shares held rather than cancelled it interposes a separate holder rather than letting the company hold them. That is why a buy-back cannot be analysed as the company acquiring an asset, and it is met on the words of clause (b) rather than by asserting the rule.

The general anti-avoidance rule

The question in this Part has not been decided, and it was expressly left open in the one decision in which it squarely arose. Where an assessing officer refers an arrangement to the Approving Panel and the Panel directs that the arrangement is not an impermissible avoidance arrangement, can the same officer then tax the same transaction under an independent deeming provision? The statute is additive on the point the Revenue relies on: section 100, as the Tribunal recorded the argument, “contemplates application of Chapter X-A in addition to, or in lieu of, any other basis for determination of tax liability”. This section is stated throughout under the Income-tax Act, 1961, because that is the Act under which the decision was given, and the 2025 Act counterparts of Chapter X-A, section 96, section 100 and section 144BA have to be put against it before any of it is carried to a tax year beginning on or after 1 April 2026.

What happened in Sanjana Cryogenic before the Approving Panel

The facts matter, because the arrangement was built for a regulatory requirement and not for a tax result. In DCIT CC-8(3), Mumbai v. Sanjana Cryogenic Storages Ltd. (ITAT Mumbai Bench “F”, ITA No. 2503/Mum/2026, AY 2022-23, order pronounced 31 August 2026), a 26 per cent shareholding had been taken in the assessee by a supplier of captive power to satisfy a requirement of the Gujarat Electricity Board, under arrangements documented in 2000 and 2001, on a contemporaneous understanding that the holder would claim neither dividend nor capital appreciation and that on cessation of the facility arrangement the 7,80,000 shares would be bought back at the same Rs 40 per share at which they had been allotted. The holding devolved on a successor by merger, the Facility Agreement ran to 31 January 2020, the successor shut its own plant in July 2020, a settlement agreement of 2 November 2021 provided Rs 33 crore for transfer of the facility and settlement of the contractual arrangements, the buy-back was completed at Rs 40 per share and the shares were extinguished on 7 March 2022. Immediately before the buy-back the assessee had made a rights issue in which the outgoing holder did not participate.

The assessing officer treated the whole arrangement as potentially an impermissible avoidance arrangement, made a reference under section 144BA, and the Approving Panel, by directions dated 30 January 2025, held that it did not constitute an impermissible avoidance arrangement within the meaning of section 96.

The Panel’s findings were findings of commercial fact, and the Tribunal set them out at its paragraphs 4 and 17. The order records that the Panel found the initial 26 per cent participation “was not made with a motive to earn profit or participate in the management” of the assessee but to have arisen in order to fulfil the Gujarat Electricity Board’s requirement, and that the Panel “accordingly characterised the participation as essentially a legal formality rather than an investment in the conventional commercial sense”; that, having regard to the original arrangement, it was “not out of the ordinary” for the shares to be returned at the price at which they had been allotted; and that the non-participation in the rights issue and the buy-back were connected with, and a natural consequence of, the requirement of maintaining the 26 per cent participation and “were not actuated by a motive of obtaining a tax benefit”. Notwithstanding those directions, the assessing officer taxed the same transaction under section 56(2)(x), valuing the shares at Rs 595.49 against the buy-back price of Rs 40 and adding Rs 43,32,82,200.

The case for the Revenue on the anti-avoidance point

The Revenue’s case is textual and it is not weak. Chapter X-A operates in addition to, or in lieu of, any other basis of determining tax liability, which is language of accumulation and not of election. What the Panel decides is impermissibility under section 96; the ingredients of a separate charging or deeming provision are not before it. The two enquiries ask different things, the Panel asking whether an arrangement viewed as a whole has a tax benefit as its main purpose and answers one of the tainted-element tests, the deeming provision asking whether, on its own defined terms, a stated event has occurred and a stated measure has been crossed. A deeming provision of the valuation kind can be satisfied on facts that are entirely commercial, because its ingredients say nothing about purpose. On that reading a Panel direction withdraws the chapter and leaves the rest of the Act where it was, which is how the Tribunal recorded the Revenue’s contention at paragraph 11: a finding of no impermissibility “merely excludes the application of GAAR and does not confer immunity from an independent charging or deeming provision which is otherwise attracted on its own terms”.

The case for the assessee on the anti-avoidance point

The assessee’s case has a wider limb and a narrower one, and the wider limb comes first. Chapter X-A is where the Act provides for an arrangement to be taxed by reference to purpose and commercial substance, and it provides for that only through a reference, a Panel and directions that bind. On the assessee’s reading the additive words govern what may be done once the chapter is in play, and settle nothing about what remains once the Panel has held the arrangement not to be impermissible. The objection to the contrary view lies in its consequence: a purpose-based enquiry that Parliament fenced about with safeguards could then be bypassed by the very officer who invoked it, at no cost to him. Question 21 below sets the limb out at length.

The narrower limb is consistency, and it is independent of the wider one. Section 144BA makes the Panel’s directions binding on the income-tax authorities, and in a case of this kind the directions do not merely record a conclusion on impermissibility; they return findings on the genesis, the price and the commercial purpose of the very arrangement the officer must then assess. Those findings were returned by a statutory body, on a reference the officer himself made. An officer who then asserts that the same arrangement conferred an unexplained economic benefit on the company, measured by a valuation the parties never contracted on, is contradicting a factual premise established on a reference his own department procured. The Tribunal set the limit in those terms at paragraph 17: the officer “could not, while giving effect to the statutory process under section 144BA, proceed on a factual premise diametrically opposed to the findings returned by the Panel on the very arrangement referred to it”.

The Tribunal decided neither proposition. It held it “unnecessary to pronounce upon the wider proposition canvassed by the assessee that once the Approving Panel has rejected application of GAAR, every other anti-abuse or substantive provision necessarily stands excluded”, and proceeded on the Revenue’s premise that section 56(2)(x) operates independently, holding that even then the Revenue had to demonstrate that the provision’s own ingredients were satisfied. They were not, because a company buying back its own shares and extinguishing them receives no property. The Panel’s findings were then said to lend that conclusion “further support”, and in its summary the Tribunal repeated that it had “not proceeded on any wider proposition that rejection of GAAR by the Approving Panel necessarily excludes every other provision of the Act”.

Where the anti-avoidance point stands

The firm’s view is that the better reading rejects both extremes. There is no statutory bar: the chapter’s additive language cannot be read as an election, and a taxpayer who clears the Panel has not bought a general indemnity against the rest of the Act. But the Panel’s findings of fact bind the authorities under section 144BA and are not neutral background. They fix the commercial character of the arrangement for every officer who thereafter assesses it, so a deeming provision can be applied only on a factual premise consistent with them. The two halves do not stand on the same footing: the first is the firm’s reading and nothing more, while the second is how the Tribunal itself put the limit at paragraph 17.

The consequence is that the strength of the second attack depends on whether the provision’s ingredients are purpose-dependent. Where they are, the Panel’s findings go directly to those ingredients and the assessee’s answer is largely made for him; where they are not, as with a pure valuation deeming, the answer has to be found in the provision’s own ingredients rather than in the Panel’s direction, which is the route the Tribunal in fact took. On a file, a favourable Panel direction is pleaded as a finding of fact that binds the officer and not as a jurisdictional bar, and the statutory defence to the second provision is built independently.

The firm has written separately on the impermissible avoidance arrangement under section 96, on the section 144BA reference and the Approving Panel and on the documentary defence.

One matter was raised in Sanjana and remains undecided, and the Tribunal dealt with it at paragraph 38. Before the first appellate authority the assessee had challenged the validity of the assessment on the ground that the section 144BA reference was made on 30 March 2024, immediately before expiry of the ordinary period of limitation under section 153, allegedly to obtain the statutory extension of time that follows such a reference. That authority rejected the contention on three grounds: the reference had admittedly been made within the prescribed period; section 144BA stipulates no minimum antecedent period within which a reference must be initiated; and the exclusion or extension contemplated by section 153 operates by force of statute and does not depend on whether the Panel ultimately accepts or rejects the proposed application of the chapter. The appeal before the Tribunal was the Revenue’s, and no cross-objection or additional ground on that part of the order was shown, so the Tribunal expressly refrained from expressing any opinion on it. It happened, it was decided one way below, and it is open.

Open questions on route choice, SEBI and the anti-avoidance rule

Each of these arises on a live file and is argued both ways, with the view of Sunil Maloo & Co., Ahmedabad, stated where the firm has one. The numbering runs continuously across the four Parts.

18. How is the part of a distribution on a reduction of capital that exceeds accumulated profits taxed?

Section 2(22)(d) makes such a distribution a dividend only “to the extent to which the company possesses accumulated profits”, and section 2(40)(d) of the 2025 Act carries the same measure. Where the distribution exceeds that figure the excess is outside the dividend charge on the express words, and what happens to it is not stated in either clause.

For the Revenue the shareholder has received money for rights in shares that have been cancelled, and section 2(47) includes “the extinguishment of any rights therein”, so the excess falls in capital gains with the cost of the shares, or part of it, allowed against it.

For the assessee the excess is a return of his own capital and not income at all. Section 2(22)(d) fixes the extent to which Parliament chose to tax a distribution on a reduction, and the excess is outside that choice rather than accidentally outside it. Section 46A supplies a computation only where consideration is received “for purchase of its own shares” by the company, and a reduction is not a purchase. The proposition that every buy-back effects a reduction of share capital, which Globe Capital puts in terms at paragraph 26, does not convert into its converse: a reduction may operate on the capital itself with no instrument coming back to the company and nothing bought from anybody, so the section that computes a buy-back gain does not reach a reduction; section 69(1) of the 2025 Act repeats the same formula, so the point is the same under both Acts. And where the reduction operates on a holding that continues in the shareholder’s hands, no provision apportions the cost of acquisition between the rights extinguished and the rights that survive, so the computation the Revenue proposes has no machinery to work with.

Where it stands: neither sub-clause answers it. The firm’s view is that the excess is within the capital gains charge, because the definition of transfer covers extinguishment of rights in terms, and that treating the excess as outside charge altogether is the weaker primary case; the cost-apportionment gap is the strongest part of the assessee’s answer, and it is run on the computation rather than on the charge. The accumulated profits figure is therefore established first, because it decides how much each analysis carries.

19. Can section 56(2)(x), or section 92(2)(m) of the 2025 Act, reach a distribution on a reduction of capital in the company’s hands?

The reasoning that defeats an addition on a buy-back rests on the compulsion in section 68(7) of the Companies Act, 2013 to extinguish and physically destroy the shares bought back. A distribution on a reduction of capital is not made under section 68 and carries no such obligation. Clause (x) has not been applied to a reduction in any decided case, and the commentary on the point argues from Vora Financial Services by analogy.

For the Revenue, the reasoning in Globe Capital and Sanjana Cryogenic is built on a provision that does not apply, so both are confined to section 68 buy-backs and the clause’s ingredients fall to be tested afresh.

For the assessee, the surviving limb of Vora does not depend on section 68(7): the shares must become the recipient’s capital asset, and the Mumbai Tribunal at paragraph 19 put the requirement as receipt of “property” by the recipient rather than the movement of an instrument. And on a reduction the Revenue has a difficulty it does not have on a buy-back, because it must first identify something received by the company at all, a reduction operating on the capital itself without any instrument necessarily coming back to the company.

Where it stands: undecided, and the reasoning has to be rebuilt rather than cited across. The firm’s view is that the answer should be the same, because what decided both cases was the character of what the company ends up holding, not the source of the obligation to destroy it, but a submission that merely cites the two buy-back decisions leaves the Revenue’s best distinction unanswered.

20. For a listed company, how does section 68(5)(c) sit with the SEBI methods?

Section 68(5)(c) permits a buy-back “by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity”. Regulation 4(iv) of the SEBI (Buy-Back of Securities) Regulations, 2018 gives a listed company the tender offer and the two open market methods, with no employee-securities limb, and regulation 4(vi) bars a buy-back from any person through negotiated deals or any private arrangement.

The restrictive reading is that the Regulations are made for the purposes of section 68(2)(f), which requires a listed buy-back to accord with them, so a method the Regulations do not contain cannot be a buy-back in accordance with them; and that regulation 4(vi) is an express prohibition on buying back from any person through a private arrangement, which a purchase from identified employee holders is.

The permissive reading is that section 68(5) states the routes the Act permits, regulation 3 applies the Regulations to a buy-back made in accordance with the applicable provisions of the Companies Act, which an employee-securities purchase under section 68(5)(c) is, and a route the Act permits is not removed by a list of methods that does not mention it; on the restrictive reading section 68(5)(c) has nothing to operate on in any listed company at all, which is a strong reason for not reaching it.

Where it stands: open, and the tax consequence is why it is here. Compliance with section 68 is on the words the condition of section 2(22)(f) in the earlier window and of the promoter’s additional income-tax in section 69(2) now, so an assessing officer can take the point either way. The firm’s view is that the permissive reading is the better one, because a provision of the Act that states a route in terms is not repealed by a regulation that lists methods for purchases from the body of shareholders; but because the point is open and the officer can take it either way, the question is worked out while the scheme is drafted and not after an offer is announced.

21. Does a finding by the Approving Panel that an arrangement is not impermissible bar an independent deeming provision?

The point arose squarely in Sanjana Cryogenic, where the Panel’s directions of 30 January 2025 held the arrangement not to be impermissible within section 96 and the officer then taxed the same transaction under section 56(2)(x). The Tribunal held it “unnecessary to pronounce upon the wider proposition canvassed by the assessee that once the Approving Panel has rejected application of GAAR, every other anti-abuse or substantive provision necessarily stands excluded”, and repeated at paragraph 39 that it had not proceeded on it.

For the Revenue, Chapter X-A applies in addition to, or in lieu of, any other basis for determining tax liability, language of accumulation and not of election. What the Panel decides is impermissibility; the ingredients of a deeming provision are not before it, and a valuation deeming can be satisfied on wholly commercial facts.

For the assessee there are two arguments and the wider one is put first. Chapter X-A is the machinery the Act provides for taxing an arrangement by reference to its purpose and its commercial substance, and it is hedged about with safeguards: a reference by the officer, a Panel, and directions that bind. The words the Revenue relies on, that the Chapter applies in addition to or in lieu of any other basis for determining tax liability, describe what may be done when the Chapter is applied and say nothing about what survives where the designated authority has held that it does not apply. If, after a Panel has held an arrangement not to be impermissible, the same officer may tax the same arrangement under a deeming provision on the premise that its price was not its real price, the Chapter’s safeguards are avoidable at the officer’s election and the reference he himself made has cost him nothing. Narrower, and independent of that, the directions bind the income-tax authorities and on a reference of this kind return findings on the genesis, the price and the commercial purpose of the very arrangement the officer must then assess.

Where it stands: undecided at the level of the wider proposition. The firm’s view and its reasons are given earlier in this Part: no jurisdictional bar, which is the firm’s reading and nothing more; and findings of fact that bind the authorities, which is how the Tribunal itself put the limit at paragraph 17, so the second provision may be applied only on a premise consistent with them.

On a live file: choosing and defending a route

What to establish on the file, and what has to be provable later.

Check that the route is open before comparing what it costs. Section 70(1) of the Companies Act, 2013 bars a purchase through a subsidiary or an investment company, and bars a buy-back altogether where the company is in default on deposits or the interest on them, on the redemption of debentures or preference shares, on the payment of dividend to any shareholder, or on a term loan or interest owed to a financial institution or banking company, until that default has been remedied and three years have elapsed after it ceased to subsist, the proviso requiring both; the proviso to section 66(1) bars a reduction while deposits or the interest on them are in arrears. A reduction also needs the Tribunal’s confirmation and every creditor discharged, determined, secured or consenting under section 66(3), which a buy-back does not.

Compare the open routes on the right date. Between a dividend, a buy-back under section 68 of the Companies Act, 2013 and a distribution on a reduction of capital, fix the date the distribution will take place, establish the accumulated profits, which cap the dividend charge on a reduction and limit what can lawfully be declared as a dividend, and identify whether the exiting holder is a promoter within section 69(3) of the 2025 Act.

Put the necessity on the record before the resolution. The notice of the meeting at which the special resolution is proposed must carry the explanatory statement required by section 68(3) of the Companies Act, 2013, stating the material facts, the necessity for the buy-back, the class of securities, the amount to be invested and the time-limit for completion. That statement is the company’s own contemporaneous account of why the buy-back was done.

Classify the instrument. On a preference share, decide first whether what is happening is a redemption on the terms of issue or a purchase by the company of its own shares, because the answer selects the computation, the question being whether the main limb of section 46A, or section 69(1) of the 2025 Act, reaches the redemption, and the excess over the terms of issue is where it will be fought. Then decide whether what is bought back is a “share” or “other specified securities”, and under which Act: the Explanation to section 46A points to the Companies Act, 1956, section 69(3)(c) of the 2025 Act to Explanation 1 to section 68 of the Companies Act, 2013. For the window from 1 October 2024 to 31 March 2026, check whether the nil-consideration proviso was applied to an instrument that is not a share. On equity converted from preference shares, include the period the preference shares were held, under section 2(101)(c)(B)(VIII). For an employee-share buy-back under section 68(5)(c), check how it sits with regulation 4(iv) and the bar in regulation 4(vi).

For a listed company, assemble the SEBI trail. The authorisation in the articles and the special resolution, or the board resolution and its ten per cent computation; the lenders’ prior consent and its disclosure in the letter of offer; the twenty-five per cent ceiling and the post-buy-back debt ratio on the financial statements the applicable limb requires; the method adopted and, for an open market purchase through the stock exchange, which period’s limit applies; the one-year gap before a further offer, and the reckoning point that applied when the earlier offer was made; the small-shareholder reservation; the minimum public shareholding position; the extinguishment certificate under regulation 11(iii); and the filings under sections 68(6) and 68(10).

Where the anti-avoidance machinery has been invoked. Obtain the date of the reference under section 144BA, the Approving Panel’s directions and their date, and the findings of fact they return on the genesis, the pricing and the commercial purpose of the arrangement, which the Tribunal in Sanjana Cryogenic treated at paragraph 17 as fixing the premise on which any other provision is then applied. The Revenue’s position is that what binds is the conclusion on impermissibility and that the ingredients of another provision were never before the Panel, so the point is pleaded with the Panel’s findings set out and not merely asserted.

Decisions referred to in this series

These are the decisions relied on across the four Parts, of the High Court and of the Income Tax Appellate Tribunal (ITAT), with their particulars and the limits of what each one holds. Each is set out by CA Sunil Maloo of Sunil Maloo & Co., Ahmedabad, who is the author of this series.

Pr. Commissioner of Income Tax, Central - II, New Delhi v. M/s Globe Capital Market Ltd.

High Court of Delhi at New Delhi, Division Bench of Dinesh Mehta and Vinod Kumar JJ, judgment per Dinesh Mehta J and marked “(Oral)”, ITA 364/2024, decided 7 April 2026, assessment year 2018-19, reported at [2026] 185 taxmann.com 513 (Del.). The Revenue’s appeal against the deletion of an addition of Rs 16,33,34,250 under section 56(2)(x) was dismissed: a buy-back under section 68 of the Companies Act, 2013 is in substance a reduction of share capital, the property extinguishes once the shares are bought back, and the hypothesis that the company acquired an asset below fair market value has no legs to stand on. At paragraph 29 the Court accepted the Revenue’s contention that the Tribunal’s reliance on the Hyderabad Bench decision was misplaced, because the provision considered there was section 56(2)(viia) and not section 56(2)(x), while treating that reliance as only incidental to the result. The Court therefore did not approve that decision. This is the only High Court decision on the question and it is an oral judgment.

DCIT, Central Circle-15, New Delhi v. M/s Globe Capital Market Ltd.

ITAT Delhi Bench “F”, Dr B.R.R. Kumar AM and Ms Astha Chandra JM, ITA No. 967/Del/2023, order dated 25 September 2023, assessment year 2018-19. The order under appeal in the High Court. The Revenue’s appeal was dismissed and the Commissioner (Appeals)’s deletion upheld, the shares having been extinguished by reduction of paid-up capital, and the Tribunal recorded that no contrary higher judicial authority had been placed before it.

DCIT CC-8(3), Mumbai v. Sanjana Cryogenic Storages Ltd., Mumbai

ITAT Mumbai Bench “F”, Amit Shukla JM and Arun Khodpia AM, ITA No. 2503/Mum/2026, assessment year 2022-23, heard 3 August 2026 and pronounced 31 August 2026. An addition of Rs 43,32,82,200 under section 56(2)(x), on a rule 11UA value of Rs 595.49 per share against a buy-back price of Rs 40 for 7,80,000 shares, was deleted by the Commissioner (Appeals), and the Revenue’s appeal against that deletion was dismissed. Receipt and extinguishment cannot be severed, because under section 68(7) of the Companies Act, 2013 the extinguishment is an integral statutory consequence of the buy-back, so the company receives no property. The Tribunal expressly declined to decide whether rejection of the general anti-avoidance rule by an Approving Panel excludes every other provision, and whether section 115QA is an exhaustive and exclusive code.

M/s. Vora Financial Services P. Ltd. v. Assistant Commissioner of Income Tax, 2(3)(1), Mumbai

ITAT Mumbai “F” Bench, B.R. Baskaran AM and Pawan Singh JM, ITA No. 532/Mum/2018, assessment year 2014-15, pronounced 29 June 2018, reported at [2018] 171 ITD 646 and 194 TTJ 746 (Mum.). The assessee’s appeal was allowed and an addition of Rs 82,89,710 under section 56(2)(viia) was directed to be deleted on two cumulative conditions, each of which failed: the shares must become the property, and so a capital asset, of the recipient company, and they must be shares of some other company. The name is spelt Vora; a citation carrying the spelling “Vohra” is the same case.

VITP Private Limited, Hyderabad v. Deputy Commissioner of Income Tax, Circle-17(2), Hyderabad

ITAT Hyderabad Benches “A”, Rama Kanta Panda AM and K. Narasimha Chary JM, ITA Nos. 67 and 76/Hyd/2018, assessment years 2013-14 and 2014-15, pronounced 3 August 2022, cited as 2022 (8) TMI 220, which is the citation the Delhi High Court itself prints in Globe Capital. The Tribunal applied the two Vora conditions, allowed both appeals and deleted the section 56(2)(viia) additions in both years. This is the decision on which the Tribunal below in Globe Capital relied, and the Delhi High Court held that reliance misplaced because the provision considered in it was section 56(2)(viia) and not section 56(2)(x).

DCIT v. TPS Infrastructure Ltd.

ITAT Delhi Bench “G”, ITA 6433/Del/2018, order dated 14 December 2022, cited as 2022 (12) TMI 693. The Tribunal accepted the legal position, that a company’s own shares cannot become the property of the recipient company, and restored the matter to the Assessing Officer to verify that the shares had in fact been extinguished by reduction of paid-up capital, directing deletion only if that was confirmed. The ratio therefore carries a factual precondition.

DCIT v. Venture Lighting India Ltd.

ITAT Chennai Bench “C”, ITA 3171/CHNY/2019, order dated 14 December 2022, cited as 2022 (12) TMI 696. The Revenue’s appeal was dismissed on the Vora reasoning, and the Revenue’s alternative “hidden asset” argument built on section 2(22)(d) read with section 115-O was rejected.

Lupin Investments (P.) Ltd. (successor to Zyma Laboratories Ltd.) v. DCIT

ITAT Mumbai Bench “A”, ITA 4635/Mum/2024, order dated 9 July 2025. An addition of Rs 34,71,17,122 under section 56(2)(viia) was deleted.

Silgate Solutions Ltd. v. DCIT

ITAT Mumbai Bench “G”, ITA 5367/Mum/2025, order dated 4 November 2025. An addition of Rs 1,44,75,000 under section 56(2)(viia) was deleted.

ACIT v. Gamma Pizzakraft Lanka (Pvt.) Ltd.

ITAT Delhi Bench “D”, IT(IT)A Nos. 26 and 27/Del/2025, order dated 12 August 2026. The Revenue’s appeals were dismissed, the Tribunal stating the TPS Infrastructure proposition in the same words, and independently on the footing that the assessee is a non-resident.

M/s. Updater Services Ltd. v. DCIT, and the cross-appeal DCIT v. M/s. Updater Services Ltd.

ITAT Chennai Bench “A”, ITA Nos. 1339/Chny/2025 and 1616/Chny/2025 with C.O. No. 66/Chny/2025, assessment year 2017-18, order dated 14 November 2025. The section 56(2)(viia) buy-back addition, the section 115QA levy and a section 36(1)(iii) disallowance were all set aside and remitted to the Assessing Officer for fresh adjudication, the Tribunal recording that “we have not expressed any opinion on the merits of the additions or deletions”. It is not a decision either way on the merits.

Concordance: the 1961 Act and the 2025 Act

A buy-back now has to be worked under both Acts, depending on the year, so each provision used in this series is mapped to its counterpart. The numbering does not carry across, and the same section number can mean two different things in the two Acts: section 70 of the 1961 Act is the set-off of a loss from one source against income from another source under the same head, while section 70 of the 2025 Act is the list of transactions not regarded as transfer, and both meanings are used in this series. Section 70 of the Companies Act, 2013, which prohibits a buy-back in certain circumstances, is a third provision of that number referred to in this series and belongs to neither of the two Acts mapped below. Section 112 of the 1961 Act is the special rate on long-term capital gains, while section 112 of the 2025 Act is the carry forward and set off of a business loss. Separately, section 69 of the Companies Act, 2013, the transfer of certain sums to the capital redemption reserve account, is a different provision from the identically numbered buy-back charge in the Income-tax Act, 2025.

1961 Act	What it does	2025 Act counterpart	Note
s.2(22)(d)	makes a distribution on a reduction of capital a dividend, to the extent of accumulated profits	s.2(40)(d), within the definition of “dividend”	Substance the same on the measure, the 1961 text’s reference to accumulated profits arising after the previous year ending next before 1 April 1933 not being carried forward. Unamended by the Finance Act, 2026, and the carve-out at “(i)” of s.2(40) still refers to sub-clause (c) or (d), so this is the limb that keeps a capital-reduction distribution within the dividend charge after the omission of (f).
s.2(22)(f)	makes a payment on a buy-back under s.68 of the Companies Act, 2013 a dividend	s.2(40)(f), omitted with effect from 1 April 2026	The slot prints as an omitted sub-clause and the consolidated print’s footnote records the omission by the Finance Act, 2026 and sets out the sub-clause as it stood. The consequential change closed the range in s.7(2)(a) from “(a) to (f)” to “(a) to (e)”.
s.46A	deems the difference between cost of acquisition and consideration on a buy-back to be capital gains of the shareholder	s.69, “Capital gains on purchase by company of its own shares or other specified securities”	Same core charge in s.69(1). Sub-sections (2) and (3), substituted by the Finance Act, 2026, add a promoter-only additional income-tax with no counterpart in the 1961 Act.
s.47	lists the transactions not regarded as a transfer	s.70, “Transactions not regarded as transfer”	Same function, with the clauses running (a) to (zl). No clause covers a company’s purchase of its own shares, or the extinguishment or cancellation of shares, so a buy-back is a transfer under the 2025 Act. Clause (zb) is the conversion of preference shares into equity shares, and the exclusion in s.92(3)(g) admits only the clauses of s.70(1) it names, none of which is a buy-back.
s.48	mode of computation of capital gains	s.72	The capital-gains computation provision of the 2025 Act. It is the provision the s.69(1) charge is expressly made subject to, and the provision for whose purposes s.79 substitutes a fair market value.
s.50CA	substitutes a prescribed fair market value as the full value of consideration, for the purposes of s.48, where a share other than a quoted share is transferred for less than that value	s.79	Same mechanism in the 2025 Act, substituting for the purposes of s.72. Each has a power to take a prescribed class of persons, subject to prescribed conditions, out of its operation: the proviso to s.50CA, which disapplies the whole section and is exercised by rule 11UAD, and s.79(2), which disapplies s.79(1) and is exercised by rule 58. The value for s.50CA is prescribed by rule 11UAA of the 1962 Rules, struck at the date of transfer. The s.50CA Explanation defines a quoted share by regularity of quotation and current transactions, so listing alone does not take a share outside it.
s.111A	charges short-term capital gains at a special rate	s.196, “Tax on short-term capital gains in certain cases”	Twenty per cent, directed at equity shares, units of an equity-oriented fund and units of a business trust on which securities transaction tax has been paid. The first row of the s.69(2) Table is keyed to gains “referred to in section 196”, so whether a short-term gain that is not charged under that section is inside that row is open on the words, which is argued at question 13 of this series.
s.112	charges long-term capital gains at a special rate	s.197, “Tax on long-term capital gains”	Twelve and a half per cent.
s.112A	charges long-term capital gains on securities transaction tax paid equity	s.198, “Tax on long-term capital gains in certain cases”	Twelve and a half per cent above Rs 1,25,000. The second row of the s.69(2) Table is keyed to gains “referred to in section 197 or section 198”.
s.70	set-off of losses under the same head, with long-term capital losses ring-fenced	s.108, “Set off of losses under same head of income”	Substance the same: a short-term capital loss sets off against income computed in respect of any other capital asset, a long-term capital loss only against income computed in respect of another long-term capital asset.
s.71	set-off of a loss under one head against income under another head	s.109	The provision under which a loss computed under one head is set off against income under any other head, as sections 110(1) and 112(1) of the 2025 Act each describe it. Whether it reproduces the bar in s.71(3) of the 1961 Act is a question on its own words.
s.74	carry forward of a capital loss for eight years, with the same ring-fence	s.111, “Carry forward and set off of loss from Capital gains”	Substance the same: short-term losses against any capital gains, long-term losses against long-term gains only, and no carry forward beyond eight tax years succeeding the year for which the loss was first computed.
s.2(42A)	defines “short-term capital asset” and fixes the period of holding	s.2(101), the definition of “short-term capital asset”	Same scheme: twenty-four months generally, twelve months for a security listed in a recognised stock exchange in India, units of the Unit Trust of India, units of an equity-oriented fund and zero-coupon bonds, with the same inclusion and reckoning rules. There is no inclusion rule for a buy-back.
s.2(29AA)	defines “long-term capital asset”	s.2(67), the definition of “long-term capital asset”	Same: a capital asset which is not a short-term capital asset. On the current edition of the 1961 Act, s.2(29A) is the definition of “liable to tax”, so the long-term definition is cited as s.2(29AA).
s.2(14)	defines “capital asset”	s.2(22), the definition of “capital asset”	The 2025 Act clause follows the same scheme and defines “jewellery” within its own carve-out for personal effects. That clause also provides that “property” includes any rights in or in relation to an Indian company, a wider notion than the closed list of property in s.92(5)(f), and the two are not to be conflated.
s.56(2)(x)	charges the excess of fair market value over consideration on a receipt of property	s.92(2)(m), in s.92, “Income from other sources”	Same scheme. “Property” in s.92(5)(f) is a closed list of capital assets of the assessee and includes shares and securities. For property other than immovable property the shortfall must exceed Rs 50,000 and there is no percentage band. The exclusions in s.92(3) carry no buy-back entry.
s.94(8)	ignores a bonus-stripping loss	s.175(9), with the cost-addition rule in s.175(10), in s.175, “Avoidance of tax by certain transactions in securities”	Substance the same: acquisition within three months before the record date, allotment of additional securities without payment, transfer within nine months after that date while the additional securities are retained, and the loss ignored, with the disregarded loss added to the cost of the securities retained.
s.195	withholding on any other sum chargeable, paid to a non-resident	s.393(2), Table Sl. No. 17, in s.393, “Tax to be deducted at source”	Same function, recast into one tabular withholding section. The entry covers “any other sum chargeable under the provisions of this Act” paid to a non-resident not being a company or to a foreign company, by any person, at rates in force, and Note 3(b) carries forward the extension in Explanation 2 to s.195(1).
s.115QA with s.115QB and s.115QC	the company’s own additional income-tax on distributed income on a buy-back, the interest for non-payment and the deemed default	No counterpart in the Income-tax Act, 2025, as amended by the Finance Act, 2026	No section in Chapter XIII, “Determination of tax in special cases”, sections 190 to 235, charges any tax on a company on a buy-back or on distributed income or distributed profits of any kind; the chapter’s only company-level charges fall on the company’s own total income or book profit. The Department’s navigator mapping the 1961 Act to the new Act marks sections 115-O, 115P, 115Q, 115QA, 115QB, 115QC and 115R “Redundant” with no successor section against any of them; that navigator is a Bill-stage document whose third column refers to the latest draft, and it is cited here as that document and not as the enacted numbering.
s.10(34A)	exempts income arising to a shareholder on a buy-back referred to in s.115QA	No counterpart in the Income-tax Act, 2025, as amended by the Finance Act, 2026	The 2025 Act carries its exemptions in Chapter III, “Incomes Which Do Not Form Part of Total Income”, sections 11 and 12, with the operative lists in Schedules II to VIII. Section 10(34A) has no successor anywhere in the new Act and no exemption for a receipt on a buy-back appears in those provisions. It has no row in the Department’s navigator either, the Bill-stage mapping document cited in the row above.
rule 11U of the Income-tax Rules, 1962	defines the expressions used in determining fair market value, including the valuation date	rule 56 of the Income-tax Rules, 2026, “Meaning of expressions used in determination of fair market value”	Supplies the definitions for rules 56 and 57, including “balance sheet”, “merchant banker”, “quoted shares or securities”, “registered valuer” and “valuation date”. The valuation date is fixed separately for each section served, and for s.79 it is the date on which a capital asset being a share of a company other than a quoted share is transferred.
rule 11UA, rule 11UAA and rule 11UAB of the Income-tax Rules, 1962	prescribe the methods of determining fair market value	rule 57 of the Income-tax Rules, 2026, “Determination of fair market value”	One rule of the 2026 Rules replaces all three, on the Department’s Rules navigator. A table keyed to the nature of the property. The unquoted equity share entry carries the same adjusted net asset value formula as rule 11UA(1)(c)(b), with no merchant-banker or discounted cash flow option. Serial numbers 4 and 5, the unquoted-share entries, are the only ones expressed to serve s.72; s.69 appears in no entry.
rule 11UAC and rule 11UAD of the Income-tax Rules, 1962	prescribe the classes of persons outside s.56(2)(x) and outside s.50CA respectively	rule 58 of the Income-tax Rules, 2026, “Prescribed class of persons for the purpose of section 92(3)(i) and section 79 of the Act”	One rule now serves both provisions, so the exemption power in s.79(2) has been exercised. Because rule 58 is the consolidated successor of two rules that served two different provisions, its scope is a question on its own terms and is not carried across from rule 11UAD.

The series begins with the company-law foundation on which all of this rests, the obligation to extinguish and physically destroy the shares bought back, and the regime that ran to 30 September 2024. Read it at Buy-back taxation: extinguishment, section 115QA and who pays.

This note is general commentary on the law as at 08 November 2026 and is not advice on any matter. The position in a particular case depends on its own facts.