S Ltd., a domestic company, purchased its own shares on 10th November, 2024 in accordance with the provision of Section 68 of the Companies Act,…

CA Final · Direct Tax Laws and International Taxation · PYQS · January 2026
S Ltd., a domestic company, purchased its own shares on 10th November, 2024 in accordance with the provision of Section 68 of the Companies Act, 2013. The consideration for buyback amounted to 25 lakhs, which was paid on the same day. The amount received by the company on 1.04.2021 for issue of 10,000 shares having face value of 100 per share was 15 lakhs (including premium). Rohan, who acquired 100 shares of S Ltd. @150 per share (including the premium of 50/- sold these shares to Divyam at 200 per share on 1.03.2023. Divyam received 250 per share in the buyback scheme of S Ltd. in respect of all the 100 shares he purchased from Rohan. You are required to - (i) Compute the additional income-tax payable by S Ltd. (ii) Discuss the taxability of amount received on account of such buyback of shares in the hands of Divyam. (iii) Will your answer change, if S Ltd. is a foreign company and the date of buyback is 10th September, 2024?

Suggested Answer and Working Notes:

(i) No additional income-tax is to be paid by S Ltd. since the buy-back of shares took place on or after 1.10.2024 (ii) The sum of 250per share paid by S Ltd. for purchase of its own shares would be deemed as dividend and taxable under the head "Income from Other Sources” in the hands of Divyam. Accordingly,25,000 [250x 100] would be taxable in the hands of Divyam. No deduction for expenses would be available against such dividend income. (iii) Yes, in such case,5,000 being the difference between the cost of acquisition of 20,000 (200x 100) and the value of consideration received of 25,000 (250x 100) is chargeable to tax as Short-term capital gains in the hands of Divyam.

Topics: Income from Other Sources

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