As tax counsel of Heritage, prepare a brief note of the Income-tax consequence of the buy-back of shares in the hands of the shareholders and…

Particulars (i) Consequences of buy back of shares in the hands of shareholder and its obligation In case of buyback of shares by Heritage Organic, the sum of 150per share paid by it for purchase of its own shares would be treated as dividend and taxable under the head "Income from Other Sources" in the hands of shareholders. No deduction for expenses would be available against such dividend income. The consideration received on buy-back of shares will be taken as nil and the entire cost of acquisition of shares would be either long term or short-term capital loss based on period of holding of respective shareholder. The said long term or short- term capital loss is eligible for set-off and carry forward as per provisions of the Income Tax Act, 1961. (ii) Consequences of buy back of shares in the hands of company and its obligation There would be no tax implications in the hands of Heritage Organic on buy back of its shares. The company is required to deduct tax at source @10% under section 194. However, tax is not required to be deducted at source where shareholder is an individual, the dividend is paid by any mode other than cash and amount of deemed dividend does not exceed - 10,000.