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Buy back of equity shares

Ankit Agarwal (Article) (204 Points)

08 September 2011

Whether a company needs to pay Dividend Distribution Tax in case of Buy back of Equity Shares?????????

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8 Replies

Sanket (!..Live to Give..!) (16427 Points)
Replied 08 September 2011

Buy back is not dividend hence ddt not applicable....

Ravi Chopra (CA) (661 Points)
Replied 08 September 2011

IT is not a dividend . So no DDT on it

Dividend includes—

(a) any distribution by a company of accumulated profits, whether

capitalised or not, if such distribution entails the release by the

company to its shareholders of all or any part of the assets of the

company ;

(b) any distribution91 to its shareholders by a company of debentures,

debenture-stock, or deposit certificates in any form, whether

with or without interest, and any distribution to its preference

shareholders of shares by way of bonus, to the extent to which the

company possesses accumulated profits, whether capitalised or

not ;

liquidation, to the extent to which the distribution is attributable

to the accumulated profits of the company immediately before its

liquidation, whether capitalised or not ;

(d) any distribution to its shareholders by a company on the reduction

of its capital, 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 ;

(e) any payment by a company, not being a company in which the

public are substantially interested, of any sum (whether as representing

a part of the assets of the company or otherwise)

[made after the 31st day of May, 1987, by way of advance or loan

to a shareholder93, being a person who is the beneficial owner of

shares (not being shares entitled to a fixed rate of dividend

whether with or without a right to participate in profits) holding

not less than ten per cent of the voting power, or to any concern

in which such shareholder is a member or a partner and in which

he has a substantial interest (hereafter in this clause referred to

as the said concern)] or any payment by any such company on

behalf, or for the individual benefit, of any such shareholder, to

the extent to which the company in either case possesses accumulated

profits ;

but “dividend” does not include—

(i) a distribution made in accordance with sub-clause (c) or subclause

(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 ;

[(ia) a distribution made in accordance with sub-clause (c) or subclause

(d) in so far as such distribution is attributable to the

capitalised profits of the company representing bonus shares

allotted to its equity shareholders after the 31st day of March,

1964, [and before the 1st day of April, 1965] ;]

(ii) any advance or loan made to a shareholder 97[or the said concern]

by a company in the ordinary course of its business, where the

lending of money is a substantial part of the business of the

company ;

(iii) any dividend paid by a company which is set off by the company

against the whole or any part of any sum previously paid by it and

treated as a dividend within the meaning of sub-clause (e), to the

extent to which it is so set off;

[(iv) any payment made by a company on purchase of its own shares

from a shareholder in accordance with the provisions of section

77A of the Companies Act, 1956 (1 of 1956);

(v) any distribution of shares pursuant to a demerger by the resulting

company to the shareholders of the demerged company (whether

or not there is a reduction of capital in the demerged company).]

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Ankit Agarwal (Article) (204 Points)
Replied 08 September 2011

@ Ravi chopra: bro Buy back is also a kind of reduction of capital???

Ravi Chopra (CA) (661 Points)
Replied 08 September 2011

@ ankit - Capital reduction means decreasing the value of share. I.e. Rs 10 share paid up to Rs 5 shares paid up. this may be as per internal construction scheme.

Also Buy back is specific point referred in bold points.. It prevails over general term i.e. reduction in share capital!!

1 Like

Ravi Chopra (CA) (661 Points)
Replied 08 September 2011

There it is mentioned... Distribution on reduction of capital and not ditribution on cancellation of shares

1 Like

Ankit Agarwal (Article) (204 Points)
Replied 08 September 2011

thanx ravi.i got my answer......thanku

srinivass (CA Final) (2466 Points)
Replied 08 September 2011

Agree with ravi chopra sir

Ravi Chopra (CA) (661 Points)
Replied 08 September 2011

welcum!!!

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IT is not a dividend . So no DDT on it

Dividend includes—

but “dividend” does not include—

[(iv) any payment made by a company on purchase of its own shares

from a shareholder in accordance with the provisions of section

77A of the Companies Act, 1956 (1 of 1956);

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