Buyback of Own Shares Not Taxable as ‘Property’ U/S 56(2)(x): Delhi High Court

The Delhi High Court has held that buyback of a company’s own shares does not amount to acquisition of “property” and therefore cannot be taxed under Section 56(2)(x) of the Income Tax Act, 1961. The bench of Justice Dinesh Mehta and Justice Vinod Kumar has dismissed the appeal filed by the Income Tax Department upholding the deletion of a ₹16.33 crore addition. The case arose from assessment proceedings conducted under Section 153A read with Section 143(3) of the Income Tax Act. The Assessing Officer (AO) observed that the assessee company had bought back 28,62,500 equity shares at ₹313.40 per share during Assessment Year 2018–19. However, as per valuation under Rule 11UA, the fair market value (FMV) of each share was ₹370.46. The AO treated the difference of ₹57.06 per share as taxable income under Section 56(2)(x), resulting in an addition of ₹16.33 crore to the company’s income. According to the Department, the buyback amounted to acquisition of “property” at a price lower than FMV, thereby attracting deeming provisions. The Commissioner of Income Tax (Appeals) deleted the addition, holding that buyback of shares is not a simple purchase transaction but a capital restructuring exercise. It was observed that when a company buys back its own shares, it effectively reduces its share capital rather than acquiring a capital asset. Consequently, Section 56(2)(x) and Rule 11UA were held inapplicable. The Income Tax Appellate Tribunal upheld this view and rejected the Department’s appeal. The central question before the Court was: Whether buyback of own shares by a company can be treated as acquisition of “property” so as to attract Section 56(2)(x) when shares are bought below fair market value? The High Court upheld the findings of the CIT(A) and ITAT, emphasizing the fundamental nature of buyback transactions under company law. The Court noted that buyback of shares is governed by Section 68 of the Companies Act, 2013, which permits companies to purchase their own shares subject to prescribed conditions. However, such a transaction is not akin to acquisition of an asset. The court held that the buyback of shares leads to extinguishment and destruction of shares, as mandated under company law. Once shares are bought back, they cease to exist; hence, no “property” remains with the company. The concept of treating buyback as acquisition of property is fundamentally flawed because a company cannot own itself in the form of shares. The Court categorically held that buyback of own shares is “antithesis to buying an asset” and represents reduction of share capital, not acquisition of property. The department argued that the definition of “property” under Section 56(2)(x) includes shares and does not distinguish between shares of one's own company and other companies. The Court rejected this interpretation, holding that the deeming fiction under Section 56(2)(x) cannot be stretched to cover transactions that do not result in real acquisition of property. Taxation cannot arise from a transaction where the underlying asset itself gets extinguished The Court also noted that while the Tribunal relied on a decision under Section 56(2)(viia), the ultimate conclusion remained valid on independent reasoning. The Court elaborated that shares represent capital contributed by shareholders. When a company buys back its own shares, it returns capital to shareholders. This results in reduction of share capital, not creation of an asset Therefore, the very basis of invoking Section 56(2)(x)—i.e., receipt of property at inadequate consideration—fails. The High Court held that the addition made by the AO was legally untenable. The orders of CIT(A) and ITAT were well-reasoned and justified. Buyback transactions cannot be taxed under Section 56(2)(x). Case Details Case Title: PCIT Versus M/S Globe Capital Market Ltd. Citation: JURISHOUR-780-HC-2026(DEL) Case No.: ITA 364/2024 Date: 07.04.2026 Counsel For Petitioner: Vipul Agrawal, SSC Counsel For Respondent: Sumit Lalchandani Click Here To Read Order Read More: 90% Late Fee Waiver Under CCFS-2026: MCA Opens 3-Month Window to Clear Backlog & Avoid Prosecution

Buyback of Own Shares Not Taxable as ‘Property’ U/S 56(2)(x): Delhi High Court

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