S. 2(22)(e) : Dividend – Deemed dividend – Credit balances in the normal course of business cannot be assessed as deemed dividend

 S. 2(22)(e) : Dividend – Deemed dividend – Credit balances in the normal course of business cannot be assessed as deemed dividend

Only a genuine buyback is excluded from definition of 'dividend' by section 2(22)(iv) and exempt from DDT under section 115-O; a colourable buyback of will attract DDT
• Buyback held to be a colourable device for tax avoidance to distribute dividends in guise of buyback to avoid payment of DDT in view of following facts

(i) 98.24% of applicant-company's shares held by three overseas companies of "A" group-A(USA),A(Mauritius) and A(Singapore) and only 1.76% were held by general public

(ii) Dividends were regularly paid by applicant-company prior to introduction of DDT; no dividend paid by application company after introduction of DDT

(iii) Instead of distributing dividend regularly which would have entailed payment of DDT, applicant allowed reserves to accumulate from Rs.1crore(March 2003) to Rs.4 Crores (March2010) and proposed a buyback offer by Board of Directors passing a resolution under section 77A of Companies Act,1956 on 15.6.2010

(iv) Applicant had announced a buyback in 2008 also which was accepted only by A(Mauritius) as under DTAC with Mauritius, capital gains is totally not taxable in India; A(USA) and A(Singapore) did not accept buyback offer obviously because amount received by them under buyback would have been taxable as capital gains in India; it was not known whether anyone from general public accepted offer; it was expected that same would be case with proposed 2010 buyback as well

• In view of finding that proposed buy-back is a colourable transaction, receipt of buyback consideration by A(Mauritius) will satisfy definition of dividend under Act and consequently attract tax in India as such -