Purchase of own shares under the scheme whether dehors buyback or capital reduction

Recently, the Chennai Income-tax Appellate Tribunal (ITAT) in the case of Cognizant Technology Solutions India Pvt. Ltd [TS-531-ITAT-2023(CHNY)] (the Company) recharacterized the Scheme of Arrangement (scheme) for the purchase of shares by the Company from its shareholders under Scheme 391 to 393 of the erstwhile Companies Act 1956 (1956 Act) as a capital reduction and ruled in favor of the revenue from taxation perspective.

Interestingly, the contention of the Company was that the scheme was neither a buy-back under Section 77A nor capital reduction under Section 100-104 of the 1956 Act (as it was applicable then).

Our article titled “Chennai ITAT Ruling in Cognizant's Shares Buyback - A Panoramic Analysis”, which delved into the taxation aspects of the issues involved has been separately published on Taxsutra portal.

In this article, we have attempted to analyze the company law issues that the aforesaid ruling has touched upon.