AIR 1997 SUPREME COURT 1677 ::1997 AIR SCW 731 ::1997 TAX. L. R. 182 ::1997 (1) Com LJ 362 SC ::(1997) 138 CurTaxRep 253 ::(1997) 2 CorLA 297 ::1997 (3) SCC 238 ::(1997) 1 Scale 465 ::1997 (89) Com Cas 28 ::(1997) 1 SCR 500 (SC) ::1997 (1) UPTC 517 ::(1997) 90 Taxman 509 ::1997 (1) Supreme 639 ::(1997) 136 Taxation 592 ::1997 (224) ITR 422 ::(1997) 2 JT 192 (SC) ::1997 (2) JT 192

Supreme Court Of India

(From : Gujarat)*

Hon'ble Judge(s): S. C. Agrawal, S. C. Sen , JJ

Capital gains - Redemption of preference shares by shareholder - Falls within phrase "sale, exchange or relinquishment of the asset" - Excess amount received by shareholder can be treated as capital gains. Income-Tax Act (43 of 1961) , S.2(47)(i), S.45— Redemption of its preference shares by a company would have come within the bar of purchasing its own shares by a company. The specific provision of sub-section (5) of S. 77 of Companies Act was necessary to get over the bar. The company redeemed its preference shares only by paying the preference share-holders the value of the shares and taking back the preference shares. In effect, the company has bought back the preference shares from the shareholders. It may have been done at a date set by the terms of the issue. When a preference share is redeemed by a company, what a shareholder does in effect is to sell the share to the company. Such a transaction is nothing but sale of the preference shares by the shareholders to the company. That is why after specifically laying down in Section 77(1) of Companies Act that no company shall have the power @page-SC1678 to buy its own shares, it was necessary to specify in sub-section (5) that this provision shall not effect the right of a company to redeem any shares issued under Section 80 of the Companies Act. If redemption of pre....