Some tax commentators have raised questions over the last few months on the issue. It has been argued that buyback is essentially distribution of surplus income, that is, dividend, and that in the shareholders' hands, the amount thus received from the company should be tax-free (since dividend is tax free in the shareholders' hands).

However, on Monday, Balasubramaniam scotched such views, and said shareholders would have to be taxed on the basis that they were making capital gains or losses.

In another important announcement, theCBDT member said a notification regarding the rules on mandatory quoting of PAN are ready and are expected in few days. He said in a vital measure, the norms have been relaxed so that it will not be mandatory to quote PAN for non-cash transactions i.e. payment through cross cheque or credit cards. The reporting requirement has been relaxed to six months instead of one month.

On the issue of taxability of ESOP, the member replied that difference between the market price and price paid by the beneficiary is perquisite and on sale, and hence capital gains tax will be attracted.

In reply to a question as to whether cost of acquisition needs to be improved i.e. whether it should include perquisite value, the member replied that this aspect will need a clarification.

Balasubramaniam referred to another key case during the discussions, that involving the Centre for Monitoring Indian Economy, who had been told by the Bombay bench of the income tax tribunal that since, apart from other factors, the sum of theirlease rentals exceeded the cost of their leased asset, therefore the transaction amounted, not to a lease, but to a sale-and-purchase, and hence lease rental deductions were not allowed. The member assured that the decision in case of CMIE does not mean that depreciation benefit will not be allowed to lessor so long as the owner and the use of asset is clear. The decision was based on the facts of the case and is not applicable to each and every lease transaction.

The attention of member was also drawn to the drafting of circular for dematerialised shares. The manner in which circular is drafted results in FIFO method being applicable to dematerialisation of shares and not acquisition of shares.

It was pointed out that in case shares of any of the companies where dematerialisation is mandatory, for example, State Bank of India delivery is in dematerialise form and as a result if shares bought earlier but dematerialise later are not treated as `first in'. The member was of the opinion that theshareholder will be in a position to prove the sequence of purchase and hence the circular should not create any difficulty. Another contentious issue was the depreciation on intangible assets. The benefit is available from April 1999, but the entities which had corporatised themselves prior to that date to take advantage of a one-time waiver of capital gains tax will not be able to claim depreciation on intangible assets. This would not be allowed even if intangibles existed in April 1999.

The member was of the opinion that retrospective amendment is not the best method possible for tax rationalisation. The member was also in favour of continuing with the practice of charging interest for three months for late payment of advance tax, that is, instead of December 15, if the advance tax is paid on December 17, interest will be levied for three months due to delayed payment of tax.