2004 (12) TMI 40 - HC - Wealth-tax

Exemption u/s 5(1)(xxa) shares - Whether the Tribunal is right in law and on facts in allowing claim of exemption under section 5(1)(xxa) in respect of shares of various companies? - According to the Wealth-tax Officer, the said exemption was not allowable because the shares in question were held by the assessee as a dealer. - Assessing Officer, further held that the shares in question were not directly purchased by the assessee from the company and do not pertain to initial issue of share capital. - Tribunal has rightly held that the section 7 is merely a machinery provision laying down as to how the value of the assets has to be determined and cannot govern section 5 of the Act which specifies the assets which are not to be included in the net wealth of an assessee on a given valuation date. Thus provisions of section 7 cannot govern the availability or otherwise of exemption under section 5 - there being no infirmity in the order of the Tribunal, the question referred requires to be answered in the affirmative, i.e., in favour of the assessee

Summary

Issues:
Interpretation of exemption under section 5(1)(xxa) of the Wealth-tax Act, 1957 in relation to shares held by the assessee as a dealer.

Analysis:
The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the allowance of exemption under section 5(1)(xxa) of the Wealth-tax Act, 1957 for shares worth Rs. 10,11,686 held by the assessee. The Wealth-tax Officer disallowed the exemption claimed by the assessee on the grounds that the shares were held as a dealer, not directly purchased from the company, and not held for a minimum period of six months. However, the Commissioner of Wealth-tax (Appeals) allowed the appeal, noting that similar claims were allowed in the assessee's and her husband's cases for previous assessment years.

The Income-tax Appellate Tribunal upheld the Commissioner of Wealth-tax (Appeals) findings, emphasizing that no remedial action was initiated by the Revenue in previous cases where similar claims were allowed. The Tribunal highlighted that the exemption under section 5(1)(xxa) was not prohibited for shares owned by an assessee acting as a dealer, especially for shares issued by specified companies in the priority sector. The Tribunal also clarified that the exemption was attached to the qualifying initial issue of shares for a period of five years, not restricted to direct purchase from the company or being the first registered owner.

The judgment further delves into the legal provisions of the Wealth-tax Act, emphasizing that even if the assessee is a dealer in shares, such shares are assets liable to wealth tax. The judgment explains the scheme of the Act, detailing the computation of net wealth and the exclusion of specified assets under section 5(1). The Tribunal found that the shares in question qualified for exemption under clause (xxa) of section 5(1) as they fulfilled the necessary criteria and were part of the initial issue, supported by certificates from the Income-tax Officer.

Regarding the Assessing Officer's argument on the applicability of section 7 for denying exemption, the Tribunal clarified that section 7 is a machinery provision for asset valuation and does not govern the exclusion of assets under section 5. The judgment concludes that the Tribunal's order was sound, answering the referred question in favor of the assessee and against the Revenue, disposing of the reference with no costs.