1996 (7) TMI 135 - HC - Wealth-tax

Summary

Issues:
Interpretation of section 5(1)(xx) of the Wealth-tax Act, 1957 regarding exemption for equity shares acquired after the initial issue.

Analysis:
The judgment addressed Wealth-tax References involving a common question of law related to exemption under section 5(1)(xx) of the Wealth-tax Act, 1957. The court considered the case of two assessees, one acquiring 250 shares of a company on March 31, 1970, and the other acquiring 250 shares on the same date. The key issue revolved around whether these shares qualified for exemption under the specified section.

In the first case, the assessee purchased 30 shares initially and an additional 250 shares later. The Wealth-tax Officer allowed exemption for the initial 30 shares but denied it for the subsequent 250 shares, citing that they did not form part of the company's initial share issue. A similar situation arose in the second case, where exemption was granted for 25 shares acquired initially but not for the subsequent 250 shares.

The court analyzed the conditions for claiming exemption under section 5(1)(xx) of the Act. Three essential conditions were identified: the company should fall under a specific category, the shares should be part of the initial share issue, and the issue should fall within a specified timeframe. The court found that the first condition was met, but the second condition, regarding shares being part of the initial issue, was crucial.

The judgment emphasized that shares acquired after the initial issue, even if part of subsequent share capital increase, do not qualify for exemption under section 5(1)(xx). It clarified that the initial share issue is distinct from subsequent share capital increases authorized by the company's board of directors. The court referenced a previous case to highlight the importance of distinguishing between the initial share issue and subsequent allotments.

Ultimately, the court ruled against the assessees, stating that the shares acquired after the initial issue did not qualify for exemption under the Act. It concluded that any increase in subscribed capital required issuing new shares, termed as subsequent or further issue, which differed from the initial share capital issue.

In conclusion, the judgment provided a detailed analysis of the interpretation of section 5(1)(xx) of the Wealth-tax Act, emphasizing the significance of shares being part of the initial share issue to qualify for exemption. The decision clarified the distinction between initial share capital and subsequent share issuances, leading to the denial of exemption for shares acquired after the initial issue.