1987 (2) TMI 107 - AT - Wealth-tax

Assessment Year, High Court, Industrial Company, Private Company, Public Limited Company, Subscribed Capital

Issues:
1. Whether the assessee was entitled to exemption under sec. 5(1)(xxa) of the Wealth-tax Act, 1957 in respect of shares of M/s. Narendra Explosives Ltd. (NEL).

Analysis:
1. The case involved appeals challenging the rejection of exemption by the Appellate Asstt. Commissioner of Wealth-tax for assessment years 1982-83 and later years regarding the value of shares of NEL.
2. The value of shareholdings in NEL for the relevant years was not in dispute, but the eligibility for exemption under sec. 5(1)(xxa) was the key issue.
3. The history of NEL was crucial to determine if it met the conditions for exemption, including its incorporation as a private company, subsequent capital subscriptions, and conversion into a public limited company.
4. The company's alteration of its Memorandum of Association to manufacture industrial explosives was approved by the High Court, indicating a shift in its main object.
5. Further capital subscriptions in subsequent financial years raised the authorized capital of NEL to Rs. 5 lacs, leading to the question of whether these constituted the initial issue of equity share capital.
6. The assessing officer denied exemption citing conditions under sec. 5(1)(xxa) and sec. 81 of the Indian Companies Act related to the initial issue of capital.
7. The AAC confirmed the assessment based on the issue of initial capital.
8. Arguments were presented regarding the timing of capital subscriptions and the necessity of a fresh resolution for capital increase.
9. The appellant contended that certain subscriptions were not based on board resolutions, challenging their classification as capital issues.
10. A resolution in 1977 aimed to broaden the capital base, but discrepancies in capital figures raised questions about the initial issue of equity shares.
11. The Revenue supported the denial of exemption despite arguments presented by the appellant.
12. The Tribunal analyzed the relevant facts, highlighting the capital structure of NEL and the conditions under sec. 45(d) and sec. 5(1)(xxa).
13. The Tribunal emphasized the conditions under sec. 45(d) that the company must be established for specific purposes and not formed through certain methods.
14. The Tribunal concluded that NEL did not meet the main object requirement under clause (xxa) and had subscribed capital before the specified date, rendering it ineligible for exemption.
15. Considering the above, the Tribunal found it unnecessary to delve into other restrictions under sec. 45(d).
16. The Tribunal noted that all prohibitions under sec. 45(d) were present, preventing NEL from qualifying for the exemption under clause (xxa).
17. Despite varying reasons given by the assessing officer and the AAC, the Tribunal upheld the denial of exemption for the appellant's shareholding in NEL under sec. 5 of the Act.
18. Consequently, the appeals were dismissed, affirming the decision to deny exemption to the appellant.
19. The Tribunal's order would serve as the basis for deciding similar appeals in other cases mentioned in the judgment.

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