1987 (2) TMI 108 - AT - Wealth-tax

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

Summary

Issues:
- Whether the Appellate Asstt. Commissioner rightly rejected the assessee's claim for exemption under sec. 5(1)(xxa) of the Wealth-tax Act, 1957 in relation to shares of a company.
- Whether the company met the conditions specified in sec. 45(d) and clause (xxa) of sec. 5(1) for claiming exemption.
- Whether the denial of exemption by the WTO and AAC was justified based on the company's history and capital structure.

Analysis:

In the present case, the main issue revolves around the denial of exemption under sec. 5(1)(xxa) of the Wealth-tax Act, 1957 concerning the shares of M/s. Narendra Explosives Ltd. (NEL). The assessing officer observed that the assessee was not entitled to exemption as the company was established before the specified date of 28-2-1975, which impacted the initial issue of equity share capital. The AAC upheld this decision solely based on the initial issue of capital without delving into other aspects.

Upon review, the Tribunal analyzed the company's history and capital structure. NEL, incorporated in 1962, converted to a public limited company in 1973. The company made capital subscriptions in subsequent years, with a significant increase in authorized capital. The Tribunal highlighted the importance of the company's objectives and formation conditions as per sec. 45(d) and clause (xxa) of sec. 5(1). It was noted that NEL did not meet the criteria specified in clause (xxa) as it was not formed with the main object of manufacturing specified articles and the capital subscriptions did not align with the exemption requirements.

Furthermore, the Tribunal emphasized that even if alterations to the Memorandum of Association were made and approved by the High Court, it did not signify a new formation date for the company. The Tribunal concluded that NEL failed to satisfy the conditions of sec. 45(d) and clause (xxa) of sec. 5(1), rendering the denial of exemption justified. The Tribunal dismissed the appeals, affirming the decision to reject the exemption claim for the appellant's shareholding in NEL under clause (xxa) of Sec. 5 of the Act.

Overall, the judgment underscores the significance of meeting specific statutory conditions for claiming exemptions under the Wealth-tax Act and highlights the need for companies to adhere to the prescribed criteria for availing benefits under relevant provisions.