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Interpretation of the term 'initial issue of share capital' for the purpose of exemption under section 5(1)(xxa) of the Wealth-tax Act, 1957. Analysis: The case involved two departmental appeals concerning the assessment year 1977-78. The first appeal pertained to a Hindu Undivided Family (HUF) headed by Shri V. Kristappa, while the second appeal concerned Shri V. Kristappa as an individual. The primary issue was whether the assessees were entitled to exemption under section 5(1)(xxa) of the Wealth-tax Act for purchasing shares of Rayalaseema Paper Mills before the public subscription prospectus was issued. The Wealth Tax Officer (WTO) denied the exemption, leading to appeals before the Appellate Assistant Commissioner (AAC). The AAC, after considering the interpretation of 'initial issue' and examining the prospectus details, concluded that shares purchased after the prospectus issue should also be eligible for exemption. The AAC reversed the WTO's decision and granted the exemption in both cases. Subsequently, the department appealed to the Income Tax Appellate Tribunal (ITAT), contending that the shares were offered for public subscription only after a specific date, making the exemption incorrect. The ITAT, after considering the Madras High Court decision in a similar case, emphasized the distinction between the creation of share capital and the allotment of shares. The ITAT held that the decision on issued share capital precedes the allotment process, and individuals subscribing to the memorandum become shareholders once the decision on issued capital is made. In this case, as the assessees were subscribers to the memorandum and there was no dispute regarding the company's decision on issued share capital before the relevant date, the ITAT concluded that the assessees rightfully held the shares from the purchase date, rejecting the revenue's argument that they acquired shares only after the public subscription advertisement. In conclusion, the ITAT dismissed the department's appeals, upholding that the assessees were entitled to the exemption under section 5(1)(xxa) as they were considered holders of the shares from the purchase date, irrespective of the public subscription prospectus date.
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