9911796707
TMI Blog1986 (9) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... aseema Paper Mills on 27-3-1976. So also he purchased 4,750 equity shares of Rs. 10 denomination and 7,000 shares of Rs. 5 denomination of Rayalaseema Paper Mills in his individual name. He claimed exemption under section 5(1)(xxa) of the Wealth-tax Act, 1957 ('the Act') for a sum of Rs. 1,96,500 in the case of the HUF and Rs. 1,75,000 in the case of an individual. The WTO denied the exemption on the ground that the assessee purchased these shares before the issue of prospectus to the public subscription and, therefore, on that ground the assessee is not entitled to exemption prayed for. He included the amounts claimed as exemption in the net wealth of the assessees and framed assessments dated 3-3-1982 in both the cases. 3. Each of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 5(1)(xxa) and that would defeat the very purpose for which the section was introduced. He held that the initial issue in the case of a public limited company would also include all shares subscribed by promotors, directors and friends and public in response to prospectus. He reversed the decision of the WTO and granted deduction of Rs. 1,96,500 in the case of the HUF and Rs. 1,75,000 in the case of an individual. 4. Aggrieved by the impugned orders of the AAC the department came up in second appeal before this Tribunal. It was contended that the shares of Rayalaseema Paper Mills were offered for public subscription on 15-2-1978 only and, therefore, the assessee could not have held the shares by 31-12-1976 and, therefore, the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the implementation of the decision relating to the issue of share capital. Allotment cannot be made before the capital issue is decided upon, whereas the issue of capital as such, is complete as a corporate decision, before allotment begins. Citing from another English decision their Lordships of the Madras High Court held that allotment of shares is an appropriation by the directors or the managing body of the company of shares to a particular person. They held that the Indian company law is not different from the English law which they considered. They further held that the language of exemption in the Act does not upset the distinction between the issue of share capital and the allotment of shares. The Madras High Court was considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be the issued share capital. In the case of such persons allotment of shares is not necessary. However, in this case there is no dispute that the assessee both in his individual capacity as well as in HUF capacity was a subscriber to the memorandum of association or promotor for the formation of Rayalaseema Paper Mills. It is not the case of the department that no decision was taken by Rayalaseema Paper Mills as to how much is to be the issued share capital prior to 15-2-1978. It is not denied that the assessee purchased shares on 27-3-1976. Even assuming for a while that before subscription was called for on 15-2-1978 it cannot be said that till then the promotors who have invested large moneys towards subscribing share capital cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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