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TMI Blog1982 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... as made by the company after March 31, 1964. It was accordingly urged that s. 5(1)(xx) applied. Section 5(1)(xx), as it was in force during the relevant period, exempted from wealth-tax: " The value of any equity shares held by the assessee in any company of the type referred to in clause (d) of section 45, where such shares form part of the initial issue of equity share capital made by the company after the 31st day of March, 1964, for a period of five successive assessment years commencing with the assessment year next following the date on which such company commences the operations for which it has been established." The idea behind this exemption is to be found in the Central Government's policy to encourage capital formation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the relevant board resolutions relating to the issue of share capital in this company. The process of capital formation in a company consists of several stages of corporate decision making. They are described succinctly in an English decision as under: " There are three steps with regard to new capital : first it is created till it is created the capital does not exist at all. When it is created it may remain unissued for years ...... When it is issued it may be issued on such terms as appear for the moment expedient. Next comes allotment." (Per Farwell L.J. in Mosely v. Koffyfontein Mines Ltd. [1911] 1 Ch 73 (CA) at p. 84). When the company is being formed the subscribers to the memorandum or the promoters decide how much i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation Ltd. [1963] 33 Comp Cas 862 ; [1964] 3 SCR 698. The language of the exemption in the W.T. Act does not, in our judgment upset this distinction between the two processes, namely, the issue of share capital by way of declaration of the gross and the allotment of shares by way of appropriation to individual subscribers. Section 5(1)(xx) of the W.T. Act lays down the requirement that there must be an " initial issue of share capital " and a further requirement that the assessee's shares must be " part of " that initial issue of share capital. The expression It part of " only means that the shares must relate to the initial issue. They may so relate in one of two ways according as the persons concerned are subscribers to the memorandu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue. In this particular regard, the decision was to carry out the allotment in four stages. As it happened, at this very meeting the company carried out the first stage in that it : " further resolved that the following distinctive number of shares will be allotted to the signatories of the memorandum of association " (details omitted). There were subsequent board meetings on March 16, 1963, May 21, 1964, and March 15, 1967, in which the company allotted the balance of the shares to various applicants. It is quite clear from the resolutions that so far as the initial issue of share capital was concerned, that question was taken and decided upon in the meeting of November 7, 1962. Only the details of allotment of shares which formed pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one on May 21, 1964, of 3,201 shares, and the other, on March 15, 1967, of 1,598 shares aggregating to 4,799 shares. The Tribunal relied for their decision on the entries in the balancesheets drawn up by the company subsequent to the board's resolution dated November 7, 1962. Although the resolution referred to Rs. 24,50,000 as the initial issue of share capital, the Tribunal pointed out that the company's balance-sheets desisted from depicting that entire figure as the issued share capital from that time onwards. On the contrary, what was shown on the liabilities side as the company's issued share capital was just the value of shares which stood actually allotted to the shareholders as on the relevant dates of the balance-sheets and no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccept without question the underlying assumptions of a balance-sheet on questions of law and accountancy. The decision of the Supreme Court relied on by the Tribunal is by no means an authority for the proposition that courts of law should accept a book-keeper's or auditor's view of the law, even of company law for that matter. Our conclusion, therefore, is that the Tribunal's order cannot be supported. It only remains for us to set down seriatim the questions of law referred to us by the Tribunal and indicate our answers against each. Assessment years 1966-67 to 1969-70: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was entitled to exemption to the tune o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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