KAMALA KUMARI VS COMMISSIONER OF WEALTH TAX
1997 P T D 1071
[222 I T R 827]
[Punjab and Haryana High Court (India)]
Before Ashok Bhan and N.K. Agrawal, JJ
Mrs. KAMLA KUMARI
versus
COMMISSIONER OF WEALTH TAX
Wealth Tax References Nos. l, 2 and 3 of 1983, decided on 08/07/1996.
Wealth tax---
----Exemption---Shares---Exemption allowable in respect of shares forming part of initial issue only---Shares' subsequently issued not entitled to exemption---Indian Wealth Tax Act, 1957, S.5(1)(xx).
The assessee claimed exemption in respect of equity shares of a company under section 5(1)(xx) of the Wealth Tax Act, 1959. She had purchased 30 equity shares of the company on July 26, 1968, and 250 shares on March 31, 1970. Exemption was allowed by the Wealth Tax Officer for 30 shares and exemption was refused for 250 shares as they did not form part of the initial issue of equity shares made by the company. On a reference:
Held, that the shares claimed to be exempt should form part of the initial issue of equity share capital made by the company. The assessee purchased 250 equity shares out of subsequent or further issue of shares made by the company and not out of initial issue of shares. Therefore, the assessee was not entitled to exemption under section 5(1)(xx) of the Wealth Tax Act, 1957, in respect of 250 shares acquired on March 31, 1970.
CWT v. Meenakshi Achi (V.S.Sv.) (1984) 147 ITR 14 (Mad.) ref.
S. S. Mahajan with Ms. Aparna Mahajan for the Assessee.
R.P. Sawhrey, Senior Advocate with Sanjay Goyal for the Commissioner.
JUDGMENT
N.K. AGARWAL, J.---This judgment will dispose of Wealth Tax References Nos. l, 2 and 3 of 1983, as a common question of law is involved therein.
The following common question has been referred to this Court for opinion under section 27(1) of the Wealth Tax Act, 1957 for short, "the Act", in the cases of two assessee, namely, Shrimati Kamla Kumari (for the assessment year 1973-74) and Shrimati Kaushalya Devi (for the assessment years 1973-74 and 1974-75):
"Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was right in holding that the applicant was not entitled to exemption under section 5(1)(xx) of the Wealth Tax Act, 1957, in respect of 250 shares of Avery Cycle Industries (Pvt.) Ltd., acquired on March 31, 1970?"
The facts giving rise to these references are as follows:
Shrimati Kamla Kumari was an assessee under the Act. She claimed exemption in respect of equity shares of Avery Cycle Industries (Pvt.) Ltd., under section 5(1)(xx) of the Act. She had purchased 30 equity shares of that company on July 26, 1968, and 250 shares. on March 31, 1970. The Wealth Tax Officer allowed exemption in respect of 30 shares but refused to allow the benefit of exemption for 250 shares on the ground that the second lot of 250 shares did not form part of the 'initial issue of the equity shares made by the company. The balance sheet of Avery Cycle Industries (Pvt.) Ltd., for the year ending on March 31, 1969, showed authorised share capital at Rs.25,00,000 consisting of 25,000 equity shares of Rs.100 each. However, 10,086 equity shares of Rs.100 each were shown as issued, subscribed and paid-up, shares valued at Rs.10,08,600. Since the assessee, namely, Shrimati Kamla Kumari, had admittedly acquired 250 shares on March 31, 1970, a view was taken by the learned assessing authority that these shares did not form part of the initial issue of the equity shares.
In the case of Shrimati Kaushalya Devi, 25 shares had been acquired on July 26, 1968, and 250 shares on March 31, 1970. Here also, exemption was allowed under section 5(1)(xx) of the Act in respect of 25 shares only.
Section 5(1)(xx) was inserted in the Act by the Finance Act, 1965, with effect from April, 1, 1965. It reads as under:
"5. Exemption in respect of certain assets.---(1) Subject to the provisions of subsection (IA), wealth tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee---
(xx) 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; but before the 1st day of June, 1971, 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;"
A bare reading of the above exemption clause makes it clear that three conditions, as under, are required to be fulfilled for claiming the benefit:
(1) Equity shares in any company are qualified for exemption if such company is of the type referred to in clause (d) of section 45 of the Act;
(2) Such shares should form part of the initial issue of the equity share capital made by the company; and
(3) issue of equity shares should have ;been made by the company after March 31, 1964, but before June 1, 1971.
The first condition which is required to be fulfilled is not in controversy. Under clause (d) of section 45 of the Act, any company which has been established with the object of carrying on an industrial undertaking and has not been formed by the splitting up or the reconstruction of a business already in existence or by the transfer of a new business, would qualify for the benefit. The second condition is relevant for consideration here. The shares claimed to be exempted should form part of the initial issue of the. equity share capital made by the company. The board of directors of Avery Cycle Industries (Pvt.) Ltd., appears to have passed a resolution, dated April 12, 1968, authorising the managing director of the company to raise funds by the sale of shares of the company or by raising loan, Equity shares were consequently issued by the company thereafter. Out of the authorised share capital of 25,000 equity shares of Rs.100 each, the company issued 10,086 equity shares only, initially. The company thereafter, decided to increase its subscribed capital and, or that purpose, subsequent or further issue was made. The assessee purchased 250 shares out of the subsequent issue of shares made after March 31, 1969.
The third condition which is required to be fulfilled for claiming exemption under section 5(1)(xx) of the Act is that the initial issue of equity shares should be made by the company between April 1, 1964, and May 31, 1971. In this case equity shares purchased by the assessee were issued within the aforesaid period.
In order to see whether any shares are part of the initial issue of -share capital, it has to be found out as to when the company resolved for the first time upon its issued share capital. Thereafter, it has to be further seen whether the particular shares emanated from that issue either by allotment or otherwise. Any increase in the subscribed capital by issue of new shares is within the competence of the board of directors and is governed by the provisions of the Companies Act, 1956. The Board may, in its discretion, increase the subscribed capital within the limit of the authorised capital. Whatever equity shares had been issued by Avery Cycle Industries (Pvt. ) Ltd., in the first instance, that constituted obviously the initial issue of share capital. The subsequent increase m the subscribed capital within the limit of the nominal or authorised capital would not be treated to be the initial issue. In the case of CWT v V.S.S.V. Meenakshi Achi (1984) 147 ITR 14, the Madras High Court examined the distinction between. "the issue of share capital" and "the allotment of shares". In that case, the company had passed a resolution on November 7, 1962, to issue 24,600 equity shares of Rs.100 each to be allotted in four stages to the subscribers as initial issue. Two allotments consisting of 3,201 shares were made to the assessee prior to March 31, 1964, and two further allotments consisting of 4,799 shares were made after March 31, 1974. It was held that the assessee was not entitled to exemption under section 5(1)(xx) of the Act inasmuch as the initial issue has been made by the company prior to March 31, 1964. It was the initial issue which was relevant for the purposes of exemption and not the allotment of shares.
The purchase of 250 equity shares by the assessee is subsequent to the issue of 10,086 equity shares made by the company. The assessee thus acquired these shares out of the subsequent or further issue of shares made by the company. Since the company decided to increase its subscribed capital, more shares were issued. The distinction is thus very clear that whatever shares had already been issued up to March 31, 1969, those only qualified for exemption under section 5(1)(xx) of the Act. Any increase in the subscribed capital could only be effected through the issue of new shares. This issue of new shares shall have to be called subsequent or further issue of share capital as distinct from initial issue of share capital.
The question is, therefore, decided in the negative and against the assessees. The references are disposed of accordingly.
M.B.A./1209/FC???????????????????????????????????????????????????????????????????? Reference answered.