TaxTMI 
TaxTMI 
1982 (9) TMI 6
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....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 in new industrial companies. The object was sought to be achieved by drawing a date-line at March 31, 1964, and granting the exemption to newly floated companies which issue capital after March 31, 1964. Shares which form part of the issued share capital prior to March 31, 1964, are not entitled to exemption. Besides, since the avowed purpose for the tax relief was to encourage new floatations and to help new corporate enterprises during their formative periods, the exemption of shares from wealth-tax was strictly limited to the first five years of business launched under the new floatations. The assessee's claim in the assessment proceedings was that her 4,799 shares were exempt from wealth-tax under s. 5(1)(xx) of the Act. The WTO disallowed the claim. The Tribunal disagreed with the WTO and ....
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....n by the directors or the managing body of the company of shares to a particular person " (per Sterling J., in Spitzel v. Chinese Corporation [1899] 80 LT 347). Indian company law is not different. In our country too, the distinction is maintained between issue of share capital and allotment of shares. Only after the capital is issued the question can arise whether any one is a holder of shares comprised in that issue. Before the issue of capital, the question does not arise. Vide Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association 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 r....
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....ar as the assessee was concerned, 8,000 shares were allotted to her from out of the 24,500 equity shares reserved as the initial issue under the board resolution dated November 7, 1962. The details of the allotments as found from the Tribunal's statement of the case are as under : ---------------------------------------------------------- Date of board's resolution Number of shares allotted allotting the shares to the assessee ---------------------------------------------------------- 7-11-1962 201 16- 3-1963 3,000 31- 5-1964 3,201  ....
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....eets. The Tribunal relied for this position on CIT v. Gangadhar Banerjee and Co. P. Ltd. [1965] 57 ITR 176, a decision of the Supreme Court. We reject the Tribunal's order as erroneous in every respect. It proceeds on a mistaken view of what an issue of share capital is, both under the company law and under the fiscal law. We have earlier referred to decided cases and explained why the issue of share capital is a different phenomenon under company law and practice from the allotment of shares. Even on the footing that the W.T. Act refers only to allotment of shares when it speaks of issue of share capital, the Tribunal clearly erred in holding that the third and fourth allotments of shares by the company must yet be treated as " initial ". The Tribunal missed the elementary notion that what is initial is the first alone and the rest is nowhere. As for the Tribunal's reference to the company's balance-sheets, we think they are out of place in the present discussion. A balance-sheet drawn up by a company cannot be an aid to the construction of an Act of Parliament. What is depicted therein reflects or orientates the theory and practice of corporate accountants. It is one thing ....