Circular No. 69

1363. Equity shares issued by company in respect of which exemption is available under clause (xx) of sub-section (1) - Company could make application for issue of appropriate certificate for claiming exemption by individual shareholders

What this is

Circular No. 69 was issued by the Central Board of Direct Taxes on 18 November 1971. Its subject is 1363. Equity shares issued by company in respect of which exemption is available under clause (xx) of sub-section (1) - Company could make application for issue of appropriate certificate for claiming exemption by individual shareholders.

This grants an exemption or a relief under a provision that allows one. Read the conditions attached: an exemption notification is construed strictly, and a condition missed is the exemption lost.

What it does

Creates a company-level route for establishing the wealth-tax exemption under section 5(1)(xx) of the Wealth-tax Act, 1957, which exempts the value of equity shares forming part of a company's initial issue of equity share capital made after 31-3-1964, for five successive assessment years beginning with the year after the company commences the operations for which it was established, the company being of the type described in section 45(d). Instead of each shareholder proving the point before his own Wealth-tax Officer, the company may apply in the form at Annex A to the Income-tax Officer-cum-Wealth-tax Officer assessing it, and on the certificate in Annex B being issued the company gives copies to its shareholders, who produce them in their own assessments. The certificate itself states the date of the initial issue, the date operations commenced and the two assessment years for which the exemption runs.

Why it was issued

Assessees were found to be put to avoidable inconvenience in establishing the section 5(1)(xx) exemption individually in their own wealth-tax assessments.

Who it reaches

Shareholders holding initial-issue equity in a new company claiming wealth-tax exemption
Companies that made an initial issue of equity share capital after 31-3-1964
Income-tax Officers-cum-Wealth-tax Officers assessing such companies
Wealth-tax Officers assessing the individual shareholders

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.5	s.5
s.45	s.2, s.67

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

1363. Equity shares issued by company in respect of which exemption is available under clause (xx) of sub-section (1) - Company could make application for issue of appropriate certificate for claiming exemption by individual shareholders
1. Attention is invited to the provisions contained in clause (xx) of sub-section (1) of section 5. Clause (xx) exempts from wealth-tax the value of any equity shares held by the assessees 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 March 31, 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.
2. It has been found that the assessees experience some avoidable inconvenience in claiming exemption under section 5(1)(xx) individually in their respective assessments before the Wealth-tax Officer. The Board, after careful consideration of such instances, have decided that, where the equity shares issued by a company qualify for exemption under section 5(1)(xx), the company itself could make an application to the Income-tax Officer (who is also the Wealth-tax Officer) assessing the company, for the issue of an appropriate certificate. When the certificate is issued the company should furnish copies of the same to each of its shareholders who can, in turn, produce it before his Wealth-tax Officer for claiming exemption under section 5(1)(xx).
3. The Board have also decided that an application for the issue of certificate be submitted by the company to the Income-tax Officer assessing it in the form as per Annex "A". The form in which the certificate would be issued by the Income-tax Officer-cum-Wealth-tax Officer to the company is specified as per enclosed Annex "B".
Circular : No. 69 [F. No. 1/10/68-WT], dated 18-11-1971.
ANNEX A - APPLICATION FOR ISSUE OF CERTIFICATE FOR EXEMPTION UNDER SECTION 5(1)(xx)
To
The Income-tax Officer-cum-Wealth-tax Officer,
........................................................................
........................................................................
Sir,
I submit the following information with the request that the value of equity shares issued by M/s.............................................................. to the shareholders be declared as being exempt under section 5(1)(xx) of the Wealth-tax Act, 1957, in the hands of the respective shareholders for assessment year 19 ................ 19 ............... :
1. Name of the company
2. Whether the conditions laid down in section 45(d) of Wealth-tax Act, 1957, are satisfied (furnish details)
3. Place of registration and location of head office
4. Total amount of capital under issue
(a) Initial issue of equity share
(b) Others
5. Date of issue of initial issue of equity share capital
6. Date of commencement of the operation of the company for which it has been established
7. Miscellaneous information
DECLARATION
I hereby declare that to the best of my knowledge and belief, the information given above is correct, complete and truly stated.

.........................................................................

Signature of the Principal Officer

Place.....................................

Status .........................................................

Date.....................................

Address ......................................................

ANNEX B - FORM OF CERTIFICATE
OFFICE OF THE INCOME-TAX-CUM-WEALTH-TAX OFFICER
Place..................................
Date....................................
To
The Principal Officer,
.................................................................................
.................................................................................
Certified that M/s ............................................................. (name of the company) have issued initial issue of equity share on ................................................... to its shareholders and the value of these equity shares qualifies for exemption under section 5(1)(xx) read with section 45(d) of the Wealth-tax Act, 1957, in the hands of the respective shareholders. The company started operation, for which it has been established, with effect from ........................................................... and the exemption is allowable only for the assessment years 19 .......... and 19 .......... which are the ...................... assessment years subsequent to the commencement of the operations for which the aforesaid company was established.

Income-tax-cum-Wealth-tax Officer,

Ward...........................................

What to watch

This is a Wealth-tax Act circular, not an income-tax one; the exemption and the conditions are those of section 5(1)(xx) read with section 45(d) of the Wealth-tax Act, 1957.
The exemption runs for five successive assessment years starting with the year after operations commence, so the company's certificate has to name the correct years.
Only shares forming part of the initial issue of equity share capital made after 31-3-1964 qualify; later issues do not.
The certificate is a convenience, not a substitute for the shareholder's own claim, which he must still make before his Wealth-tax Officer, and wealth-tax on such holdings is no longer levied.

Where you meet it

On an old wealth-tax assessment where a shareholder claims exemption for shares in a newly established company.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 13/2024 [F.No. C-14011/41/2018-V&L] / SO 312(E) — Ministry of Finance 19 January 2024
Notification No. 12/2024 [F.No. C-14011/46/2018-V&L] / SO 311(E) — Ministry of Finance 19 January 2024
Circular No. 22/2022 — Condonation of delay under section 119 2 b of the income tax act 1961 in filing of form no.10a 1 November 2022
Notification No. 93/2021 [F.No. 370142/34/2021-TPL(Part III)] / GSR 578(E) — Ministry of Finance 18 August 2021
Circular No. 3/2021 — Circular under section 10 of the direct tax vivad se vishwas act 2020 4 March 2021
Circular No. 21/2020 — Clarifications on provisions of the direct tax vivad se vishwas act 2020 4 December 2020

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A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.