1364. Interpretation of expression "Initial issue of equity share capital" used in clause (xx) of sub-section (1)
Circular No. 74 was issued by the Central Board of Direct Taxes on 15 January 1972. Its subject is 1364. Interpretation of expression "Initial issue of equity share capital" used in clause (xx) of sub-section (1).
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.
Construes 'initial issue of equity share capital' in section 5(1)(xx) of the Wealth-tax Act. That clause had exempted from wealth-tax, for five years from the assessment year following commencement of operations, equity shares in a company of the kind in section 45(d) - established to carry on an industrial undertaking in India - where the shares formed part of an initial issue of equity share capital made after 31 March 1964; section 32 of the Finance (No. 2) Act, 1971 withdrew the exemption for shares forming part of an initial issue made after 31 May 1971. The Board clarifies that where the initial issue opened for subscription before 1 June 1971, shares forming part of it continue to qualify, whether they were actually subscribed for before or after that date. It adds that shares in an Indian company not entitled to the clause (xx) exemption fall into the categories of investments exempt under section 5(1)(xxiii) read with section 5(1A) up to an aggregate value of Rs. 1,50,000.
Doubts had been raised about the meaning of 'initial issue of equity share capital' after the Finance (No. 2) Act, 1971 withdrew the exemption for issues made after 31 May 1971.
1364. Interpretation of expression "Initial issue of equity share capital" used in clause (xx) of sub-section (1)
1. Attention is invited to the provisions of clause (xx) of sub-section (1) of section 5, as amended by the Finance (No. 2) Act, 1971. Prior to this amendment, the value of any equity shares, held by the assessee in any company of the type referred to in clause (d) of section 45, i.e., a company established with the object of carrying on an industrial undertaking in India where such shares formed part of the initial issue of equity share capital made by the company after March 31, 1964, was exempted from wealth-tax; the exemption being available for a period of 5 years commencing with the assessment year next following the date on which such company commenced the operations for which it had been established. The exemption has been withdrawn by the amendment effected through section 32 of the Finance (No. 2) Act, 1971, in respect of shares forming part of an initial issue of equity share capital made after May 31, 1971.
2. Some doubts have been raised about the interpretation of the expression "initial issue of equity share capital". It is clarified that in respect of an initial issue of equity share capital which opened for subscription before June 1, 1971, shares forming part of such issue would continue to qualify for the exemption under clause (xx ) of sub-section (1) of section 5, irrespective of whether such shares are actually subscribed for before or after that date.
3. It may be added here that in terms of clause (xxiii) of sub-section (1), read with sub-section (1A) of section 5, shares in any Indian company which are not entitled to the exemption referred to in the said clause (xx ) will be included in the categories of investments which are exempt from wealth-tax up to the aggregate value of Rs. 1,50,000.
Circular : No. 74 [F. No. 317/2/72-WT], dated 15-1-1972.
In old wealth-tax assessments where the exemption on shares of a new industrial company was refused by reference to the date of allotment.
Source: the Income Tax Department’s own published text — its page for this instrument.