Circular No. 627 — Exemption to equity shares under section 5(1)(xxa)

What this is

Circular No. 627 was issued by the Central Board of Direct Taxes on 27 February 1992. Its subject is 1366. Exemption to equity shares under section 5(1)(xxa) - Clarification in view of omission of Ninth Schedule to the Income-tax Act.

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

Keeps the exemption in section 5(1)(xxa) of the Wealth-tax Act, 1957 alive after the Ninth Schedule to the Income-tax Act was omitted with effect from 1-4-1988. That clause exempts the value of equity shares in a company of the type referred to in clause (d) of section 45, established with the main object of manufacturing or producing an article or thing specified in the Ninth Schedule list, where the shares form part of the initial issue of equity share capital made after 28th February, 1975, for five successive assessment years starting with the year following the first issue of the shares. The Board, advised by the Law Ministry, says the omission of the Ninth Schedule does not affect the admissibility of the exemption, and for this limited purpose the Ninth Schedule can be taken to be in the statute; Assessing Officers are to decide claims accordingly.

Why it was issued

A number of representations sought clarification whether the exemption survived the omission of the Ninth Schedule from the Income-tax Act with effect from 1-4-1988.

Who it reaches

Wealth-tax assessees holding initial issue equity shares of such companies
Companies whose initial issues carried the exemption
Assessing Officers deciding claims under section 5(1)(xxa)

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.

1366. Exemption to equity shares under section 5(1)(xxa) - Clarification in view of omission of Ninth Schedule to the Income-tax Act
1. Section 5(1)(xxa ) of the Wealth-tax Act, 1957 provides for exemption from wealth-tax in respect of value of equity shares in any company of the type referred to in clause (d) of section 45 which is established with the main object of carrying on the business of manufacture or production of any one or more of the articles or things specified in the list in the Ninth Schedule to the Income-tax Act, where such shares form part of the initial issue of equity share capital made by the company after the 28th day of February, 1975 for a period of five successive assessment years commencing with the assessment year next following the date on which such shares were first issued.
2. A number of representations have been received in the Board seeking clarification about admissibility of exemption under section 5(1)(xxa) of the Wealth-tax Act in view of the omission of the Ninth Schedule to the Income-tax Act w.e.f. 1-4-1988.
3. The matter has been considered in consultation with the Law Ministry who have advised that the omission of the Ninth Schedule from the Income-tax Act does not affect the admissibility of exemption under section 5(1)(xxa) of the Wealth-tax Act and, for this limited purpose, the Ninth Schedule can be taken to be in the statute. The Assessing Officers shall decide the claims made under section 5(1)(xxa ) of the Wealth-tax Act accordingly.
Circular : No. 627, dated 27-2-1992.

What to watch

This is a Wealth-tax Act circular, not an income-tax one.
The Ninth Schedule is treated as available for this limited purpose only; it is not revived for anything else.
The other conditions are unaffected: the shares must be part of an initial issue made after 28th February, 1975, and the exemption runs for five successive assessment years from the year after the first issue.
The Wealth-tax Act has since been recast in terms this text does not carry.

Where you meet it

In a wealth-tax assessment where the exemption on initial issue shares is denied on the footing that the Ninth Schedule no longer exists.

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

← Circular No. 628 · Circular No. 625 →

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.