ORDER
Per Shri B. M. Kothari, Accountant Member – An interesting question of law is involved in this appeal preferred by the revenue against the order passed by the CWT (A). The revenue has raised the following ground :
“The CWT (A) has erred in law and on facts of the case in allowing claim of exemption under section 5(1) (xxa) of the Act on share worth Rs. 10,11,686.”
2. The assessee claimed exemption under section 5(1) (xxa) in respect of shares of various companies engaged in industrial undertaking in the priority section as enumerated in the IX the Schedule of the IT Act, totalling to Rs. 10,11,686-50. The WTO denied the aforesaid exemption to the assessee mainly on the following ground :-
(i) She is a dealer in shares as is evident from her income-tax assessments. Such exemption is available only to an investor in shares and not to a dealer in shares.
(ii) The WTO has the option to determine the value of business assets either in accordance with section 7(1) or to value the business assets as a whole, on the basis of global valuation as provided in section 7(2) (a), after making necessary adjustments as per Rules 2A to 2G. When valuation of business asset is done on global valuation basis, the assessee will not be entitled to get exemption under section 5(1) (xxa). Prescribed from of wealth-tax return also supports this view.
(iii) In order to get exemption under section 5(1) (xxa) the shares should be registered for the first time in the assessees name and he should not acquire or purchase the same by way of transfer from another previous owner of those shares.
(iv) The assessee should further prove that such shares have been held by him for a minimum period of six months as on the valuation date as required by section 5(3) (a) of WT Act.
2.1 The WTO also denied deduction under section 5(1) (xxa) in respect of shares of the following three companies owned by the assessee which were included in the total amount of such shares claimed to be eligible for such exemption :
Rs.
Rs.
(a)
Stormac India Ltd.
2,23,600
(b)
Gujarat Machine Tools Corpn.
4,500
(c)
M/s Indicart
60,300
exemption in respect of the shares of the aforesaid three companies was denied on account of the fact that the assessee did not produce certificates in respect of the aforesaid companies for discharging her burden of proving the eligibility of these shares for grant of exemption under section 5(1) (xxa).
3. On appeal the CWT (A) held that the WTO had himself allowed similar exemption in appellants own case for A. Ys. 1978-79 and 1979-80 and in the case of the appellants husband Shri M. K. S. Shivrajsinhji for A. Ys. 1980-81 & 1981-82. He further held that the language of section 5(1) (xxa) does not restrict the benefit to non-dealers only and accordingly he allowed the assessees claim with regard to such exemption in respect of eligible shares owned by her in 14 companies out of 17 companies claimed by the assessee. With regard to shares in the three remaining companies (mentioned in para 2.1 above), the learned CWT (A) restored the matter back to the WTO to look into the evidence produced by the assessee and to examine the assessees claim for grant of exemption under section 5(1) (xxa).
4. The revenue is aggrieved by the aforesaid order of the CWT (A) and contends that the CWT (A) has erred in allowing exemption under section 5(1) (xxa) to the assessee in respect of the shares worth Rs. 10,11,686. The learned D. R. relied upon the detailed reasons given by the WTO in the assessment order and contended that the various conditions prescribed under section 5(1) (xxa) are not fulfilled in the case of the assessee and the learned CWT (A) should not have granted the exemption. He repeated the same arguments which have been elaborately discussed in the assessment order passed by the WTO.
5. The learned counsel for the assessee supported the order passed by the CWT (A). He contended that the desired exemption was denied by the WTO mainly on the ground that such exemption is not allowable to a dealer in shares. He contended that section 5 does not anywhere provide any such condition that in order to avail the exemption under section 5(1) (xxa) the shares should be held by the assessee as an investor and not as a dealer. He further contended that section 7 does not in any manner control or over-ride the provisions of section 5. He further stated that similar exemption was granted to the assessee in the earlier years and such exemption has also been granted in the case of the assessees husband as per details mentioned in the order passed by the CWT (A). It was further contended that no action under section 25(2) or section 17 has been taken in the case of the assessee or in the case of her husband for the earlier years in which similar exemption has been granted. He contended that exemption is allowable for the entire initial issue of such shares issued by the company engaged in manufacture of priority items listed in the IX the Schedule and it is not meant for the initial purchase of such shares by an assessee. The provisions of section 5(1) (xxa) does not prescribe any condition that such exemption will be granted only if the assessee purchased such shares out of the initial issue directly from the company. He invited our attention towards section 5(3) of the Act to further support his contention that it is not necessary for the assessee to directly purchase such shares from the company or that such shares should be for the first time registered in the name of the assessee and the assessee cannot purchase it from other persons. Section 5(3) provides that exemption in respect of eligible shares under section 5(1) (xxa) will be allowed from the date on which such shares were first issued by the company or the assessee should own and hold the same at least for a period of 6 months ending with the relevant valuation date. This itself proves that even a subsequent buyer of such eligible shares from initial issue would be entitled to get exemption under section 5(1) (xxa). As regards the shares of the three companies mentioned in para 2. a above, he submitted that the CWT (A) vide para 3 of the order passed by him as merely restored the matter back to the WTO and directed him to look into the evidence produced by the assessee to satisfy him that the shares owned by the assessee are eligible for grant of exemption under section 5(1) (xxa) for the year under consideration. It was further pointed out that the WTO, after verifying the relevant facts as allowed exemption in respect of shares of the aforesaid tree companies owned by the assessee. However copy of such order passed by the WTO pursuant to the order of the CWT (A) was not available with the assessee at the time of hearing. The learned counsel thus strongly supported the order passed by the CWT (A) and urged that the revenues appeal should be dismissed.
6. We have carefully examined the rival submissions made by the learned representatives and have also gone through the orders passed by the learned authorities below. Section 5(1) (xxa) provides for grant of exemption in respect of initial issue of shares of companies engaged in industrial undertaking in the priority sector as enumerated in the 9th Schedule of the IT Act. This exemption is for five successive assessment years following the year of initial issue. The section does not prohibit grant of such exemption in respect of eligible shares owned by an assessee in his capacity as a dealer. It is nowhere, provided that in order to avail the said exemption the investment should be made by the assessee in his capacity as an investor and not as a dealer. Exemption has been granted in respect of the initial issue of the shares issued by those companies which are engaged in manufacture of priority items in order to promote the growth of such industries. It does not discriminate between the assessee who owned such shares either as a dealer or as an investor. Such exemption has been granted in an unqualified and unconditional manner to all assessee provided the conditions mentioned in section 5(1) (xxa) are fulfilled. The opening part of section 5(1) clearly provides that subject to the provisions of sub-section (1A), of section 5, wealth-tax shall not be payable by an assessee in respect of the various assets and such assets shall not be included in the net wealth of the assessee as have been listed in various sub-clauses of section 5(1). The aforesaid provisions of section 5(1) are apparently not subject to the provisions of section 7(1) or 7(2) which merely prescribes the mode of valuation of the assets. They very title of section 7 is “Value of assets, how to be determined”. These provisions are machinery provisions and cannot over-ride the provisions contained in section 5 which provides that no wealth-tax shall be payable on assets which are exempt under section 5. In view of the aforesaid discussions, we are of the considered opinion that the exemption under section 5(1) (xxa) will be available both to the dealer as well as the investor in respect of eligible shares, provided the conditions prescribed under section 5(1) (xxa) are fulfilled. Since the assessee has produced certificates issued by the ITO holding jurisdiction over the respective companies confirming that the particular initial issue of shares made by those companies are eligible for grant of exemption under section 5(1) (xxa) in respect of 14 out of 17 companies, the CWT (A) was fully justified in allowing the assessees claim for exemption in respect of such shares under section 5(1) (xxa).
6.1 As regards the contention of the learned WTO that such exemption should be allowed only in the case of those assessees who have purchased such shares out of the initial issue directly from the company, a careful perusal of section 5(1) (xxa) reveals that exemption in respect of such shares is dependent on the nature and qualifying conditions of the shares and it has not been prescribed in the aforesaid section that in order to avail the exemption under this section the eligible shares should be purchased by the assessee directly from the company. The exemption is attached to the qualifying initial issue of shares for a qualifying initial issue of shares for a qualifying period of 5 years and is not subject to the condition that it should be directly purchased from the company or the assessee should be the first registered owner of such shares. A subsequent purchaser of the qualifying shares would also be entitled to get exemption for the balance of the qualifying period of 5 years. This is evident from the provisions of section 5(3) (a) which provides that such shares must be held by the assessee from the date of first issue or for a period 6 months ending on the relevant valuation date. Thus in order to avail exemption under section 5(1) (xxa) the eligible equity shares must be owned by the assessee –
(a) from the date on which such shares were first issued by the company, or (b) for a period of at least six months ending with the relevant valuation date, whichever is shorter.
The aforesaid provisions of section 5(3) (a) further clearly supports the assessees contention that such exemption will be allowable in the case of a subsequent purchaser of qualifying shares for the balance of qualifying period of 5 years subject to the fulfilment of the condition that the assessee owned such shares at least for a period of 6 months ending with the valuation date. In view of the aforesaid discussions, the objections of the learned WTO that the exemption can be granted only in respect of those shares which were purchased by the assessee directly from the company is also not sustainable.
6.2 As regards the shares of the three companies referred to in para 2.1 the order passed by the learned CWT (A) was perfectly valid as he had merely restored the matter back to the WTO for examining the evidence submitted by the assessee to determine the eligibility of those shares for the purpose of exemption under section 5(1) (xxa).
6.3 In view of the aforesaid discussions, we are of the considered opinion that the order passed by the CWT (A) was perfectly valid and does not require any interference.
7. In the result, the revenues appeal is dismissed.
