These are two departmental appeals relating to assessment years 1977-78. 2. In first of appeals assessee is HUF headed by Shri V. Kristappa and in second of appeals assessee is individual Shri V. Kristappa of Adoni. For assessment year 1977-78 for which previous year is calendar year 1976 HUF headed by Shri V. Kristappa purchased 19,650 shares of Rs. 10 face value of Rayalaseema Paper Mills on 27-3-1976. S o also purchased 4,750 equity shares of Rs. 10 denomination and 7,000 shares of Rs. 5 denomination of Rayalaseema Paper Mills in his individual name. He claimed exemption under section 5(1) (xxa) of Wealth-tax Act, 1957 ('the Act') for sum of Rs. 1,96,500 in case of HUF and Rs. 1,75,000 in case of individual. WTO denied exemption on ground that assessee purchased these shares before issue of prospectus to public subscription and, therefore, on that ground assessee is not entitled to exemption prayed for. He included amounts claimed as exemption in net wealth of assessees and framed assessments dated 3-3-1982 in both cases. 3. Each of assessees having been aggrieved against assessments went in appeal before AAC. AAC in his separate impugned orders considered what is true meaning of word 'initial issue' and in order to find out its true meaning he followed interpretation given to those words at page 1.151 by Shri C. A. Gulanikar in his Law and Practice of Gift-tax and Wealth-tax, 1984 edn. AAC further found after verifying printed prospectus of Rayalaseema Paper Mills issued in January 1978 that 7,50,000 shares of Rs. 10 each were subscribed by and allotted to Shri T. G. Vasantha Gupta, his friends and associates as fully paid up for cash at par. So also there was another contribution of Rs. 76,87,500 (comprising shares of Rs. 5 value) by Shri T. G. Vasantha Gupta, his friends and associates for cash at par. Before issue of prospectus there was allotment of shares to Andhra Pradesh Industrial Development Corpn. Out of total of 91,50,000 equity shares decided for issue 45,75,000 had already been issued and and partly adjusted at time of issue of prospectus. Out of balance of 45,75,000 equity shares 44,83,500 were offered for public subscription in terms of prospectus. After gathering abovesaid necessary elementary information and after looking in implications of WTO's order AAC felt that if view of WTO is accepted then shares purchased subsequent to issue of prospectus would not be entitled to exemption under section 5(1) (xxa) and that would defeat very purpose for which section was introduced. He held that initial issue in case of public limited company would also include all shares subscribed by promoters, directors and friends and public in response to prospectus. He reversed decision of WTO and granted deduction of Rs. 1,96,500 in case of HUF and Rs. 1,75,000 in case of individual. 4. Aggrieved by impugned orders of AAC department came up i n second appeal before this Tribunal. It was contended that shares of Rayalaseema Paper Mills were offered for public subscription on 15-2-1978 only and, therefore, assessee could not have held shares by 31-12-1976 and, therefore, amounts towards purchase of shares merely constituted money advanced in which case allowing exemption under section 5(1) (xxa ) would not be correct. 5. We have heard learned departmental representative. None appeared for assessee. We found matter covered by decision of Madras High Court in CWT v. V. S. S. V. Meenakshi Achi [1984] 147 ITR 14 at p. 16. In that case also their Lordships of Madras High Court had considered true meaning of phrase 'initial issue of share capital'. Madras High Court held that process of capital formation in company consists of several stages of corporate decision making. Quoting from English decision in Mosely v. Koffyfontein Mines Ltd. [1911] 1 Ch. 73 (CA) at p. 84 they held that 'there are three steps with regard to new capital: first it is created; till it is created capital does not exist at all. When it is created it may remain unissued for years .... When it is issued it may be issued on such terms as appear for moment expedient. Next comes allotment'. At time of formation of company subscribers to memorandum or promoters decide how much is to be nominal or authorised capital of company. Then comes decision as to how much is to be issued share capital. As part of this determination it may be decided whether whole, or only part of issued determination it may be decided whether whole, or only part of issued capital is to be paid up. allotment or other process by which company makes person holder of shares is merely implementation of decision relating to issue of share capital. Allotment cannot be made before capital issue is decided upon, whereas issue of capital as such, is complete as corporate decision, before allotment begins. Citing from another English decision their Lordships of Madras High Court held that allotment of shares is appropriation by directors of managing body of company of shares to particular person. They held that Indian company law is not different from English law which they considered. They further held that language of exemption in Act does not upset distinction between issue of share capital and allotment of shares. Madras High Court was considering exemption under section 5(1) (xx) which contained not only phrase 'initial issue of share capital' but also words 'part of'. Madras High Court held that expression 'part of' only means that shares must relate to initial issue. They further held that shares may so relate in one of two ways according as persons concerned are subscribes to memorandum or they have applied for shares otherwise. Allotment is necessary only in latter cases. For those who have subscribed to memorandum mere act of issue of share capital would render them holders of shares for which they have signed memorandum. In their case allotment is mere formality and it would only serve to fix distinctive share scrip numbers. For those who apply for subscription otherwise, there must be act of allotment by company in order to make them holders of shares. Hence, in order to see whether any shares are 'part of initial issue of share capital' we will have to find out if and when company has resolved for first time, upon its issued share capital and then find out whether particular shares in question emanate from that issue either by allotment or otherwise. 6. As far as we understand matter, if person is subscriber to memorandum of association or promoter having invested some capital for formation of company they would become holders of shares moment that decision is taken as to how much is to be issued share capital. In case of such persons allotment of shares is not necessary. However, in this case there is no dispute that assessee both in his individual capacity as well as in HUF capacity was subscriber to memorandum of association or promoter for formation of Rayalaseema Paper Mills. It is not case of department that no decision was taken by Rayalaseema Paper Mills as to how much is to be issued share capital prior to 15-2-1978. It is not denied that assessee purchased shares on 27-3-1976. Even assuming for while that before subscription was called for on 15-2-1978 it cannot be said that till then promoters who have invested large moneys towards subscribing share capital cannot become holders of shares of Rayalaseema Paper Mills. Therefore, w e have to hold that assessee in both capacities should be considered as holder of shares of Rayalaseema Paper Mills even from 27-3-1976, date o f purchase of shares and, therefore, it is wrong for WTO to hold that assessees became holders of shares of company only after 15-2- 1978 but not before that. It was never case of revenue that prior to 27-3- 1976 Rayalaseema Paper Mills did not declare as to how much is to be issued share capital of said company and how much is to be paid-up share capital of company. Therefore, we have to hold that assessee in both capacities became holder of shares of public limited company which is producing one of articles mentioned in Ninth Schedule of Income-tax Act, 1961 even from 27-3-1976 and so argument of revenue that there is no scope for assessee to hold shares on relevant valuation date, 31-12-1976, is not correct. We should also hold that argument that assessee can be said to be holding shares of Rayalaseema Paper Mills only after date when advertisement for public subscription for its equity share capital was invited (15-2-1978) is quite erroneous under law as well as on facts. Therefore, we fail to see any merit in both these appeals and hence they are dismissed. *** WEALTH-TAX OFFICER v. VITTA KRISTAPPA (HUF)