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2023 (8) TMI 1198
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....L NO. 119/2017 WITH TAX APPEAL NO. 121/2017 WITH CIVIL APPLICATION NO. 247/2017 IN TAX APPEAL NO. 121/2017 WITH TAX APPEAL NO. 123/2017 WITH CIVIL APPLICATION NO. 249/2017 IN TAX APPEAL NO. 123/2017 WITH TAX APPEAL NO. 122/2017 WITH CIVIL APPLICATION NO. 248/2017 IN TAX APPEAL NO. 122/2017 WITH TAX APPEAL NO. 120/2017 WITH CIVIL APPLICATION NO. 246/2017 IN TAX APPEAL NO. 120/2017 WITH TAX APPEAL NO.79/2017 WITH CIVIL APPLICATION NO. 194/2017 IN TAX APPEAL NO.79/2017 WITH TAX APPEAL NO.86/2017 WITH CIVIL APPLICATION NO. 204/2017 IN TAX APPEAL NO.86/2017 WITH TAX APPEAL NO.80/2017 WITH CIVIL APPLICATION NO. 197/2017 IN TAX APPEAL NO.80/2017 WITH TAX APPEAL NO.87/2017 WITH CIVIL APPLICATION NO. 206/2017 IN TAX APPEAL NO.87/2017 WITH TAX APPEAL NO.78/2017 WITH CIVIL APPLICATION NO. 192/2017 IN TAX APPEAL NO.78/2017 TAX APPEAL NO.67/2017 WITH CIVIL APPLICATION NO. 179/2017 IN TAX APPEAL NO.67/2017 WITH TAX APPEAL NO.63/2017 WITH CIVIL APPLICATION NO. 173/2017 IN TAX APPEAL NO.63/2017 WITH TAX APPEAL NO.66/2017 WITH CIVIL APPLICATION NO. 178/2017 IN TAX APPEAL NO.66/2017 WITH TAX APPEAL NO.64/2017 WITH CIVIL APPLICATION NO. 174/2017 IN TAX APPEAL NO.64/2017 WITH TAX APPEAL NO.65/2017 WIT....
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.... of Appellant which includes shares of the subject Company ? B. Whether by virtue of marriage of the spouses under the Law of Communion of Assets (Communion De Bens) applicable in the State of Goa to which the Appellant and his spouse are subject to, each of the Appellant and his spouse acquire 50% ownership rights and/or beneficial interests in respect of all movable and immovable properties forming a part of the estate of Communion De Bens irrespective of the spouse in whose name such assets are acquired and in pursuance thereof the Appellant and his spouse acquired equal rights and beneficial interests i.e. to the tune of 50% in the shares of KCPL, KCRPL and KIPL held in the name of either spouses ? C. Whether in view of the correct interpretation of the relevant Articles of the Portuguese Civil Code, it can be inferred that spouse in whose name the movable property (shares in the instant case) of the Communion De Bens is registered in the Members' register of each Company, cannot be said to be exclusive beneficial owner of the entire such shares and if at all his beneficial interest is restricted to only 50% of number of such shares and need to be accordingly ....
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.... Assessment Years 2007-08, 2009-10 to 2012-13 and comprised 29 appeals bearing Nos. 51 of 2017, 121 of 2017, 80 of 2017, 81of 2017, 63 of 2017, 69 of 2017, 123 of 2017, 89 of 2017, 60 of 2017, 53 of 2017, 79 of 2017, 67 of 2017, 59 of 2017, 86 of 2017, 82 of 2017, 84 of 2017, 88 of 2017, 120 of 2017, 54 of 2017, 56 of 2017, 87 of 2017, 122 of 2017, 66 of 2017, 78 of 2017, 77 of 2017, 64 of 2017, 55 of 2017, 85 of 2017, 65 of 2017, 58 of 2017, 70 of 2017, 76 of 2017, 83 of 2017, 68 of 2017 and 93 of 2017. Since submissions were common in all appeals, and since issues that arose for a decision on the substantial questions of law raised by the parties were common, during the final hearing of the matter, submissions were made in Tax Appeal No. 51 of 2017, which relates to the Assessment Year 2011-2012 in respect of 29 appeals filed on behalf of individuals and in addition to these 29 appeals, 5 appeals, being Tax Appeal Nos. 119 to 123 of 2017, respectively, for the Assessment Year 2006-07, 2007-08, 2009-10, 2010-11 and 2011-12 respectively, numbered as Tax Appeals Nos. 121, 122, 123, 119, and 120 of 2017, all filed at the behest of a Private Limited Company, namely Kamat Construction ....
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....30-33% each of them. For the Assessment Year 2011-12, individual appellants/assessees filed their return of income on 29.09.2011 in terms of Section 139(1) of the Act, the income, comprising income from "salaries", income from the business, income from capital gains and from other sources; the return of income was processed under Section 143(1) of the Act on 27.09.2012, and thereafter, there was no further scrutiny proceedings initiated against any of these individual assessees. D. A search was conducted on 31.01.2012, in the office premises of KCPL and at the residential premises of its Directors, in terms of Section 132 of the Act. Consequent to the search, a notice under Section 153C of the Act came to be issued on 30.07.2012 to the individual Assessees, calling upon them to file their return of income for the Assessment Years 2006-07, 2007-08, 2009-10 to 2011-12. E. In response to these notices, the appellants/assessees submitted their return of income on 29.08.2012 maintaining that the return of income filed on 29.09.2011 declaring total income of Rs. 26,18,704/- should be treated as the Return in response to the notice under Section 153C. Subsequent....
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...., all these individual assessees preferred an appeal before the Commissioner of Income Tax (Appeals) ("CIT (Appeals)" for short). In these appeals, additional ground was raised in respect of the notice issued under Section 153C of the Act, pursuant to the search. The contentions raised by the Assessees were that the assessment order in terms of Section 153C read with Section 143(3) of the Act was without jurisdiction since the material which the AO has termed as "incriminating material" did not actually come to light during the search and seizure proceedings, but was all throughout disclosed to the AO in all earlier assessment proceedings and shareholding pattern was also a matter of record in all earlier proceedings before the AO. H. By a common order dated 28.01.2015, CIT (Appeals), allowed the appeals of the Assessees and arrived at the following findings:- i. That there was no cause for making additions in the income of the Assessees on account of deemed dividend under Section 2(22)(e) since no monetary benefits have arisen to the individual shareholders of the various companies. ii. The proceedings under Section 153C of the Act were validly initiated....
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....d by PIPTL to KCPL for development and purchase of premises, the same could not be now reassessed. iv. That, in the transaction between KCPL and KCRPL, an advance of Rs. 4,86,50,000/- paid by KCPL to KCRPL for the purchase of premises were incurred in the course of the business as borne out from agreement and documents produced before the officer and were incurred in the course of business, thus could not be construed as a loan or advance in terms of Section 2(22)(e) of the Act. v. That, since the assessees, were governed by the provisions of the Portuguese Civil Code applicable to their marriage, beneficial ownership of the shares held by one spouse (husband) as registered shareholders of these companies, the amount in the hands of these parties was required to be taxed on the basis of 50% to each spouse, in terms of Section 5A of the Act. vi. That, since under the provisions of Section 5A of the Act, the appellants are governed by the Portuguese Civil Code, the income of the appellants jointly belongs to the appellant and his wife, on such division, the percentage of the beneficial shareholding falls below the limits as required under Section 2(22)(e) o....
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....sues, namely :- Issue No. 1 :- The Substantial Questions of Law (A) to (C) would be covered under this issue. In the light of the fact that the assessee (husband), who holds 33% of the shares, carries such voting right with the shares, whether his spouse, governed by the Portuguese Civil Code, can be said to be the beneficial owner of half of the 33% of shares and the balance 16.5% is held by his wife as beneficial owner or would he be the beneficial holder of the entire 33% (this issue would arise in all the Assessment Years 2007-08, 2009-10 to 2012-13). Issue No. 2 :- Which covers Substantial Question of Law (D), on which these appeals are admitted would be, if the answer to Issue No. 1 is held in the negative, whether transactions recorded in the books of the group companies and the shareholding pattern being available in the public domain, be considered as incriminating material for the purpose of Section 153C of the Act (this issue arises in all appeals except for the Assessment Year 2012-13). Issue No. 3 :- Which would cover Substantial Questions (E) and (F) being if Issue No. 2 is answered in the negative, whether the inter- company transactions in....
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....s wife is the beneficial owner of half of the 33% shares (16.5% shares) in the said company. The learned Counsel for the appellants takes support, for substantiating these arguments from the following judgments :- i. Zelia M. Xavier Fernandes E. Gonsalves v. Joana Rodrigues & Ors. (2012) 3 Supreme Court Cases 188; ii. Jose Paulo Coutinho v. Maria Luiza Valentina Pereira & Anr. (2019) 20 Supreme Court Cases 85; iii. CIT v. Purushotam Gangadhar Bhende, (1977) 106 ITR 932; iv. Commissioner of Wealth Tax v. Vasudeva V. Dempo [1981] 131 ITR 291 (Bom); v. Commissioner of Wealth-tax v. Vasudeo V. Dempo [1992] 196 ITR 216 (SC); vi. CIT v. Ms. Maria Sylvia D'souza (2013) 261 CTR (Bom) 282. (e) That, Circular No.684 dated 10.06.1994, issued by the Central Board of Direct Taxes has accepted this position, explaining the reason for insertion of Section 5A in the Act; the same Circular also recognizes the law laid down by this High Court in various decisions, wherein income of communion of the property was assessed in the individual assessment of the spouses equally. All six assessees have in their individual wealth tax returns filed ....
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....nt case, the beneficial ownership is created by operation of law, by applying the provisions of the Portuguese Civil Code giving the spouse the benefit of 50% of the ownership in the shares. Consequently, provisions of Section 187C of the Companies Act, 1956 are not applicable to the person who is governed by the Portuguese Civil Code, and even if for the sake of argument, they were applicable, at the most, under these provisions, it would only result in imposition of a fine, to be paid by the spouse, but would not result in the spouse ceasing to be beneficial owner of the shares. He submitted that Section 89 of the Companies Act, 2013, which corresponds to Section 187C of the erstwhile Companies Act, 1956, provides that no right in relation to any share in respect of which a declaration is not made by the beneficial owner, shall be enforceable by him. That, even by applying the provisions of new Section 89 of the Companies Act, 2013, to the present case, at the most, the wife would not be able to exercise voting power to the extent of 16.5.% of her share through her husband for non-compliance of this provision. Reliance was placed on the judgment of Delhi High Court in the case of....
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....uttress this submission, learned Counsel laid reliance upon the following judgments : a) Principal Commissioner of Income Tax ..V/s.. Abhisar Buildwell P. Ltd., Civil Appeal No.6580 of 2021; b) CIT ..V/s.. Murli Agro Products Ltd., reported in [2014] 49 Taxmann.com 172; c) CIT ..V/s.. Kabul Chawla, reported in [2016] 380 ITR 573 (Delhi); d) CIT ..V/s.. Continental Warehousing Corporation (Nhava Sheva) Ltd., reported in [2015] 58 Taxmann.com 78 (Bombay); e) PCIT ..V/s.. Jignesh P. Shah, reported in [2018] 99 Taxmann.com 111 (Bombay); f) Underwater Services Company Ltd. ..V/s.. ACIT, reported in [2022] 448 ITR 691 (Bombay), g) Mani Square Ltd. ..V/s.. ACIT, reported in [2020] 83 ITR (T) 241 (Kolkata Tribunal). (i) The next submission made by Shri Jitendra Jain, learned Counsel for the appellants covers Substantial Questions of Law (E) and (F), which its contents could be summarized as Issue No. 3, dealing with various transactions showing the flow of funds from one company to another. The transactions are summarized below : Transaction No. 1 :- The first transaction is between Kamat Inns Pvt. Ltd. (KI....
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....13. To the extent that only partial relief has been granted to the assessees, with respect to AY 2009-10 to AY 2012-13, the appellants are in appeal before this Court. The reasoning of the Tribunal by its granting partial relief was that KCRPL has used the amounts transferred from KCPL, for making payments to its contractors which finding according to the appellants is perverse, as the Tribunal has not considered the assessees' case that it had also used part of these amounts towards acquisition of premises. In relation to the transactions for Assessment Year 2010-11, the Tribunal has not considered that the nature of transaction was for enabling KCRPL to meet its interest/repayment liability, which was a transaction akin to an entity financing its own venture, this more so when, KCPL was a guarantor to the credit facility. It was submitted that such transactions would not constitute loans or advances for the purpose of Section 2(22)(e) of the Act, in terms of CBDT Circular No. 19 of 2017, for which purpose the matter would require a remand to the Tribunal for fresh adjudication. Transaction No. 3 :- The third transaction is between Kamat Inns Pvt. Ltd. (....
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....al Medicare; The Tribunal's findings that the knowledge of the shareholding pattern having come to the Revenue only in the course of search conducted at the premises of the group companies, constitute incriminating material to enable the AO to make addition to the income of individual assessees shareholders under Section 153C of the Act, are contrary to the evidence produced by the assessess, on record. It is the appellant's case that it holds 99.9% shares in the company Prajakta Investment and Trading Pvt. Ltd. (Prajakta), which had advanced various sums in all the assessment years under consideration, and such sums had been given as advance towards a project known as La Campala Project; that such advance does not constitute a loan under Section 2(22)(e) of the Act, since the fact that the said Prajakta was 100% subsidiary of KCPL as recorded in the annual report and accounts of KCPL, the fact being known to the Revenue, cannot constitute incriminating material for the purpose of Section 153A of the Act. (ii) Alternately, it was submitted that the transaction between holding company and the subsidiary company being on account of business expediency, cannot be termed as a ....
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..... Accordingly, the cross-objection was dismissed. This being a matter of record, submissions now raised on this issue ought not to be entertained by this Court. b) It was further submitted by the learned Counsel for the Revenue that the assessees, not having complied with the provisions of Section 187C of the Companies Act, 1956, by making the requisite declaration to the company of who would hold the beneficial interest in the shares, the assessees could now not take the advantage and claim to have a beneficial interest in the shares of the companies, in terms of provisions of Portuguese Civil Code applicable to the State of Goa; that in any event, the provisions of the Civil Code dealing with the communion of assets between spouses could not extend to the ownership of shares in a company since it is only the person whose name is found in the Register of Shareholders of the Company, who has the voting right based upon the shares held by him, which voting right/power cannot be divided between the two spouses. c) It was further submitted that the appellants are foreclosed from taking an argument that there was no incriminating material to reopen assessment and make....
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.... as per the custom of the country consists in the Communion between the spouses of all their properties, present and future, not excluded by law. Article 1117- Ownership, possession and administration of the assets of the matrimonial estate - The ownership and possession of common assets vest in both the spouses during the subsistence of marriage; however, the administration of the assets of the couple, not excluding the wife's own assets shall lie with the husband. Sole paragraph - The wife may manage the assets only with the consent of the husband or during his impediment or absence. Article 1118- Alienation of movable assets of the matrimonial estate- The husband may freely dispose the movable assets of the matrimonial estate of the couple; but in case he alienates them or binds them by gratuitous contracts, without the consent of the wife, the value of the assets so alienated shall be on account of his moiety. Article 1119- Alienation of the immovable assets of the matrimonial estate- The immovable assets, whether common or exclusive of either spouse, shall not be alienated or charged in any manner without the consent and agreement of both sp....
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....ecause it has been set apart by law for the heirs in straight line descendant or ascendant. Sole paragraph- This portion consists of half of the proprieties of the testator, save as provided in Clause 2 of Article 1785 and Article 1787." 10. The effect of these provisions of the Portuguese Civil Code, as applicable to the State of Goa, would be the following : a) Unless there is a registered Ante-Nuptial Agreement executed between the spouses specifically opting for a regime of separation of their assets, the concept of Communion of their properties would apply to their marriage and govern their rights inter- se; resultantly, each of the spouses would by virtue of their marriage have equal rights to the entirety of their estate, both to the immovable and movable assets. b) Their estate is not divisible between them except in the event of dissolution of the marriage by divorce or on the death of one of the spouses. In the event of divorce, the assets would have to be partitioned between the spouses in equal shares by value. In the event of the death of a spouse, the half share of the deceased spouse in the matrimonial estate would devolve on direct line....
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....istration) Act, 1962 ("Administration Act") w.e.f. 05.03.1962. Simultaneously, by the 12th amendment to the Constitution of India, the territories of Goa, Daman and Diu were included within the first schedule of the Constitution of India w.e.f. 20.12.1961, making these territories an integral part of India. Section 5 of the Administration Act provided that the laws applicable to Goa prior to the appointed date i.e. 20.12.1961, would continue to be in force until amended or repealed by the competent legislature or authority. Section 5 of the Administration Act reads as under : "Section 5.- Continuance of existing laws and their adaptation. (1) All laws in force immediately before the appointed day in Goa, Daman and Diu or any part thereof shall continue to be in force therein until amended or repealed by a competent Legislature or other competent authority. (2) For the purpose of facilitating the application of any such law in relation to the administration of Goa, Daman and Diu as a Union territory and for the purpose of bringing the provisions of any such law into accord with the provisions of the Constitution, the Central Government may, within two year....
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....rt thereof, before the commencement of this Act therein"; (b) the word "and" at the end of clause (e) shall be omitted and after clause (f), the following clause shall be inserted and shall be deemed always to have been inserted, namely: - (g) The Portuguese Commercial Code (Carta Lei of the 11th April, 1901), in so far as it relates to "Sociedades anonimas"; (2) after section 620A, the following section shall be inserted, namely:- Special provision as to companies in Goa, Daman and Diu.- 620B. Special provision as to companies in Goa, Daman and Diu.- The Central Government may, by notification in the Official Gazette, direct that for such period or periods with effect from the 26th January, 1963, or any subsequent date, any of the provisions of this Act specified in the notification shall not apply, or shall apply only with such exceptions and modifications or adaptations as may be specified in the notification, to - (a) any existing company in the Union territory of Goa, Daman and Diu; (b) any company registered in the said Union territory under this Act on or after the 26th January, 1963." 17. For complet....
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....y Portuguese Civil Code.-(1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as "COMMUNIAO DOS BENS") in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head "Salaries") shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly. (2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head "Salaries", such income shall be included in the total income of the spouse who has actually earned it." The other two provisions of the Act which are brought into play to consider the submissions o....
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....lus assets; (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964 and before the 1st day of April, 1965; (ii) any advance or loan made to a shareholder 4 or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub clause (e), to the extent to which it is so set off; (iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company). Explanation 1.-The expr....
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.... the husband would be reduced to only 16.5%, the balance voting power lying with shares of the wife post marriage. Under these circumstances, it was submitted that the provision of Section 2(32) and Section 2(22)(e) of the Act would not get triggered. It is the further submission of the appellants that since the beneficial ownership of the shares of the wife is created by operation of law, i.e. via the Civil Code, the provisions of Section 187C of the Companies Act, 1956, would not be applicable since they would apply only where a contract creates beneficial interest; thus, it was submitted that the provisions of Section 187C of the Companies Act, 1956 are not applicable to persons governed by the Portuguese Civil Code. In other words, the argument of the appellants, if accepted, would have the effect of making the provisions of Section 187C, which was enacted by Act 41 of 1974 w.e.f. 01.02.1975, applicable to all classes of shareholders or members in relation to a company, but not to shareholders or members to whom the provisions of the Portuguese Civil Code and the system of community of assets would apply. In order to examine the propositions and arguments put forth by the ap....
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....ference share capital therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares. Explanation. - Any resolution for winding up the company or for the repayment or reduction of its share capital shall be deemed directly to affect the rights attached to preference shares within the meaning of this clause. (b) Subject as aforesaid, every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, be entitled to vote on every resolution placed before the company at any meeting, if the dividend due on such capital or any part of such dividend has remained unpaid - (i) in the case of cumulative preference shares, in respect of an aggregate period of not less than two years preceding the date of commencement of the meeting ; and (ii) in the case of non-cumulative preference shares, either in respect of a period of not less than two years ending with the expiry of the financial year immediately preceding the commencement of the meeting or in respect of an aggregate period of no....
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....rted which were previously held by him. (2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues." Section 150A of the Companies Act stipulates that the register and index of beneficial owners maintained by depository shall be deemed to be an index of members for the purpose of that Act. Section 164 of this Act stipulates that the registered members shall be prima facie evidence of any matters authorised to be inserted therein by the Act. 24. We then refer to the provisions of Section 187C of the Companies Act, 1956, which specifies the effect of a shareholder member of a company claiming to hold a beneficial interest in such share, not making a declaration in the prescribed form. This provision was inserted into the Companies Act with w.e.f. 01.02.1975. Section 187C of that Act reads as under : "Section 187C. Declaration By Persons Not Holding Beneficial Interest In Any Share : (1) Notwithstanding anything contained in section 150, section 153B or section 187B, a ....
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....tion to any share, by the ostensible owner thereof, or any hypothecation by the ostensible owner of any share, in respect of which a declaration is required to be made under the foregoing provisions of this section, but not so declared, shall not be enforceable by the beneficial owner or any person claiming through him. (7) Nothing in this section shall be deemed to prejudice the obligation of a company to pay dividend in accordance with the provisions of section 206, and the obligation shall, on such payment, stand discharged. (8) The provisions of this section shall not apply to the trustee referred to in section 187B and after the commencement of Companies (Amendment) Act, 2000." 25. Thus, we see that under the Companies Act, 1956 : a) It is only a person who agrees, in writing, to subscribe his name to the Memorandum of Articles of a Company or a person who holds equity share capital in such company, and whose name is entered in its record as beneficial owner of such shares, who can claim to be a member of such company. b) A Memorandum of Articles of the Company binds the company to its members in terms of the covenants contained therein, ....
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....plicability of legal provisions of community of property under Portuguese Civil Code to the spouses, the voting power of an assessee husband would be reduced to half of the actual voting power, he would possess in normal course by virtue of his shareholding in the company, the voting power of the other half being in the hands of the wife; consequently, the wife being a beneficial holder of half of the shares (notwithstanding the fact that there is no declaration to that effect in terms of Section 187C of the Companies Act, 1956), the provisions of Section 2(32) and of Section 2(22)(e) of the Income Tax Act, would not be triggered. 27. To support the first proposition set out in Para 26(a) above, the appellants have cited several judgments rendered by this Court, the Hon'ble Supreme Court and also by the ITAT, under the provisions of the Portuguese Civil Code, Income Tax Act and the Wealth Tax Act. We shall forthwith deal with these judgments. CIT ..V/ s.. Purushottam Gangadhar Bhende (supra), was a judgment rendered by the Division Bench of this Court, which decided the issue as to whether income being rent from house property derived by a husband and wife to whom the provisions....
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....ith the same, but it is pertinent to note that in the unique para. (proviso) it is laid down that the incommunicability of the estate mentioned in Article 1109 does not cover the fruits of and the income from the estate. Articles 1110 to 1116 are a group of articles dealing with debts, and amongst them, Article 1113 provides that debts are communicable when acquired during the subsistence of the matrimony by the act or conduct of both the consorts, or by the husband with the consent of the wife, or by the wife with the authorisation of the husband, or by the wife alone in a case falling under Article 1116 with which we are not concerned. Article 1114 provides that the personal estate of the husband is liable for repayment of debts acquired by him without the consent of the wife during the subsistence of the matrimony, and that in the absence of any personal estate of the husband, the same are to be repaid "from his half share in the common estate", though immunity from recovery is granted in such cases till the dissolution of the marriage or separation of the estate between the consorts. That brings me to Article 1117 which is a very important provision for the purpose of ....
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....her spouse can be said to be definite and ascertainable within the meaning of those terms in Section 26 of the Income Tax Act, 1961. Article 1120 lays down that the husband is not allowed to repudiate any estate without the consent of the wife, but the liability, if any, for "pure acceptance", without the consent of the wife, would fall only on his half share and on the estate belonging exclusively to him. Articles 1121 to 1124 are again important in so far as they deal with what happens on the termination of the communion of husband and wife. Article 1121 lays down that the communion terminates by dissolution of the marriage or by separation in conformity with law; and Article 1122 enacts in the clearest possible terms that in case of death of one of the consorts, the survivor is to hold and manage the conjugal estate till the finalisation of the partition which in the language of Indian law means that the survivor would be a constructive trustee for the heirs or legatees of the deceased spouse till partition. Article 1123 then lays down that on partition between the consorts or their heirs, the property is to be divided equally and each spouse is to pay what he or she ow....
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....n may fall on the estate which the wife might have brought to the conjugal society or which may have devolved to her thereafter, and on the half share of the properties which the spouses have acquired during matrimony. Article 1226 lays down that the separation of estate simpliciter does not release the wife from her obligation to contribute towards the expenses of the couple out of the income of her properties in proportion to her assets in relation to the assets of the husband. In order to understand these Articles in their proper perspective, it must be remembered that they relate to a situation in which, though the spouses are separate in estate, the matrimonial bond continues. Article 1471 states that gifts of movables or money made by the husband without the consent of the wife must be placed to the account of his moiety, except in a case in which they are by way of reward, or are of little importance. The last Article of the Portuguese Civil Code to which I need refer is Article 1766 in which it is provided that persons married as per the custom of the country are not allowed, under the penalty of the transaction being null, to dispose of specific properties belonging to the....
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..... 1 applies to the corpus as well as the income of all communion property, immovables as well as movable. The unique para. (proviso) to Article 1109 lays down that even the income of property excluded from the communion is communion property. A fortiori the income from the communion property itself must be communion property; (iii) Under Articles 1117 and 1189, the husband has only a right of management, but even that right is not an absolute right so as to amount to the "ownership" of the income, in view of the provisions of Articles 1118, 1119, 1191 and 1219. Moreover, under the very Articles 1117 and 1189, even the wife can be in management in certain contingencies, her right being similarly fettered under the provisions of Article 1193; (iv) In the corpus as well as the income of communion property, immovable as well as movable, the husband and the wife each have, during the subsistence of a marriage celebrated as per the custom of Goa, a fixed and certain half share which can be ascertained on the termination of the communion by divorce, separation or death (Articles 1121 to 1124, 1203, 1204, 1210, 1216, 1220 and 1226). What is most important in this connecti....
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....qual shares in each of their hands. However, the judgment does not answer the question which is before us, which is whether the provisions of the Companies Act, specifying the right of ownership and the right to vote of a shareholder registered with the company, are applicable to shareholders' spouses governed by the provisions of the Civil Code. 29. Commissioner of Wealth Tax ..V/s. Vasudeva V. Dempo (supra), was a judgment of a Division Bench of this Court which decides whether spouses married under the Portuguese Civil Code are entitled to deduction under Section 5 of the Wealth Tax Act, 1957 separately. Whilst dealing with this issue, heavy reliance was placed on Bhende's case (supra). However, the real question before the High Court was whether the communion between husband and wife under the Portuguese Civil Code, would bring into being, an "Association of Persons" or whether this would be assessed as a "Body of Individuals", for the purpose of the provisions of the Wealth Tax Act, 1957. The reasoning of the High Court is recorded in the judgment as under : "10. Now, the first question which arises for our determination in this reference is whether the communi....
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....om). The four propositions are as under : "(i) During the subsistence of a marriage celebrated as per the custom of Goa, the ownership and possession of 'the common estate', immovable as well as movable, vests in both the husband as well as the wife. This is laid down in express terms in Article 1117. Articles 1118 and 1119 as well as 1766 are also consistent with that legal position; (ii) Proposition No. 1 applies to the corpus as well as the income of all communion property, immovable as well as movable. The unique para (proviso) to Article 1109 lays down that even the income of property excluded from the communion is communion property. A fortiori the income from the communion property itself must be communion property; (iii) Under Articles 1117 and 1189, the husband has only a right of management, but even that right is not an absolute right so as to amount to the 'ownership' of the income, in view of the provisions of Articles 1118, 1119, 1191 and 1219. Moreover, under the very Articles 1117 and 1189, even the wife can be in management in certain contingencies, her right being similarly fettered under the provisions of Article 1193....
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....l Code. As earlier observed, even the Legislature seems to have accepted this position when it referred to this as a body of individuals rather than as an association of persons in the three Sections under the I. T. Act earlier referred to. 15. In our view, therefore, the Tribunal was entirely right in observing that no association of persons could have come into existence as a result of the marriage of the assessee with his wife. If that be so, then Section 4(1)(b) of the said Act or r. 2 of the W.T. Rules would not be available to the revenue for bringing about the result which was ought to be brought about." 30. The question raised in Commissioner of Wealth Tax ..V/s.. Vasudeva V. Dempo (supra), which was also a judgment rendered prior to the inclusion of Section 5A in the Income Tax Act, went up in appeal before the Hon'ble Supreme Court in Commissioner of Income Tax ..V/s. Vasudeo V. Dempo reported in 1993 Supp. (1) SCC 612, wherein the Hon'ble Supreme Court has held thus : "5. We have heard learned Counsel for the parties at length. We do not propose to express any considered opinion as learned Counsel appearing for the Department fairly accepted that the....
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....ections 60, 61 and 62 and to include certain transfers therein which otherwise might or might not fall within that expression. It is not intended to restrict the normal meaning of the expression "revocable transfer". 9. On a careful reading of Sections 61, 62 and 63 of the Act, we are of the clear opinion that the expression "revocable transfer" has been used therein in the sense it is understood in the legal world subject only to the enlargement of its scope by the deeming provision contained in Section 63. 10. Article 1181 of the Portuguese Civil Code is in the following terms : "1181. The gifts between consorts may be freely cancelled at any time by the donors. (1) For such purposes, there is no need of the wife being authorised by the husband or by judicial decree. (2) The cancellation shall be expressed." 11. The above Article which is applicable to the gifts in question clearly goes to show that the gifts by the husband to his wife are revocable gifts. 12. Section 63 of the Income Tax Act, 1961, does not have the effect of rendering gifts which are "revocable" by operation of law or otherwise, "irrevocable". ....
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....f its formation under the Portuguese Commercial Code, as if the Act had been in force on the date of its formation under that Code, so however, that anything done or any action taken before the date of its incorporation under this Act such society shall be governed, as far as may be, by the Portuguese Commercial Code." 6. Section 34 of the Companies Act, 1956 speaks of effect of registration. The reading of the proviso in its application to the Territory of Goa, Damn and Diu now makes it clear that an option was given to the Sociedade por Cotas to get themselves converted as companies under the Companies Act, 1956 in which case they would be treated as if they were companies incorporated under that Act with retrospective effect of the formation under the Portuguese Commercial Code as if the Companies Act, 1956 had been in force on the date of such formation. The Proviso also makes it clear that those sociedade por Cotas which have not opted for their incorporation under the Companies Act, 1956 shall otherwise continue to be governed under the Portuguese Commercial Code. If this be the position, it is not possible to hold that appellants which are still a Sociedade por Cota....
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....her income such as dividend, interest and capital gains could be taxed in the hands of the spouses together as a body of individuals, this Court has based its reasoning purely upon the fact that the spouses, not having come together with the object of producing an income, would not be considered to be a body of individuals. This Court, in CIT ..V/s.. Vasudo V. Dempo (supra), in its judgment of 06.12.1993, has held as under : "6. In the present case, when two persons got married as a result of which a communion of interest in various types of property or income arises under the Portuguese Civil Code, they cannot be considered as having come together with the object of producing an income. Therefore, they cannot be considered as a body of individuals. In the case of Commissioner of Wealth-tax v. Vasudeo V. Dempo, reported in (1992) 196 ITR p. 216, the Supreme Court considered the case of the very assessees on the question of wealth-tax. The Supreme Court has cited with approval the discussion of the High Court on the question of construction of the expression "association of persons". It said that even though joint rights in the properties of the spouses came into being as a....
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....llate Tribunal is right in holding that the entire managing director's remuneration and perquisites have to be assessed in the hands of Mr. Modu Timblo, individual, and not one-half of the same ? In this case, the Income Tax Appellate Tribunal had taken a view that in cases, where the spouses were married under the Portuguese Civil Code, the income derived from different sources would be taxed in the hands of the individuals spouses or in the hands of the husband and wife, as a communion in the following manner : "(A) Salaries : This would be assessed in the hands of the individual earning the salary; (B) Interest on Securities : This will have to be assessed equally, but separately, in the hands of the husband and the wife; (C) Income from house property : This has to be assessed separately in equal shares in the hands of the husband and the wife under Section 26 of the Act as held in Bhende's case, [1977] 106 ITR 932 (Bom); (D) (i) Income from business : Income from any business carried on by the communion or on its behalf will be the income of the body of individuals and will have to be assessed in that status. (ii) Income ....
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....r the earlier judgments rendered in Valentino F. Pinto (supra) and Purushottam Bhende (supra) had laid down an absolute proposition that for purpose of the Income Tax Act, "all income" of the communion between husband and wife, whose marriage was registered under the Portuguese Civil Code, would include "business income" and "salaries" and in that regard has observed as under : "24. In view of the foregoing discussion, we are of the clear opinion that the communion of husband and wife married under the custom of Goa and governed by the Portuguese Civil Code constitutes "a body of individuals" for the purposes of the Income Tax Act and it will have to be decided in respect of each head of income whether the income has accrued or arisen to the body of individuals as such or to its members individually. For that purpose, we will have to deal with each head of income. Before doing so we may refer to rival submissions of both the parties based on the decision of this court in Addl. CIT v. Valentino F. Pinto, Mapuca [1984] 150 ITR 408 and observations made therein that the ratio of the decision of this court in Purushotam Gangadhar Bhende's case [1977] 106 ITR 932 will apply....
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....herein." 38. In Modu Timblo (individual) (and vice versa) (supra), this Court then goes on to hold thus : "32. As observed by the Supreme Court in CIT v. Imperial Chemical Industries (India) (P.) Ltd. [1969] 74 ITR 17 (at page 25) : "the true test for the application of the rule of diversion of income by an overriding title is whether the amount sought to be deducted in truth never reached the assessee as his income". 33. Applying the above test, we are of the clear opinion that the principle of diversion of income by overriding title has no application in the case of communion of husband and wife governed by the Portuguese law. In that view of the matter, for the purpose assessment, it will be necessary to decide in respect of every income whether it has accrued or arisen to the communion as a body of individuals or to both the husband and wife separately in proportion to their shares in the property or to any one of them, as in the case of "salary". ..... 40. We may take up income from house property first. The income from house property derived by a communion of husband and wife governed by the Portuguese Civil Code will not be ass....
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....ons" from the mere fact that they jointly owned one or more shares, and jointly received the dividend declared. 42. So far as the "profits and gains of business or profession" are concerned, having held that the communion constituted a body of individuals which is a separate taxable entity under Section 4 of the Act read with Section 2(31) thereof, in the absence of any special provision to the contrary, we do not find any reason to hold that the income is not assessable in the hands of the "body of individuals". The income from business therefore, will be assessable in the hands of the combination as "a body of individuals" and the same cannot be divided equally among the two members of the communion for the purpose of assessment in their hands separately. While computing the income, deduction shall, however, be available in respect of life insurance premium, etc., paid for effecting insurance on the life of husband or wife or the child by virtue of the special provision contained in Section 80C(2)(g) of the Act. 43. So far as the salary income is concerned, it was contended by learned counsel for the assessee that this income is also property and, therefore, bel....
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....me from salary is the income of the person who is the employee which in the instant case was the husband and that being so, it was assessable in the manner laid down in Section 15 to 17 of the Act, in his hands alone and no part of it can be assessed in the hands of the wife. The interest of the wife in the said income by virtue of the customary law may, at the most, amount to application of income after it has accrued or arisen to the husband who is the employee. Serious anomalies would arise if we were to agree with the contention of the assessee that income from salary derived by one person is to be treated as income derived by two persons, because in that case, the person who is not an employee, who does not have anything to do with the employer and does not receive anything from him, will be deemed to be in receipt of salary from the employer and will also be entitled to standard deduction which is intended to cover expenses incidental to the earning of such income. It may also be observed that though the standard deduction is expressed in terms of percentage of the salary, there is a ceiling fixed for such allowance. If the income is assessed in entitled to claim standard ded....
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.... the spouses, and being treated as income of only the spouse, who had actually earned such salary in the case of Goa Salaried Tax Payers Association ..v/s.. Union of India, reported in (2001) 249 ITR 195. The challenge to the exclusion of income from salaries from computing the income of the husband and wife was on the ground that there could be no discrimination by excluding the head of income from salary from being treated as the income of the spouses together in their hands, merely because the source of salary may originate in a contract of service with an employer. Whilst rejecting this contention on behalf of the assessee, this Court has followed the ratio of the judgment laid down in Modu Timblo (individual) (supra), which upheld the Revenue's contention that treating income from salary earned by one of the spouses, separately, whilst computing the income of both spouses to which the Civil Code applied, was valid. We quote below the relevant extracts from Goa Salaried Tax Payers Association ..v/s.. Union of India (supra) : "24. Therefore, the contention of the petitioners is that they were also to be included in the category for giving benefit of assessment by sha....
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....tinct class with a discernible difference from the remaining tax-free cooked food. A blinkered perception of stark reality alone can equate caviar served with champagne in a luxury hotel with the gruel and buttermilk in a village hamlet on the unrealistic abstract hypothesis that both the meals have the equal efficacy to appease the hunger and quench the thirst of the consumer. Validity of a classification under our Constitution does not require such a blurred perception." (underlining supplied) 25. As observed by the Supreme Court a discernible dissimilarity is there in the case of salaried persons other than the persons who have other sources of income. A different treatment has been meted out even for the computation of income and the manner of payment of tax, reduction, etc. Therefore, in this context we are not able to find out any arbitrariness in excluding the salaried persons from the benefits that have been conferred by way of Section 5A of the Income-tax Act. The argument of learned counsel for the petitioners that once Section 14 is operated and classified the income assessed in the manner provided in the Income-tax Act, then after left over in the net income....
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.... of the appellant is not merely a sleeping partner and instead it reveals that he was active in the partnership business of the firm. As a partner of the firm he took up the work of the construction of the respondent NO. 1s building and hence by reason of his activity incurred the liability which has thus a commercial activity as its source. It was therefore submitted that Article 10 is not at all attracted in this case since the liability sought to be enforced is not from the appellants husband moiety. Further, according to the learned Counsel, the appellant also lost the last chance to prove that the activity of her husband which is the source of liability incurred by respondent No. 3 firm, was not for the common gain of the couple when the matter was remanded to the Civil Court for the purpose of inquiry under Order XXI, Rule 15 of the Civil Procedure Code. Having failed to establish this requirement it is not open now to the appellant to claim that the commercial activity of her husband which has originated the liability sought to be enforced by respondent No. 1 is not meant for the common gain of the couple. 10. There is indeed great force in the argument and in this ....
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.... the share and, therefore, the directions given by the CIT(A) to the AO to consider 50 per cent of the interest amount in the hands of the assessee as her undisclosed income for the block period, cannot be faulted. In our view, the Tribunal has rightly placed reliance upon Section 5A of the Act and Articles 1122 and 1123 of Portuguese Family Civil Law which is in force in the State of Goa and dismissed the appeal preferred by the revenue against the order passed by the CIT(A). 15. In our view, the reliance placed by the Revenue on the judgment in the case of Jose Filipe Alvares (supra) is totally misplaced. Even in the said case, in view of amendment to IT Act by introduction of Section 5A with retrospective effect, the Division Bench of this Court declined to answer the question referred to it and remitted the matter to the Tribunal to decide afresh in the light of Section 5A of the Act. In our view, the ratio of the said judgment does not advance the case of the Revenue. Similarly reliance placed on Section 283 of the Act is also misplaced inasmuch as it is not at all applicable in the present case. 16. We are of the considered view that the submission made on b....
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.... virtue of Article 1098 and Article 1108 thereof, in the absence of any contract, the marriage between the appellant and the Respondent 4 is governed by the system `Communiao dos bens' i.e. community of property. Accordingly, on marriage, the property of the spouses gets merged. Each spouse, by operation of law, unless contracted otherwise, becomes 50% shareholder in all their properties, present and future and each spouse is entitled to a one-half income of the other spouse. 16. Section 5A(1) of the Income Tax Act provides that where the husband and wife are governed by the system of "Communiao dos bens" in force in the State of Goa the income of the husband and the wife under any head of income shall not be assessed as that of such community of property but such income of the husband and the wife from all sources, except from salary, shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively and the remaining provisions of the Income Tax Act shall apply accordingly. Sub-section (2) of Section 5A provides that where the husband or the wife gove....
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..... The expression "in any contract" means in regard to any contract. Could it be said that the appellant had no indirect share or monetary interest in regard to her husband's contract with the Village Panchayat Raia when, by operation of law, she is entitled to the profits of that contract? The answer has to be in the negative. 20. Money acquired by the appellant's husband from the contract with the Village Panchayat Raia is "community property" and, therefore, the conclusion is inescapable that the appellant has indirect share, or, in any case, monetary interest in the contract awarded to her husband by the Village Panchayat Raia as the profits from the contract shall be apportioned equally between her and her husband. There is no evidence of exclusion of the appellant from her husband's assets and income. The provisions contained in Articles 1098 and 1108 of the 1860 Code and Section 5A of the Income Tax Act give the appellant a participation in the profits of the contract and advantages like the apportionment of income from that contract. The appellant, by operation of law, becomes entitled to share in the profits of the contract awarded to her husband by the....
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.... decision before the Hon'ble Supreme Court was, whether succession to the property of a Goan situated outside the territory of the State of Goa, in India, will be governed by the Portuguese Civil Code, 1867, as applicable to the State of Goa, or, whether the provisions of the Indian Succession Act, 1925 would become applicable to the succession of the estate situated outside the territory of Goa. 47. Whilst answering the above question, in Jose Paulo Coutinho (supra), the Hon'ble Supreme Court formulated the following issues for its determination : "I. Whether the Portuguese Civil Code can be said to be a foreign law and the principles of private international law are applicable? II. Whether the property of a Goan domicile outside the territory of Goa would be governed by the Code or by Indian Succession Act or by personal laws, as applicable in the rest of the country e.g. the Hindu Succession Act, 1956, Muslim Personal Law (Sharit) Application Act, 1937, etc.? III. What is the effect of the grant of probate by the Bombay High Court in respect of the Will executed by JMP? I. Whether the Portuguese Civil Code can be said to be a foreign law an....
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....e, is in line with the Portuguese Civil Code. The salient features with regard to family properties are that a married couple jointly holds the ownership of all the assets owned before marriage or acquired after marriage by each spouse. Therefore, in case of divorce, each spouse is entitled to half- share of the assets. The law, however, permits pre-nuptial agreements which may have a different system of division of assets. Another important aspect, as pointed out earlier, is that at least half of the property has to pass to the legal heirs as legitime. This, in some ways, is akin to the concept of "coparcenary" in Hindu law. However, as far as Goa is concerned, this legitime will also apply to the self-acquired properties. Muslim men whose marriages are registered in Goa cannot practice polygamy. Further, even for followers of Islam there is no provision for verbal divorce. 26. It is in this context that we shall have to decide whether the property of late JMP situated in Bombay i.e. outside the territory of Goa would be governed by the Code or by the Indian Succession Act. As pointed out earlier, this is not a conflict of international law. The Indian Parliament has made....
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....d a nullity. We are referring to this Article only to highlight the fact that in case the Civil Code is to apply this would also be a factor to be taken into consideration because can it be said that this article will only apply to the properties within the territory of Goa and not to properties in other parts of the country i.e. India? 30. Article 1774 reads as follows: "1774. Prohibition of disposition of legitime.- The persons obliged to reserve the legitime may only dispose of the portion which the law permits them to dispose of." A domicile under his personal law is obliged to reserve a legitime which can be disposed of only in accordance with the laws of inheritance. As pointed out earlier, in most of the cases, the legitime would be half. Again, the question would arise that is this legitime to be calculated by taking into consideration only the immovable properties in Goa or by taking all the properties of the deceased into consideration? Once we have come to the conclusion that the Civil Code is an Indian law and the domiciles of Goa, for all intent and purposes, are Indian citizens, would it be prudent to hold that the Civil Code, in matters of ....
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....hts which were not considered inheritable. Transfer of title to the heirs was deemed to occur simultaneously with the individual's death and was a complete transfer of title at that time." 33. Though we have held that this is Indian law, since it is a law of Portuguese origin, we may have to take guidance from the way in which the law has been applied to come to the conclusion to see what is the intention of the law. Therefore, all the properties of the person whose inheritance is in question have to be calculated and considered as one big conglomerate unit and then the rules of succession will apply. 34. There is a conflict between the Indian Succession Act, the Hindu Succession Act, the he Muslim Personal Law (Shariat) Application Act, 1937, etc. and the Portuguese Civil Code with regard to the laws of inheritance but this conflict has to be resolved. In our view, the Parliament of India, after conquest of Goa, by adopting the Portuguese Civil Code accepted that the Goan domiciles were to be governed by that law in matters covered under the Code and specifically included in the laws which were made applicable. The Indian Parliament did not make applicable all Po....
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....he Limitation Act is amended mutatis mutandis. No question of repugnancy arises. We agree with the Judicial Commissioner that the provisions of the Portuguese Civil Code relating to Limitation continue to be in force in the Union Territory of Goa, Daman and Diu." 37. In view of the aforesaid, we are clearly of the view that the Portuguese Civil Code being a special Act, applicable only to the domiciles of Goa, will be applicable to the Goan domiciles in respect to all the properties wherever they be situated in India whether within Goa or outside Goa and Section 5 of the Indian Succession Act or the laws of succession would not be applicable to such Goan domiciles. ...... 40. In view of the above discussion, we answer the question framed in Paragraph 1, holding that it will be the Portuguese Civil Code, 1867 as applicable in the State of Goa, which shall govern the rights of succession and inheritance even in respect of properties of a Goan domicile situated outside Goa, anywhere in India. 48. Thus, in Jose Paulo Coutinho (supra), the real question was which law would apply to the succession of the estate of a person of Gaon origin. Thus, the ratio lai....
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....nd's net value". The concept of "moiety" is embodied in the provisions of Article 1108 of the Portuguese Civil Code, 1867, which in effect, is the half undivided and indivisible right that each spouse has in the common estate of the communion between them, which comes into existence on their marriage. This communion between the spouses is of all their assets, present and future, not excluded by law, in which each spouse a moiety holder (to the extent of half of the indivisible share in the communion). 52. Relying upon the provisions of the Portuguese Civil Code that governs the moiety rights between the parties, the appellants have submitted that since the ownership of the common assets vests in the wife to the extent of 50% of the communion, as moiety holder, the wife would be entitled to 50% of the ownership of all shares held by her husband in the companies, with which we are concerned with in the matter; consequently, it is submitted that since the husband holds only 33% of the shares in the company, half of those shares along with the voting power/right attached to that half (16.5%) would vest in the wife, thus, the number of shares and the voting power attached there to be....
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....eme Court in the case of Jose Paulo Cutinho (supra), the Civil Code may be a Code of Portuguese origin, but after the conquest and annexation of Goa, this Code became applicable to the domiciles of Goa by an Act of Indian Parliament, and thus, became Indian Law, as much as the Companies Act, 1956. We also can visualise a situation where, if the argument of the appellants is accepted, it would have the effect of making the provisions of Section 187C, which was enacted by Act 41 of 1974 w.e.f. 01.02.1975, applicable to all classes of shareholders or members in relation to a company, but not to shareholders or members to whom the provisions of the Portuguese Civil Code would apply and govern the rights of spouses inter-se under the system of community of assets. Equally, the argument would have to address a situation where there could be sets of shareholders, to some of whom Portuguese Law would apply, and their spouses could claim ownership in the shares held by the other spouse in a company, along with the right to vote on resolutions, while another set of shareholders, to whom the Portuguese Code does not apply by virtue of the fact that they may be domiciled in other parts of Indi....
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.... one of the three modes of becoming a member. 57. Part-IV of the Companies Act, 1956 deals with the share capital and voting rights of members of the company. By virtue of Section 87 of that Act, it is only a member of a company limited by shares and holding any equity share capital therein who shall have a right to vote, in respect of such capital, on every resolution of that company. Further, the voting right of such a member on a poll shall be in proportion to his share of the paid-up equity capital of the company. Thus, clearly, the Companies Act, which is a Code in itself, specifies who is a member in relation to the company and the voting power of such member shareholders of that company. The Act does not envisage a situation where by virtue of a personal law applicable to a shareholder of a company, the spouse of such shareholder could claim voting rights in a poll to pass resolutions or, for that matter, claim a privity of contract to bind herself to the Memorandum of a Company and the Articles of Association of such company. Neither can such spouse claim, by virtue of being a moiety holder in the common estate, the management of a company in which her husband is a membe....
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.... of the necessary declaration to be made and registered, in terms of Section 187C(i). e) It is only a member of a company, limited by shares who shall have a voting right in respect of such capital, on every resolution of that company, which voting right shall be in proportion to his share in the capital of the company; no third person who may claim to hold a beneficial interest in the shares of the company would have a right to vote unless such third person has his name registered in the members of the company as having a beneficial interest, in terms of Section 187C of the Act. 60. The next question, then, would be to analyse whether the words "shareholder" and "beneficial owner of shares" deployed in the provisions of Section 2(22) of the Income Tax Act, 1961, which defines "dividend", is to be given the very same meaning, interpretation and extent as when the same words are used in the Companies Act, 1956. Whilst considering this question, we must take note that Section 2(6A) of the Income Tax Act, 1922, provided for a similar definition to the word "dividend" as the one contained in Section 2(22) of the Income Tax Act, 1961. Section 2(6A) of the Income Tax Act, ....
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....il, 1946, or after the 31st day of March, 1948,and before the 1st day of April, 1956." 61. It would be further of advantage to our discussion to record, that Section 2(22) in the Income Tax Act, 1961, admitted of the very same two categories of payments considered as dividend under the 1922 Act i.e. payments made as advance or loan to a shareholder and, payments made for the individual benefit of a shareholder. In the 1961 Act, an additional condition was added to the definition of "dividend" by incorporating the condition that such recipient shareholder, being the beneficial owner of the shares, should have a shareholding in that company, which carries not less than 20% of the voting power. The provision of Section 2(22) was further amended in 1987 w.e.f. 01.04.1988 by substituting the provision of shareholding not less than 10% of the voting power, by reducing the percentage of voting power from 20% to 10% and by creating a new category of payment as dividend i.e. payment to any concern in which such shareholder was a member or partner in which he has a substantial interest being shares carrying at least 20% of the voting power. 62. In interpreting the meaning of the words ....
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....scheme of the Indian Companies Act, 1913, shows that the words " member ", " shareholder " and " holder of a share " have been used interchangeably in that Act. Indeed, the opinion of most of the writers on the subject is also the same. ....... The words " holder of a share " are really equal to the word shareholder and the expression "holder of a share" denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members. A similar view of the Companies Clauses Consolidation Act, 1845, was taken in Nanney v. Morgan(1). The learned Lord Justices held that under Section 15 of that Act, the transferee had not the benefit of a legal title till certain things were done, which were indicated by Lopes, L.J., in the following passage: "Therefore the transferor, until the delivery of the deed of transfer to the secretary, is subject to all the liabilities and entitled to all the rights which belong to a shareholder or stockholder, and, in my opinion until the requisite formalities are complied with, he continues the legal -proprietor of the stock or shares subject to that proprietorship being divested, which ....
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....n with whom there exists a bond of membership and ownership of such a share in the share capital of the company. 64. In C.I.T. Andhra Pradesh ..V/s.. C. P. Sarathy Mudaliar, reported in (1972) 4 SCC p. 531, the Supreme Court was considering whether the words "shareholder" in Section 2(6A) in the 1922 Act, which is a provision similarly Section 2(22) in the 1961 Act, could carry the same meaning as has been assigned to the word, under the Companies Act. This judgment takes support from the ratio laid down in Howrah Trading Co. Ltd. (supra), and has held thus : "9. Section 2(6A)(e) gives an artificial definition of "dividend". It does not take in dividend actually declared or received. The dividend taken note of by that provision is a deemed dividend and not a real dividend. The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder. For certain purposes, the Legislature has deemed such a loan as "dividend". Hence, Section 2(6A) (e) must necessarily receive a strict construction. When Section 2(6A) (e) speaks of "shareholder", it refers to the registered shareholder and not the beneficial owner. The H. U. F. canno....
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....areholder. 13. Mr. Sen contended that the above two decisions cannot be considered to have laid down the law correctly in view of the decision of this Court in Kishanchand Lunidasing Bajaj v. Commissioner of Income-tax, Bangalore (60 I.T.R. p. 500). Therein the question was whether a H. U. F. could be charged to tax in respect of dividends received by some of the coparceners of that family in respect of shares held by them, those shares having been purchased from out of the family funds. This Court ruled that the dividends paid to the shareholders was the income of the family and that being so, the same was assessable in the hands of the Hindu undivided family. We see no conflict between this decision and the decisions earlier referred to. In the Case of actual receipt of dividends there is a receipt of income. That income is received on behalf of the family. Hence, the same was assessable in the hands of the family. In the case of deemed dividends under Section 2(6A)(e) the family does not get any income at all. The dividend referred to by that provision is only a deemed dividend and not a real dividend. Hence, no income is either received by the family or accrued to it. ....
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....ting power; or (b) any concern in which such shareholder is a member or a partner and in which he has a substantial interest; (iii) Clause (e) also includes in its purview any payment made by a company on behalf of or for the individual benefit, of any such shareholder; (iv) Clause (e) will apply to the extent to which the company, in either case, possesses accumulated profits. The remaining part of the provision is not material for the purposes of this Appeal. By providing an inclusive definition of the expression 'dividend', Clause 2(22) brings within its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression 'dividend' by providing an inclusive definition. 9. In order that the first part of Clause (e) of Section 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent of the voting power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial interest.....
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....not be taxed in the hands of the assessee. We may in concluding note that the basis on which the assessee is sought to be taxed in the present case in respect of the amount of Rs. 32,00,000/- is that there was a dividend under Section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer." 67. Thus, it can be seen that in Universal Medicare (supra), this Court reiterated that the provisions of Section 2(22) could apply only to the shareholder individually receiving the benefit of such loan; the judgment further holds that the effect of clause (e) of Section 2(22) is to broaden the ambit of the expression "dividend" by including certain payments which the company has made as a loan or advance for the individual benefit of a shareholder, but however, the definition does not alter the position that the dividend has to be taxed in the hands of the shareholder alone. 68. In Rameshwar Lal Sanwarmal ..V/s.. C.I.T., reported in AIR 1980 SC 372, whilst considering the meaning of the words "deemed dividend" in Section 2(6A)(e) of the 1922 Act, and whether such a deeming fiction could be applied to an assessee who was not a registered shareholder of the co....
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....be regarded as "deemed dividend" under Section 2(6A)(e). The result was that the only question that came to be considered by this Court was whether the "deemed dividend under Section 2(6A)(e) could be taxed in the hands of the beneficial owner of the shares or it could be brought to tax only in the assessment of the registered shareholder and the view taken was that where the shares acquired with the funds of one person are held in the name of another, it is the former who is assessable to tax on the dividend on those shares and this principle would apply equally on the "deemed dividend" under Section 2(6A)(e). This Court did not consider whether the loans granted to the three business concerns of the assessee could at all be regarded as 'deemed dividend' within the meaning of Section 2(6A)(e) when the assessee was not a registered shareholder and the decision of the High Court to the effect that the assessee not being a registered shareholder, the loan advanced to it advanced not be regarded as 'deemed dividend' under Section 2(6A)(e) remained undisturbed. Now obviously, so long as the decision of the High Court on this point was not overruled, the question whether....
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....n Section 2(6A) (e) of the 1922 Act. 70. We make further reference to the judgment of the Supreme Court rendered in CIT ..V/s. Shakuntala and others reported in AIR 1966 SC 719, which was referred to by the Supreme Court, whilst rendering judgment in C. P. Sarathy Mudaliar (supra), which was dealing with the interpretation of Section 23-A of the Income Tax Act, 1922. The relevant passages of Shakuntala (supra), are quoted below : "5. ..... The section in effect creates a fictional or notional dividend-income which is not in fact received by the shareholder. The notional dividend is deemed to have been distributed as on the date on which the accounts of the previous year were laid before the company in a general meeting. It is clear from the section that an order made under it is not in itself an order of assessment; it has to be followed by an assessment on the shareholder either under Section 23 or under Section 34. Under the express terms of the section, the artificial or notional income has to be included in the total income of the shareholders for the purpose of assessing his total income. The High Court has referred to its earlier decision in 1946-14 ITR 748: (AIR ....
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....e included in the total income of the shareholder for the purpose of assessing his total income". The section does not talk of the beneficial owner of the share. It talks of the shareholder only. Section 18(5) of the Act deals with grossing up of dividend and two expressions occur therein: "owner of the security" and the "shareholder". So far as the expression "owner of the security" is concerned it may perhaps include a beneficial owner; but it has been decided by this Court that the expression "shareholder" in Section 18(5) means the shareholder registered in the books of the company. As we have earlier said, no good reason exists as to why the expression "shareholder" in Section 23-A shall not have the same meaning. Sub-sections (3) and (4) of Section 23-A also make the position clear: they talk of members of the company and a Hindu undivided family as such is not a member of the company." 71. Shakuntala (supra), following the ratio laid down in M/s. Howrah Trading Co. Ltd. (supra), has also specifically held that the expression "owner of the security" may perhaps include a beneficial owner, but the expression "shareholder" can mean only a shareholder registered in the books ....
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....th full knowledge of the provisions contained impugned Section. The object of keeping accumulated without distributing them obviously is to take the benefit lower rate of super-tax prescribed for companies. This was defeated by Section 23A which provides that in the case distributed profits, tax would be levied on the shareholders on the basis that the accumulated profits will be deemed to have been distributed amongst them. Similarly, Section 12(1B) provides that if a controlled company adopts the device of making a loan or advance to one of its shareholders, such shareholder will be deemed to have received the said amount out of the accumulated profits and would be liable to pay tax on the basis that he had received the said loan by way of dividend. It is clear that when such a device is adopted by a controlled company, the controlling group consisting of shareholders have deliberately decided to adopt the device of making a loan or advance. Such an arrangement is intended to evade the application of Section 23A. The loan may carry interest and the said interest may be received by the company; but the main object underlying the loan is to avoid payment of tax. It may ultimately b....
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.... 13. The Special Bench held that the intention behind this provision is to tax dividend in the hands of the shareholders. 22. Insofar as the provisions of Section 2(22)(e) are concerned, we have already extracted this provision and taken note of the conditions/requisites which are to be established for making provision applicable. In Commissioner of Income Tax Vs. C.P. Sarathy Mudaliar [1972] 83 ITR 170, the Supreme Court had traced out the assessee of this provision in the following manner: Any payment by a company, not being a company in which the public are substantially interest, of any sum (whether as representing a part of the assets of the company or otherwise) made after 31.05.1987 by way of advance or loan. First limb a) to a shareholder, being a person who is the beneficial of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power, Second limb b) or to my concern in which, such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred t....
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....ted as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the Revenue would stand answered, once we look into the matter from this perspective." 73. It appears that the judgment of the Delhi High Court dated 11.05.2011, passed in Ankitech Pvt. Ltd. (supra), was relied upon by the Delhi High Court to dispose of another tax appeal ITA No.462 of 2009, which came to be challenged before the Supreme Court in appeal and disposed of by the Supreme Court alongwith about 63 other similar appeals in terms of order dated 05.10.2017 passed in Commissioner of Income Tax ..V/s.. Madhur Housing and Development Company, reported in (2018) 93 Taxman.com 502, in the following terms : "The impugned judgment and order dated 11.05.2011 has relied upon a judgment of the same date by a Division Bench of the High Court of Delhi in ITA No.462 of 2009. Having perused the judgment and having heard arguments, we ....
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....stantially interested within the meaning of Section 23A of any sum whether as representing a part of the assets of the company or otherwise by way of advance or loan. 2. (a) It must be an advance or loan to a shareholder, or (b) a payment by the company on behalf or for the individual benefit of the shareholder, and 3. To the extent to which the company in either case possesses accumulated profits." 6. After stating that there is no dispute that the first and last conditions are satisfied, in the said case, the Court went into Condition 2(a). This was answered by the Court as follows: "8. The only surviving question is whether a loan advanced by a company to an HUF, which is the real owner of the shares, can be considered as a loan advanced to its shareholder. It is well settled that an HUF cannot be a shareholder of a company. The shareholder of a company is the individual who is registered as a shareholder in the books of the company. The HUF, the assessee in this case, was not registered as a shareholder in books of the company nor could it have been so registered. Hence, there is no gainsaying the fact that the HUF was not the shareh....
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....hich the company in either case possesses accumulated profits;" 9) A cursory look at the aforesaid definition would go to show that the shareholder referred to in the aforesaid provision would continue to be a shareholder who is on the register of members of the Company with one additional feature, namely, that such shareholder should be a person who has a substantial interest in the Company. Admittedly, the aforesaid additional feature would make no difference to the position of law laid down in the aforesaid two decisions. 15) This then brings us to the Division Bench judgment in the present case. In para 17, after referring to various judgments referred to by us hereinabove, the Division Bench posed two questions to be answered by it as follows:- "(1) To attract the first limb of Section 2(22)(e) of the Act, is it necessary that the person who has received the advance or loan is a shareholder and also beneficial owner. To put it otherwise, whether both the conditions are required to be satisfied will depend upon the interpretation to be given to the words "being a person who is a beneficial owner of shares....." which was inserted by amendment in the a....
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....amely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect. Also, what is important is the addition, by way of amendment, of such beneficial owner holding not less than 10% of voting power. This is another indicator that the amendment speaks only of a beneficial shareholder who can compel the registered owner to vote in a particular way, as has been held in a catena of decisions starting from R. Mathalone v. Bombay Life Assurance Co. Ltd., [1954] SCR 117. 19) This being the case, we are prima facie of the view that the Ankitech judgment (supra) itself requires to be reconsidered, and this being so, without going into other questions that may arise, including whether the facts of the present case would fit the second limb of the amended definition clause, we place these appeals before the Hon'ble Chief Justice of India in order to constitute an appropriate Bench of three learned Judges in order to have a relook at the entire question. 20) Ordered accordingly." 75. Thus, we see that though the view taken by the Delhi High Court in Ankitech Pvt. Ltd. (sup....
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....in terms of Section 187-C (2) of the Companies Act, 1956, by the wife of the appellant, claiming to be the holder of the beneficial interest in 50% of the shares held by and registered in the name of the appellant-husband as its holder in the Register of Members, it would be the husband appellant who is the exclusive holder of the entire 33% of the shares along with the full voting right/power attached to such shares. We hold that the wife would have no voting powers under the scheme of the Companies Act attached to any of the shares, which have been exclusively registered in the name of the husband. 77. On analysis of the various judgment cited by the appellants on the concept of communion assets under the Portuguese Civil Code in relation to the provisions of the Income Tax Act, 1961, quoted by us in paragraphs 6 (d) above, we are of the view that none of these answer the question whether, in the scheme of the Companies Act, 1956, a spouse could claim actual ownership and voting rights in such company, via the provisions of the Civil Code. The wife, in the present case, clearly does not claim to have subscribed to the Memorandum of Articles of the concerned companies or claim ....
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....ich such shares are held, accepting the allottee of such shares, in terms of Section 109 read with Section 111 of the Companies Act, 1956. In the event of the surviving spouse not being allotted the shares, 50% of the value of such shares would belong in the totality of the value of the estate to that surviving spouse as moiety right. In the event of dissolution of marriage by divorce, the same principle as enunciated above, would apply, in that the divorced spouses would be required to partition their entire matrimonial estate in equal halves by value, in an Inventory Proceeding or by a Partition Deed. In such Partition Proceedings, the spouse holding the shares may be allotted such shares, while the other spouse may be allotted half of the value of such shares; or conversely, if the shares held in the company by one spouse are allotted to the other spouse, half of their value would be allotted in terms of money (owelty) or allotment of any other assets of higher value to equate the shares. 79A. The appellants placed reliance on the judgment of this Court in Commissioner of Wealth Tax vs Vasudeva V. Dempo, which was upheld in favour of the Wealth Tax Assessee by the Supreme ....
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....se (e) of Section 2(22) of the Income Tax Act, 1961, in the present case would, therefore, fully apply to the husband appellant, who would be the owner of the entire 33% share in each of the concerned companies with the entire voting power (which is more than 20% in such company, to the exclusion of the wife). Consequently, we reject the submission that the wife of the spouse, married under the provisions of Portuguese Civil Code, by operation of law, would be entitled to the beneficial ownership of the shares of the husband/spouse. For reasons stated above, we further reject the submission that the provisions of Section 187C of the Companies Act, 1956, are not applicable to persons governed by the Portuguese Civil Code. Consequently, we answer Substantial Questions of Law (A), (B) and (C) against the appellants. 81. We now analyse the rival submissions to answer the Substantial Question of Law (D) as framed by this Court. For this purpose, we recapitulate certain facts which have transpired during the course of the Appellate proceedings before the CIT (Appeals) and before the ITAT in the previous round of litigation, which have relevance to the decision on this question. 82.....
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....e assessees have raised in ground No. 2 of the cross objections, a challenge against the validity of the proceedings and the order passed under Section 153C of the Act. It was the submission that he did not wish to press the said ground. Consequently, ground No. 2 in the cross objections filed by the assessees for the AYs 2007-08, 2009-10 to 1011-12 stands dismissed as not pressed." 84. We further note that Ground II (2) raised in the cross objections dated 24.07.2015 filed by the assessee, has been raised in the following terms : "II. Validity of proceedings and order passed under Section 153C of the Income Tax Act, 1961; The learned CIT (A) has erred in not holding the notice under Section 153C and the assessment under Section 153C read with Section 143(3) making additions not based on seized material as bad in law and thereby not holding that the proceedings under Section 153C were initiated without jurisdiction." Thus, we see that the ground raised was one based upon the factual aspect as to whether making additions on the basis of the materials seized during the raids could be considered as the incriminating material to proceed in terms of Section 153C ....
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.... Here again, the ITAT has answered this question for a second time at para 59.3 of its judgment after considering the various transactions which came to light in the search conducted by the Revenue, which were earlier considered on the first round, after which that ground was specifically given up and not pressed for by the appellants. In these circumstances, we are of the opinion that substantial question of law (D) does not arise for our determination as the same was never the subject matter of remand and decision before the CIT (Appeals) or before the ITAT. 87. The appellants have contended that notwithstanding the fact that the remand of the matter to the CIT (Appeals), was limited to the sole question as to whether the transactions between company inter se could be considered as deemed dividend under the provisions of Section of 2(22)(e), the appellants could not be estopped from raising and re-agitating the grounds raised of the jurisdiction of the AO to proceed under Section 153C of the Act, even though this ground stood specifically withdrawn by the appellants before the ITAT in the first round of litigation. In this regard, it is further the appellants' contenti....
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....ing the search and is precluded from considering any other material derived from any other source. Whilst deciding this question, the Hon'ble Supreme Court recorded its agreement with a view taken by Delhi High Court in Kabul Chawla (supra) and by the Gujrat High Court in Somya Construction (supra) that no addition can be made in respect of a completed assessment in the absence of incriminating material. The conclusions in this judgment are the following : "14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under Section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating ma....
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....anted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings. 13. In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings which would show that the relief under Section 80HHC was erroneous. In such a case, the A.O. while passing the assessment order under Section 153A read with Section 143(3) could not have disturbed the assessment order finalised on 29.12.2000 relating to Section 80HHC deduction and consequently the C.I.T. could not have invoked jurisdiction under Section 263 of the Act." Thus, Murli Agro Products Ltd (supra), was based upon the finding of the ITAT that no material at all has been unearthed by the AO to justify proceeding in terms of Section 153A of the Act. This judgment, too, apart from holding that there has to be some material gathered in the course of proceeding under Section 153A to establish that the reliefs granted were contrary to the facts unearthed, does not decide the nature of the material that would amount to be incriminating for the purpose of proceeding under Section 153A of the Act. 91. ....
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....t constitutes "incriminating material". 92. The appellants have cited before us a judgment of the ITAT, Kolkata, in Mani Square Ltd. ..V/s.. ACIT, reported in [2020] 83 ITR (T) 241 (Kolkata Tribunal), which in turn has referred Kabul Chawla (supra) and, as claimed by the appellants, has decided the issue before us. A reading of the judgment would reveal that the real question before the Tribunal was quoted at paras 12 and 13 thereof which read as under : "12. After giving thoughtful consideration to the facts of the present case and the grounds raised in appeal by both parties and taking their consent, we frame the following issues/questions for our adjudication. (A) Whether in absence of any incriminating material found in the course of search at the premises of the appellant, the additions/disallowances made in the assessments of the appellant and M/s IQCIPL which were unabated [since assessment of AY 2013-14 was non-pending] on the date of search, could be held to be sustainable on facts and in law? (B) Whether the Ld. CIT(A) was justified in confirming the addition made on account of alleged on-monies of Rs.4,81,38,000/- received upon the sale of f....
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....he Delhi High Court has summarized the legal position thus : "37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be ....
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.... the question of the AO assuming jurisdiction under Section 153A or that the discovery of the shareholding pattern during search could not constitute the incriminating material for that purpose, the appellants were not estopped at law to raise this question in the present appeal since the same was a jurisdictional issue. In support of the submissions, the appellants have cited a judgment of this Court in PCIT ..V/s.. Jignesh P. Shah, reported in [2018] 99 Taxmann.com 111 (Bombay); whilst dismissing the appeals at the threshold holding no substantial questions of law arose, this Court has observed thus : "6. The aggrieved assessee approached the Tribunal. After considering the rival submissions, the Tribunal answered the legal issue in favour of the assessee. While answering it, in para 8, the scheme of the law was discussed. Then, the principle which was enunciated by the judgment of this Court rendered in the case of CIT v. Murli Agro Products Ltd. [2014] 49 taxmann.com 172 was applied. That judgment held that, once the assessment has attained finality before the date of search and no material is found in the course of proceedings under Section 132(1), then, no addition c....
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....it suitably to include the details of the incriminating material. We quote below the relevant paragraphs of this judgment : 4, 5 and 6. "4. We have no quarrel with the proposition submitted by Mr. Chhotaray. Section 153A is couched in mandatory language once there is a search, the assessing officer has no option but to call upon the assessee to file the returns of the income for the earlier six assessment years. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the assessing officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section 153A only on the basis of seized material. 5. Issuance of a show cause notice is the preliminary step which is required to be undertaken. The purpose of show cause notice is to enable a party to effectively deal with the case made out by respondent Om Shri Jigar Association v. Union of India [1995] 80 Taxman 514/[1994] 209 ITR ....
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....hat individual assessees were the beneficiaries of such transactions came to the knowledge of the year and had no opportunity to examine these transactions during regular assessment since these were not made known prior to the search operations. The CIT (Appeals) has also noted in this order that it was during the course of the search that the facts were collated and statements were recorded, thus coming to a factual finding that the shareholding pattern of the individual assessees of this company was for the first time discovered during the search. Thus, the CIT (Appeals) had clearly arrived at a factual finding in the first order itself that the discovery of the shareholding pattern during the search found the incriminating material for assuming jurisdiction for issuance of notice under Section 153A of the Act. This factual finding was challenged before the ITAT in the first round of litigation, and such ground of challenge to a factual finding was specifically given up. The finding of fact as to what constituted the incriminating material to proceed had become final and could not be re-agitated in subsequent appeals filed by the appellants. In our opinion, therefore, the subs....
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.... 100. We have also taken note of the fact that the principles of the CBDT Circular no. 19/2017, dated 12th June 2017, have neither been ignored nor breached, though such a circular may not have existed when the ITAT heard the matter. The Assessing Authorities, including the Tribunal, have also considered such principles. Therefore, no case is made to interfere with the findings, which are primarily factual and based on the material on record. Accordingly, no purpose would be served in remanding the matter based upon the CBDT Circular dated 12th June 2017 since the principles in the said circular have been followed and applied by the Assessing Authorities qua the transaction in question. 101. The second transaction is between KCPL and Kamat Construction and Resorts Pvt. Ltd. (KCRPL). Again, a partial relief is granted to the assessee upon evaluating the material on record. The assessee had contended that the advances were towards acquiring a premises from KCRPL, which was in the construction business. The material on record, however, does not support this defence. Another defence about enabling KCRPL to meet its interest/repayment liability on the credit facilities obtained wa....
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....estion of law. In any case, the substantial questions of law, as framed, must be answered against the assessee and favouring the Revenue because there is no error in the findings that the transaction in question or, in any case, the transactions above particular financial limits were not made in the ordinary course of business and, therefore, did not qualify loans or advances to apply the provisions of Section 2(22)(e) of the Income Tax Act. 105. Having held substantial questions of law (A) to (F) against the appellants in 29 Tax Appeal bearing Nos. 51 of 2017, 121 of 2017, 80 of 2017, 81of 2017, 63 of 2017, 69 of 2017, 123 of 2017, 89 of 2017, 60 of 2017, 53 of 2017, 79 of 2017, 67 of 2017, 59 of 2017, 86 of 2017, 82 of 2017, 84 of 2017, 88 of 2017, 120 of 2017, 54 of 2017, 56 of 2017, 87 of 2017, 122 of 2017, 66 of 2017, 78 of 2017, 77 of 2017, 64 of 2017, 55 of 2017, 85 of 2017, 65 of 2017, 58 of 2017, 70 of 2017, 76 of 2017, 83 of 2017, 68 of 2017 and 93 of 2017 and in the remaining 5 appeals, being Tax Appeal Nos. 121, 122, 123, 119, and 120 of 2017, all filed at the behest of KCPL, the question of law raised in the sole appeal filed at the behest of the Revenue is Tax Appe....