TMI Blog2023 (8) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial interest in respect of the shares of subject Companies held by the Appellant and that such right of the spouses can only be ascertained on termination of the marriage by divorce, separation or death, is based on complete mis-appreciation and misconstruction of the provisions of Portuguese Civil Code which contemplates vesting of ownership rights and beneficial interest IN PRESANTI in Appellant s wife, as a moiety holder with respect to the immovable and movable assets of Appellant which includes shares of the subject Company ? - HELD THAT:- In the present case, the none of six companies in which the three appellants Kamat Brothers are shareholders were registered under the Commercial Code, but were all registered under the Indian Companies Act, 1956. In these circumstances, we would be called upon to examine the interplay between the provisions of the Civil Code applicable to three sets of spouses, the provisions of the Companies Act, 1956, insofar as it concerns specific rights to a member of a company and its shareholders, and the provisions of Section 5A of the Income Tax Act, 1961 read with Section 2(22)(e) and Section 3(32) of the Income Tax Act, 1961. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g jurisdiction under Section 153A. CIT (Appeals), in its order passed in the first round of litigation, had come to a categorical finding of fact on page 73 of its order that it was for the first time during the search in the seizure that intragroup transactions and the fact that 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. CIT (A) 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 (A) 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 u/s153A of the Act. This factual finding was challenged before the ITAT in the first round of litigation, and such ground of challenge t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAX APPEAL NO.60/2017 WITH TAX APPEAL NO.58/2017 WITH CIVIL APPLICATION NO. 167/2017 IN TAX APPEAL NO.58/2017 WITH TAX APPEAL NO.88/2017 WITH CIVIL APPLICATION NO. 207/2017 IN TAX APPEAL NO.88/2017 TAX APPEAL NO.82/2017 WITH CIVIL APPLICATION NO. 199/2017 IN TAX APPEAL NO.82/2017 WITH TAX APPEAL NO.83/2017 WITH CIVIL APPLICATION NO. 201/2017 IN TAX APPEAL NO.83/2017 WITH TAX APPEAL NO.81/2017 WITH CIVIL APPLICATION NO. 198/2017 IN TAX APPEAL NO.81/2017 WITH TAX APPEAL NO.85/2017 WITH CIVIL APPLICATION NO. 203/2017 IN TAX APPEAL NO.85/2017 WITH TAX APPEAL NO.84/2017 WITH CIVIL APPLICATION NO. 202/2017 IN TAX APPEAL NO.84/2017 TAX APPEAL NO.68/2017 WITH CIVIL APPLICATION NO. 182/2017 IN TAX APPEAL NO.68/2017 WITH TAX APPEAL NO.69/2017 WITH CIVIL APPLICATION NO. 184/2017 IN TAX APPEAL NO.69/2017 WITH TAX APPEAL NO.77/2017 WITH CIVIL APPLICATION NO. 190/2017 IN TAX APPEAL NO.77/2017 WITH TAX APPEAL NO.70/2017 WITH CIVIL APPLICATION NO. 185/2017 IN TAX APPEAL NO.70/2017 WITH TAX APPEAL NO.76/2017 WITH CIVIL APPLICATION NO. 189/2017 IN TAX APPEAL NO.76/2017 For the Appellants : Mr Jitendra Jain with Mr Jas Sanghavi, Mr H. D. Naik and Mr A. D. Naik, Advocates. For the Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 153C were not validly initiated in as much as no new and incriminating facts had been found during the course of search warranting the additions made in pursuance thereof ? E. Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in not appreciating that all the payments received/paid by the various group companies, in which the Appellant is a shareholder were made in the ordinary course of business and did not qualify as loans or advances as postulated under the provisions of Section 2(22)(e) of the Act? F. Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in not appreciating that the amounts received by KCRPL from KCPL were in ordinary course of business and the conditions for invoking the deeming fiction under the provisions of Section 2(22) (e) of the Act could not be invoked in the facts of the present case? An additional Substantial Question of Law was also directed to be framed by the same order in Stamp Number Main No. 2607/2017 (Tax Appeal No. 93 of 2017) filed at the behest of the Revenue, which reads as:- Whether in law and on facts, the Hon ble Income Tax Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing factual backdrop:- A. The Assessees, Shri Dattaprasad Kamat (Tax Appeal No. 51/2017) along with his two brothers Shri Uday Kamat and Shri Ramesh Kamat each held 30-33% shares in various private limited companies which are engaged inter alia, in the business of construction and hospitality. The three brothers each hold 30-33% shares in Kamat Inns Private Limited (KIPL), Kamat Housing and Development (India) Private Limited (KHDIPL), Kamat Construction Resorts Private Limited (KCRPL), Prajakta Investments Trading Company Private Limited (PIPTL), AVC Investments Trading Company Private Limited(AVCPTL). B. Each of the three brothers were married to their spouses in terms of the provisions of the Portuguese Civil Code, as applicable to the State of Goa (hereinafter referred to as the Code ). Under the Code, in the absence of any ante nuptial agreement between the spouses, each of them has 50% right to their common estate. C. Under the provisions of Section 5A of the Income Tax Act, when the husband and wife are governed by the system of Community of Property known as Communiao Dos Bens or Community of Assets under the Portuguese Civil Code of 1860 applicable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subsequent thereto, the Assessment Officer (AO) rejected the explanations and submissions made by the Assessees and held that payments made under various transactions by the Assessees through the aforementioned companies to be payment contemplated under Section 2(22)(e) of the Income Tax Act (hereinafter referred to as the Act ) and held the same to be deemed dividend in the hands of KCPL/KCRPL. Consequently, the AO assessed 1/6th of each sum in the hands of KCPL/KCRPL as deemed dividend under Section 2(22)(e) in the hands of the appellant and finalized assessment order on 28.02.2014, in terms of Section 153C read with Section 143(3) of the Act. By order dated 28.02.2014, the AO made the following additions to the income of Dattaprasad Kamat (Tax Appeal No. 51 of 2017); (i) As deemed dividend, in terms of Section 2(22)(e) on a protective basis in the hands of the appellant (Dattaprasad Kamat), a sum corresponding to 1/6th of Rs. 33,75,991/- received by KCPL from PIPTL, the substantive addition in respect thereof having been made in the hands of KCPL. The AO held that this amount corresponds to half of Rs. 11,25,330/- shown as additions in the assessment order. (ii) As d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue preferred an appeal before the ITAT challenging the deletion of the additions made under Section 2(22)(e) of the Act as deemed dividend. In those appeals, the appellants/assessees also filed cross objections challenging the validity of the proceedings under Section 153C of the Act. By its order dated 13.08.2015, the ITAT allowed the appeals of the Revenue and remanded the issue of deemed dividends under Section 2(22)(e) of the Act to CIT (Appeals) for re-adjudication after giving assessees and AO an adequate opportunity to substantiate their case. According to the order dated 13.08.2015 of the ITAT, the findings of the CIT (Appeals) were in the form of non-speaking order and the conclusion arrived at by the CIT (Appeals) that there were no violations of the provisions of Section 2(22)(e) of the Act was arrived at without considering the substantial evidence placed by the AO on record to support this claim. J. On remand, CIT (Appeals) heard the parties, written submissions were filed before the Appellate Authority by both parties, after which CIT (Appeals), by its order dated 22.01.2016, once again allowed the appeals of the assessees and came to the following findings:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode, no additions could be made. vii The proceedings under Section 153C of the Act were held to be valid on the ground that new facts had emerged during the course of the search, since it was at that point of time that the AO had an opportunity for the first time to collate all previous years statements and shareholdings, which constituted suppression on the part of the assessees. 4. Aggrieved by the order passed by the CIT (Appeals), the Revenue preferred an appeal before the ITAT in which the appellants/assessees filed cross-objections. In the cross-objections raised by the assessees, though in the earlier proceedings, they had given up the ground that the assessment under Section 153C by the AO was without jurisdiction, they once again contended that the assessment under Section 153C was without jurisdiction since there was no suppression of the shareholding pattern by the assessees, all disclosure having been made by them since the declaration, in earlier assessments which were accepted. The ITAT, as referred herein above, has allowed all these appeals at the behest of the Revenue and has upheld both, the legality of the procedure followed by the AO under Section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state which is indivisible, by virtue of operation of law in these provisions, the wife would be entitled to hold ownership of 50% of the shares held in the name and registered with the companies, in favour of the husband; that since the husband owns 33% of the shares in each of the companies concerned in the present appeals, his actual entitlement would be only to half of that value, while ownership of the remaining half i.e. 16.5% of the said shares would vest in the wife; and further, that the wife would be beneficial owner of these shares, since each half comprising of 16.5% carrying voting powers/rights corresponding only to 16.5.% of the shares in the company, they being less than the qualifying the 20% referred to in Section 2(22)(e) of the Act, provisions of Section 2(22)(e) of the Act would not be applicable to the case at hand; the voting power of such shares in the company advancing the amount carries less than 10%. (c) Section 2(32) of the Act defines a person, who has a substantial interest in the company, in relation to that company, means the person who is the beneficial owner of the shares carrying not less than 20% of the voting power. To ascertain whether such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the shareholder is not registered on the corporation's books as the owner; the expression means such right to the enjoyment of property as exists where the legal title is in one person and the right of such beneficial use or interest is in another and where such right is recognized by law and can be enforced by the Courts at the suit of such owner or someone on his behalf ; that, according to Advanced Law Lexicon, 6th Edition, by P. Ramanatha Aiyar. Beneficial owner means one who though not having an apparent title, is in equity entitled to enjoy the advantage of ownership . Applying the dictionary meaning of beneficial owner to the instant case, the wife would have 50% right in the dividend from the shares, and sale of shares and, therefore, enjoys all rights arising out of the ownership of the shares, being consequently beneficial owner of these shares to the extent of 50% or half right, as held in the case of Dr. Jose Julio D Costa ..Vs.. Income Tax Officer, 53 ITD 300, he submits that even depreciation can be claimed by other spouses/assessees to the extent of 50% shares, in terms of provisions of Portuguese Civil Code applicable to the assessees; Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are not beneficial owner of the shares held by the appellants in the company, the question raised under Issue No. 2 would arise for the Assessment Year 2007-08 to 2011-12; this Issue No. 2 would, however, not arise for the Assessment Year 2012-13, since the date of search conducted by the Revenue on 31.01.2012 was during that assessment year. Learned Counsel for the appellants submits that the Issue No. 2 as to whether the transactions recorded in the books of the group companies, and the shareholding pattern being available, both in the public domain and in the material submitted along with the previous years return, could be treated as incriminating material for the purpose of Section 153C of the Act. He submits that the assessment having been made in the case of all the individual assessees, pursuant to action under Section 132 of the Act, an addition could be made in respect of an assessment year, which has become final, only if incriminating material is found in the course of such search under Section 153A read with Section 153C of the Act. Further, that such incriminating material should be of the nature, which has come to the knowledge of the Revenue during the search a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s payable by KIPL to KCPL amounting to Rs.0.59 crores and the balance of Rs.0.46 crores were added by the AO to the income of the individual assessee. The ITAT has confirmed this addition. It was submitted that the relationship between KIPL and KCPL is on account of business transactions, being management of the resort owned by KCPL, by KIPL, on a consideration of 15% of the sales; the Revenue having accepted the business transactions, has, as a matter of fact accepted that Rs.0.59 crores was the equivalent of 15% sales. CBDT Circular No. 19 of 2017 dated 12.06.2017 has directed Assessing Officer not to contest the addition on account of Section 2(22)(e) of the Act, if trade advances are in the nature of commercial transactions. That the transactions in the nature of advances by KIPL to KCPL squarely fall within the directives of the Circular and the same cannot be construed as a loan or as an advance for the purpose of Section 2(22)(e). Since the Circular was not in existence at the relevant time, an alternate submission was made, the matter could be remanded back to the Tribunal for de-novo consideration in terms of the CBDT Circular. Without prejudice to this submission, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al since it was in the process of setting up a Five Star Hotel in Panjim City at Goa. It was further submitted that since the transaction was between closely held group companies, there was no requirement of execution of any document between them to record their intention for the advance; lack of such document could not be the reason for making an addition under Section 2(22)(e) of the Act. Transaction No.4 :- The fourth and last transaction is between AVCTPL and KCPL for the AY 2010-11, resulting in the Tribunal confirming the order of the AO, making additions of Rs. 2,50,000/-. It was submitted that the Kamat Group had set up a Firm called Kamat Industries and Trading (KIT) to supply the group companies with various items for its construction projects. The said AVCTPL purchased construction material from KIT for which Rs.2.11 Crore was payable by AVCTPL to KIT, which was made directly by KCPL to KIT for the material supplied. It was submitted that such an advance is on account of trade advance and covered by CBDT Circular No. 19 of 2017, necessitating such addition to be deleted or in the alternative, the matter be remanded back to the Tribunal for fresh considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Counsel for the appellant/Revenue in Tax Appeal No. 93 of 2017 and for all the respondents in the remaining appeals, has supported the assessment orders/additions made by the AO and the impugned order passed by the ITAT, on the basis of following submissions : a) That, the appellants (Kamat Brothers) are estopped from arguing before this Court raising any substantial question of law based upon the contention that the AO had no jurisdiction to proceed, in terms of Section 153C of the Act, since these appellants, had on their own given up these grounds of challenge, before the CIT (Appeals) in the first round, and before the ITAT in its first round, when the matter was remanded back to the CIT (Appeals), as well as when the matter was heard in the second round before the ITAT. Learned Counsel for the respondents takes us through the order dated 28.01.2015 of the CIT (Appeals) passed in the first round of this adjudication, wherein para 11 (internal page 73) of the order, it is specifically recorded that in the course of search and seizure, many intra group transactions came to light, and in the opinion of the ITAT, the AO was duty bound to consider these transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Revenue has placed reliance upon the following judgments to support of her submissions : 1. C.I.T. ..V/s.. C. P. Sarathy Mudaliar, reported in 1972 (4) SCC 531; 2. C.I.T. ..V/s.. Universal Medicare Pvt. Ltd., reported in 2010 SCC Online Bom 4; 3. M/s. Howrah Trading Co. Ltd. ..V/s.. CIT, reported in 1959 Suppl(2) 448 and; 4. Rameshwar Lal Sanwarmal ..V/s.. CIT, reported in 1980 SCR (2) 369. 8. Broadly, for answering the Substantial Questions of Law (A) to (C), the moot questions that would arise are : i) Whether the wife can be considered a member/shareholder of the concerned companies, under the Companies Act, 1956, merely by virtue of the operation of the provisions of the Civil Code to her marriage with the husband; ii) Whether the wife can claim a voting right in the resolutions of the concerned company, in terms of the provisions of the Companies Act, 1956, without there being any proof of her shareholding or membership in that company, in terms of the provisions of the Companies Act. For a better understanding of the controversy, it would be apposite to quote certain provisions of the Portuguese Civil Code 1867, as applicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicially when the wife refuses to give it without just cause, or when she is unable to give it. Para 2- However, the alienation the exclusive assets made by the husband in violation of the provisions of this Article, may be annulled at the request of the wife or her heirs only in case the husband is found liable to pay her or her heirs, there being no other assets by which the liabilities can be met. Para 3 - In case the said alienation is of common assets, the wife or her heirs or the heirs of the husband with right to the legitimate portion may, in all cases, apply to have the same annulled. Article 1193 - Incapacity of married woman in property matters The wife shall not acquire or alienate assets or incur obligations without authorization of the husband, except in cases where the law specifically permits it. Sole paragraph - In case the husband denies authorization, without any reason, the wife may apply to the respective Civil Judge to make such authorization good, and the same shall be granted or rejected after hearing the husband. Article 1210 - Effect of separation of persons - From the separation of persons, the separation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble right that each spouse enjoys in the common matrimonial estate as a result of the registration of their marriage. Further applying the legal principle of the right to Moiety to the movable assets of the estate of the spouses, the conceptual ownership of every movable asset, which includes cash, jewellery, and securities, including shares in the company, would vest equally in both spouses. 12. We now advert to a few historical events that are required to be taken note of for a better understanding of the application of the provisions of the Portuguese Code in relation to the matrimonial assets, vis-a-vis the laws extended to the territory of Goa by the Union of India, after its annexation/liberation from Portuguese Colonial Rule on 19.12.1961. 13. The territories of Goa, Daman, Diu and Dadra and Nagar Haveli, were part of Portugal, to which the Portuguese Civil Code, 1867 was applicable. The Portuguese Civil Code comprised substantive civil laws, including laws of succession, laws which applied to contract and property, and the civil rights conferred upon the citizens of Portugal and its territories. The Civil Code, in a sense, was truly a common civil code, applicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ens domiciled within these territories. 15. The Goa, Daman and Diu (Laws) Regulation No. 12 of 1962 (GDD Laws Regulation 1) was promulgated by the President of India on 28.11.1962. By this Resolution, the Acts referred to in its Schedule, which till then were in force in the remaining territories of India to which they extended, were now extended to Goa, Daman and Diu. By these Regulations, the Companies Act 1956 was extended to the territory of Goa and by virtue of amendment to the Companies Act 1956, Section 2A was incorporated therein, extending the Companies Act to the territory of Goa. Though several other Indian enactments were extended in their operation to the newly annexed territory of Goa, none of the Indian Personal Laws, such as the Hindu Succession Act, Indian Succession Act, Hindu Marriage Act etc., were extended to the territory of Goa. 16. The Goa, Daman and Diu (Laws) No. 2 Regulation, 1963 (No. 11 of 1963) (GDD Laws Regulation 2) was promulgated by the President of India w.e.f. 29.5.1964 by which several other laws in force in India were extended to the newly annexed territory of Goa. Under Regulation 9 of GDD Laws Regulation 2, the Companies Act 1956 was am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Society in collective name is characterized by joint, several and unlimited liability of all its members. Para 2 - Anonymous Society is one in which the liability of members is restricted to the value of shares which they subscribe towards the capital. Para 3 - A partnership arises when one or more of the members hold themselves liable as if the society was in collective name and another or others merely contribute specific amount limiting their liability to the same. 18. In the present case, the none of six companies in which the three appellants Kamat Brothers are shareholders were registered under the Commercial Code, but were all registered under the Indian Companies Act, 1956. In these circumstances, we would be called upon to examine the interplay between the provisions of the Civil Code applicable to three sets of spouses, the provisions of the Companies Act, 1956, insofar as it concerns specific rights to a member of a company and its shareholders, and the provisions of Section 5A of the Income Tax Act, 1961 read with Section 2(22)(e) and Section 3(32) of the Income Tax Act, 1961. 19. At this juncture, it would be advantageous to note that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not; (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner 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 per cent of the voting power, or to any conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place. Explanation 2A. In the case of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation. Explanation 3. For the purposes of this clause, (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent. of the income of such concern. Section 2(32) .- Person who has a substantial interest in the company, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve all the provisions of the memorandum and of the articles. (2) All money payable by any member to the company under the memorandum or articles shall be a debt due from him to the company. A Member in relation to a company is defined under Section 41 of the Companies Act, which reads as under : Section 41. Definition of Member (1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members. (2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. (3) Every person holding equity share capital of company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company. 22. The share capital and voting rights of members of the company are referred to under Part-IV of the Companies Act, 1956. Section 87 of that Act deals with the voting rights of members of the Company, which reads as under : Section 87. Voting Rights : (1) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on any resolution in accordance with the provisions of this sub- section, his voting right on a poll, as the holder of such share, shall, subject to the provisions of section 89 and sub-section (2) of section 92, be in the same proportion as the capital paid-up in respect of the preference share bears to the total paid-up equity capital of the company. 23. Part-VI of the Companies Act, 1956 deals with the Management and Administration of companies. Chapter-I of this part contains the general provision dealing with the management of the companies, while Chapter-II thereof, deals with the Directors and functioning Board of Directors of the Company. Section 150 of this Act falls under Chapter-I requires every company to maintain a Book or Register of its members. Section 150 thereof reads as under : Section 150. Register of Members : (1) Every company shall keep in one or more books a register of its members, and enter therein the following particulars : - (a) the name and address, and the occupation, if any, of each member ; (b) in the case of a company having a share capital, the shares held by each member, distinguishing each share by its number excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent) Act, 1974, or within thirty days after his becoming such beneficial owner, whichever is later, make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed. (3) Whenever there is a change in the beneficial interest in such shares the beneficial owner shall, within thirty days from the date of such change, make a declaration to the company in such form and containing such particulars as may be prescribed. (4) Notwithstanding anything contained in section 153 where any declaration referred to in sub-section (1), sub- section (2) or sub-section (3) is made to a company, the company shall make a note of such declaration, in its register of members and shall file, within thirty days from the date of receipt of the declaration by it, a return in the prescribed form with the Registrar with regard to such declaration. (5)(a) If any person, being required by the provisions of sub- section (1), sub-section (2) or sub-section (3), to make a declaration, fails, without any reasonable excuse, to do so, he shall be punisha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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. 26. We shall now deal with the three primary submissions made by Mr Jitendra Jain, learned Counsel for the appellants, covering Substantial Questions of Law (A) to (C), which, as argued, proceed on the basis of the following three propositions put forth by the appellants : (a) That, by virtue of the applicability of the provisions of the Portuguese Civil Code and applying the concept of ownership to the communion of assets of matrimonial estate between the spouses, the wife of each appellant, by operation of law, holds 50% of the shares in the concerned companies, which are otherwise held and registered in the name of the husband. (b) That, by virtue of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated above. Article 373 lays down that things are either immovable or movable; Article 375 then sets out what are immovables by virtue of law; Article 376 enacts that all material things which are not immovable properties are movable and clause one of Article 377 lays down that by the words movable things or movable estates must be understood only material objects which by their nature are movable. These Articles, in my opinion, show that money is not included within the term movables as used in the Portuguese Civil Code. Article 1096 which occurs under the heading general provisions permits consorts to stipulate before the celebration of marriage and within the limits prescribed by law whatever they think proper in respect of their estate, and Article 1097 provides that such agreement must be by way of a public deed. Article 1098 enacts that in the absence of any such agreement, the marriage shall be deemed to have been celebrated as per the custom of the country and Article 1099 lays down that in such cases the provisions of Article 1108 to 1124 would be applicable. It is an agreed position between the parties that the marriage in the present case was a marria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, and that is the sense in which the word dominion is used in Article 1117. Article 1118 empowers the husband to freely dispose of the movable properties of the couple, but in case he alienates or binds under a gratuitous contract any such property without the consent of the wife, the value of the properties so alienated is to be taken into account towards the husband's half share. The use of the words dispose , alienates and contracts , as well as the definition of the term movable things or movable assets in Articles 373 to 377 referred to above, in my opinion, show that Article 1118 does not apply to money and cannot, therefore, apply to the income from communion property which the husband may receive in the form of cash. What is more, Article 1471 shows that where the legislature of Goa intended to refer to money, it has provided for it in distinct terms and has not included it in the term movables as used therein. Similarly, Article 1119, which relates to immovable properties, whether belonging exclusively to either of the consorts or belonging to them in common, provides that they cannot be alienated or any charge created thereon without common consent an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his absence or his suffering from any impediment, the wife may manage the same. Articles 1191 and 1193, however, impose restrictions on the rights of management of the husband or the wife, as the case may be; Article 1191 provides that the husband cannot, in the course of his management, alienate immovable properties or move the Court in respect of any dispute relating to the same, without the consent of the wife. Article 1203 lays down that the conjugal society can be interrupted either with regard to person or property of the consorts, or only with regard to property. Article 1204 states that it is permissible to the spouses to obtain the separation of persons and assets on the same grounds on which they could obtain a divorce under the law applicable to them, but Article 1210 lays down that the separation of persons necessarily means a separation of estate, with the result that whilst there can be a separation of their estate simpliciter, there cannot be separation of persons without the necessary consequence of the separation of estate also. Article 1216 provides that the disposition between living consorts of the immovable properties which have devolved on each of them aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able within the terms of Section 26 of the Income Tax Act, 1961, are Articles 1104, 1216 and 1220. In my opinion, however, none of the said three Articles really help Mr. Joshi. Article 1104 applies only to the particular case of an ante-nuptial agreement in a marriage under Articles 1096 and 1097, and can have no application to the present case which is not a case of such an agreement that is one of a marriage according to the custom of Goa. In the case of a separation of estate, Article 1220 provides for the reciprocal divesting of properties brought in at the time of the marriage, but with regard to properties acquired during the marriage, it adopts the only practical course of a reciprocal vesting of half of it in each of the spouses. Article 1216 does not militate against the assessee's contention because there being only a separation, the bond of matrimony continues to subsist and the power of disposal is, therefore, on the lines of that under Articles 1119, 1191 and 1193 which were applicable prior to that separation. On a careful consideration of all the above provisions of the Portuguese Civil Code, as well as of Article 10 of the Commercial Code, the following le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Article 10 of the Commercial Code, in the case of a husband and wife married according to the custom of Goa, each of them has a definite and ascertainable share in the corpus as well as in the income, the management alone being with the husband. As Mr. Mehta has rightly contended, restrictions on the enjoyment or management of the property which are to be found in the Portuguese Civil Code do not contravene any requirement of Section 26 of the Income Tax Act, 1961. The Tribunal was, therefore, right in the view which it took that Section 26 applied, and the question referred to us must be answered against the Commissioner. We answer the question referred to this Court as follows: On the facts of the case, and having regard to the relevant provisions of the Portuguese Civil Code and Article 10 of the Commercial Code, the respective half shares of the husband and wife in the income from the house property which is the property of the communion of the husband and wife married according to the custom of Goa, should be assessed separately in equal shares in the hands of each of them, and not in the hands of the body of individuals of the communion of husband and wife, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but only a body of individuals for which special provision was required to be made in the three Sections above noted. On this aspect of the matter, it may be apposite to refer to an earlier decision of this Court in CIT v. Purushottam Gangadhar Bhende [1977] 106 ITR 932, where the provisions of the Portuguese Civil Code as well as Article 10 of the Commercial Code were considered. However, in that decision, the Division Bench, to which one of us, namely, myself, was a party, was not required to give its conclusion as to whether the husband and the wife who constituted the communion by reason of the provisions of the Portuguese Civil Code could be regarded as an association of persons or not. The short question which fell for determination in the said decision was whether the shares of the two could be regarded as definite and ascertainable. If the answer to the question was in the affirmative, as it was ultimately found to be by the Bench, then it did not matter whether the two constituted an association of persons or not, since Section 26 of the I.T. Act, 1961, contained express prohibition against the income from property being taxed in the hands of the husband and the wife as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious situations (vide Articles 1112 to 1114 of the Portuguese Civil Code, and Article 10 of the Commercial Code dealing with the incidence of debts, and Portuguese Civil Code Article 1118, dealing with the disposal of the movable property as well as Articles 1120, 1123, 1220, 1463 and 1471). 14. It is true that joint rights in the properties of the spouses come into being as a result of the marriage under the provisions of the Portuguese Civil Code in the absence of an ante-nuptial agreement providing for their separate holding of respective property. From this it does not follow that the prospective husband and wife are associating (or getting married) with the purpose, object or motive of constituting themselves as joint holders of the property. On a proper view of the provisions of the Code, the communion of property would be a necessary incidence of the marriage but cannot be regarded as the object or purpose of the marriage. Mr. Joshi rightly stressed that the definition of association of persons in which the aspect of earning profit or income was emphasized to be considered under the W.T. Act. But by accepting his caveat it would not follow that the basic approach i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Code, were a body of individuals and not an association of persons for the purpose of the Wealth Tax Act. The judgment reiterates the position held in Bhende s case, but still does not answer the questions which we are called upon to decide in this case. In our view, all the judgments referred above do not advance the argument of the appellants on their first proposition set out in Para 26(a) above. 32. In Commissioner of Income Tax ..V/s. Govind B. C. Ghanekar, this Court was dealing with a reference under the Income Tax Act, 1961 as to whether gifts made by the husband to his wife were revocable transfers within the meaning of Section 61 of the Income Tax Act. Whilst dealing with this issue and examining the provisions of Article 1181 of the Portuguese Civil Code, which deals with the gifts made inter vivos between spouses, it was held as under : 8. On a conjoint reading of Sections 60, 61, 62 and 63, it is abundantly clear that the income from revocable transfers of assets is to be included in the hands of the transferor for the purpose of charge of income-tax. What is a revocable transfer will depend on various factors including, of course, the operation of law. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decide whether objections raised as to maintainability of a Plaint signed by the Principal Officer of a company created under the Portuguese Commercial Code on 11.04.1901, could be instituted, after the extension of the Companies Act, 1956, to the newly acquired territory of Goa. Whilst dealing with the decision, the learned Single Judge holds thus : 5. It cannot be disputed and indeed not disputed that under the Portuguese Commercial Code read with law of 11th April 1901 Sociedade por Cotas which is akin to private limited company was to be incorporated and as I see it, there is a dispute that appellants had been so constituted. After the event of Liberation of Goa the Companies Act 1956 was brought into force with effect from 26th January 1963. Needless to say that after the extension of the Companies Act 1956 any new company or corporation to be incorporated had to be under that Act and further needless to say they are required to be registered accordingly with the Registrar of Companies nominated for that area. After the extension of the Companies Act to the territory of Goa G.S.R. 1349 published in Gazette of India dated 19.09.1964, Pt.II states by way of addition to Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cotas for all purposes it must be held that the suit had been properly instituted. What may be culled out from this judgment is, that companies created under the Portuguese Commercial Code, 1901, would continue to be in existence, notwithstanding, the fact that the Companies Act, 1956, had been extended to the territory of Goa since 26.01.1963. Consequently, plaints at the behest of companies under the Commercial Code could be maintained. In the present case, none of the companies in which the appellants are shareholders were created under the Portuguese Commercial Code but were all brought into existence under the Companies Act 1956, much after the liberation of Goa. Timblo Irmaos Ltd. (supra) in no way supports the argument of the appellants that the provisions of the Companies Act, 1956, insofar as it deals with the beneficial interest of a shareholder under Section 187C are inapplicable to Goan to whom the Portuguese Civil Code would apply. 34. In CIT ..V/s.. Vasudeo V. Dempo reported in (1995) 213 ITR 466 the question of law which arose for determination was whether income from other sources and income from capital gains were not assessable in the hands of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raf and U. T. Shah, JJ. dated 22nd/23rd April, 1993 in Income-tax Reference No. 124 of 1980 in so far it deals with business income. This judgment does not make any reference or decide the issue as to what would be the effect, qua the Companies Act, in relation to the rights of the spouses inter-se and of each in relation to the company in which the individuals spouses held shares. That, in fact, would be the question which we are dealing with and shall presently address. 35. We now refer to a judgment of the Division Bench of this Court in CIT ..V/s.. Modu Timblo (individual) (and vice versa) reported in (1994) 206 ITR 647. In this matter, three questions of law were referred to the High Court, which we reproduce below : (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the income from business, share income from partnership firms and interest earned on bank accounts have to be assessed in the hands of the 'body of individuals' consisting of Mr. and Mrs. Modu Timblo ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principle laid down in Purushottam Gangadhar Bhende (supra). 36. In this judgment, one of the contentions raised by the assessee, which was recorded at para 13 thereof, was that on a correct reading of the rights of the husband and wife under the Portuguese Civil Code and the decisions of this Court (in the case of Purushottam Bhende (supra) and Additional CIT ..V/s.. Valentino F. Pinto, (1984) 150 ITR 408), even the salary income earned by any of the members of the communion i.e. husband or wife, would accrue or arise in equal shares to each of them in as much as salary is also property. A further submission was made therein by the assessee that even assuming that the entire amount of income from any source arises either to the husband or the wife, by virtue of the Code, a half share of such income will get diverted by overriding title or a charge by operation of law to the other spouse and, as such, only half of the income can be assessed in the hands of the husband or the wife to whom it accrues. Before referring to the manner in which this Court has dealt with the above submission, which is of relevance to the decision of this matter, we may add that as of 23.04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to us can be answered without further elaborate discussion, either factual or legal. The circumstances under which the court had to decide this case are evident from the factual situation set out above. It is evident that the court's attention was not drawn to the distinction in the matter of treatment of income under the head House property and income under other heads which had been created by the Legislature it self by virtue of specific provision contained in Section 26 of the Act. It was not brought to the notice of this court that the decision of this court in Purushotam Gangadhar Bhende's case [1977] 106 ITR 932 had been rendered on application of Section 26 of the Act which applied only to house property income and to no other income. Under the circumstances, the same ratio cannot apply to income falling under heads other than income from house property . The said decision, therefore, is a decision per incuriam, so far as it pertains to income from business which was the subject-matter of controversy before it because, evidently, in that case this court acted in ignorance of the relevant provisions of the Act. The general observations therein are casual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14. In the instant case, we are called upon to decide the assessability of income from interest and dividend which was received from investment of funds which belonged in equal shares to both the husband and wife. There was no question of management or effort in deriving the above income. It is not a case where the income was derived from money-lending business or in the course of dealing in shares where different considerations may apply. In the instant case, we do not find anything to hold that the income from these two sources was derived by the two co- owners as a body of individuals . The fact that it was received by one of them for and on behalf of both is not determinative. This income therefore, has to be assessed in equal shares separately in the hands of both the husband and wife in the status of individuals. This conclusion of ours gets full support from the decision of the Supreme Court in G. Murugesan and Bros. v. CIT [1973] 88 ITR 432 . In this case, the Supreme Court had to decide about the assessability of income from dividend from shares which stood in the joint names of a number of persons. The question was whether the dividend income in such a case coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. 44. For the removal of doubts, in the Explanation, it has been declared that where any salary paid in advance is included in the total income of any person for any previous year, it shall not be included again in the total income of the person when the salary becomes due. 45. The above definition clearly goes to show that what is assessed under the head Salaries is the salary due to the assessee from an employer or a former employer. In the instant case, the husband was the employee. It was he who was employed. The salary accrued to him and it was payable to him by the employer. The employer, while doing so, was not concerned with the customary laws of his employee. It is impossible to comprehend that the income from salary can be said to arise to a person who is not in employment. The customary law or specific law of Goa determines the rights of the husband and wife in the property and income. It cannot make the wife also an employee wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relationship with the company as its Director. The judgment would further hold that by virtue of the application of customary law or specific law of Goa to the spouses, the wife could not claim to be an employee of the company and claim half the remuneration paid to her husband by virtue of being a Director of a Company. The judgment holds that the remuneration of the Director of a Company could not confer on the other spouse the right to half the share in the remuneration, but in the case of income from house property or from other sources or from profits and gains of business or profession , whilst relying upon the ratio laid down in the case of Purushottam Bhende (supra), it holds that the right of communion between spouses would also apply to the income under these three heads, since such income will be assessible in the hands of the communion. 40. Post the insertion of Section 5A in the Income Tax Act, 1961, which provision was introduced by way of an amendment under the Finance Act, 1994, which was brought in to force on 01.04.1994, though with retrospective effect from 01.04.1963, this Court had further occasion to deal with an interesting question of law, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Income-tax Act. It is difficult or it is not practical for Parliament to discriminate that salaried persons again on the basis of their origin or historical background for the purpose of assessment of income-tax. Parliament or the Legislature will have to take into account the reality or practicality of the circumstance subsisting in imposing taxation. The Supreme Court has observed in Kerala Hotel and Restaurant Association v. State of Kerala, thereof as follows (page 259 of 77 STC) : We are here concerned with the constitutional validity of a legislative provision which has the effect of making the cooked food sold in the posh eating houses alone exigible to sales-tax while exempting from that levy the cooked food sold in the moderate eating houses. Reasonableness of the classification has to be decided with reference to the realities of life and not in the abstract. A discernible dissimilarity between those grouped together and those excluded is a pragmatic test, if there be a rational nexus of such classification with the object to be achieved. In the abstract all cooked food may be the same since its efficacy is to appease the hunger of the consumer. But w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the five heads specified therein, the new provision of Section 5A, applicable to Goans, whose marriage was governed by the Civil Code has also prescribed another manner of computation of income as regards spouses of Goan origin governed under the system of communion of assets. The ratio laid down in this judgment, therefore, does not advance the arguments raised by the appellants in any manner. 42. In the case of Smt. Antoneta Cicilia Fernandes .V/s. Smt. Rita Maria Fernandes and others reported in 1996 (3) Bom. C.R. p.10 , relied upon by the appellants, this Court was dealing with a question as to whether the wife could object to the execution of a decree against the assets of her husband, who was one of the partners in the partnership firm, judgment debtor in the matter, on the basis that she was not a partner of the firm, so had no liability towards the debt or could be held liable by virtue of her marriage under the regime of communion of assets. Whilst rejecting the contention of the wife, who had objected to the execution, this Court, in the facts of that case has held thus : 9. We are unable to accept this submission of the learned Counsel again. As rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 15 of the Commercial Code which presumption was not at all rebutted by the appellant inspite of the opportunity made available to her. 43. We then refer to CIT ..V/s.. Maria Sylvia D Souza, reported in (2013) 261 CTR (Bom.) 282 , cited by the appellants in support of their contention that the spouse (wife of appellant) would by law own 50% of the assets belonging to the communion, which according to them, would include 50% ownership of the shares in the concerned company. In that matter, the question of law before this Court was, whether the ITAT was justified in holding the 50% of the share of the deceased husband would go to the legal heirs and 50% to the assessee wife, by overlooking the fact that all the fixed deposits received were standing in the name of the wife assessee. This judgment was rendered post amendment of the Income Tax Act, after insertion of Section 5A, which came into force on 01.04.1994, and holds thus : 14. The CIT(A) as well as the Tribunal have held that in terms of Section 5A of the Act which was brought into force in the year 1994 with retrospective effect from 1st April, 1963, the assessee and her husband were governed by the system of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question before us, which is whether the wife would have a voting right in the company, in which her husband, the appellant, is the sole registered shareholder and member of such companies. The ratio of the above judgment is certainly not applicable to the facts of the present case, nor would it advance the submission sought to be made by the appellants. 44. Zelia M. Xavier Fernandes E. Gonsalves ..Vs/.. Joana Rodrigues and others, reported in (2012) 3 SCC 188 , cited by the appellants decides the question as to whether a member of a Panchayat under Goa Panchayat Raj Act, 1994, who was married under the Civil Code, is disqualified from membership of that Panchayat. The ratio of this judgment is founded upon the fact that the husband of such member was awarded a contract by the Panchayat. By operation of law (Portuguese Civil Code), the member became entitled to a share in the profits of the contract awarded to the member s husband. The question was, whether by operation of law, that member was disqualified under the Panchayat Raj Act, since she had a monetary interest in the contract awarded to the husband. Whilst referring to the provisions of Articles 1098 and 1108 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord is sometimes employed synonymous with estate, or property. Interest means concern, advantage, good; share, portion, part, or participation. A person interested is one having an interest; i.e. a right of property, or in the nature of property, less than title. The word `interest' is the broadest term applicable to claims in or upon real estate, in its ordinary signification among men of all classes. It is broad enough to include any right, title, or estate in or lien upon real estate. One who holds a mortgage upon a piece of land for half its value is commonly and truly said to be interested in it. The word interest has a basic meaning of participation in advantage, profit and responsibility. Interest is a right, title or share in a thing. 18. Section 10(f) speaks of monetary interest. The general rule that the wife's interest is not necessarily the husband's interest has no application where the husband and the wife are governed by the system community of property because under that system, on marriage, each spouse is entitled to a one-half income of the other spouse unless contracted otherwise. During the subsistence of marriage, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat even where the spouse, a member of Panchayat, participates in the profits of the contract awarded to her husband, such profit of the contract would constitute indirect monetary interest for the purpose of disqualifying a member, in terms of Section 10(f) of the Panchayat Raj Act. We are therefore of the view, that the ratio of the judgment is distinguishable and not directly applicable in context of the question before us, which essentially is, whether, for the purpose of Section 2(22)(e) of the Act, the husband could be considered to be holding 50% of the shares in the concerned companies for the benefit of the wife, notwithstanding the fact that the shares were exclusively allotted to and standing in the name of the husband in the register of the company. 46. We then deal with the judgment of the Hon ble Supreme Court in Jose Paulo Coutinho ..V/s.. Maria Luiza Valentina Pereira and another, reported in (2019) 20 SCC 85, cited by the appellants to contend that the Portuguese Civil Code being a Special Act, applicable only to a person domiciled in Goa, the appellants, and their spouses, by virtue of the operation of this law, would each own 50% of the shares in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lst answering the question set out in issue No.II, the Hon ble Supreme Court makes reference to Article 24 and to Article 1737 of the Code and then decides, whether it would be the Civil Code or the Indian Succession Act, that would apply to succession of properties belonging to the estate of deceased Goan outside the territory of Goa, in the following manner : 24. It is interesting to note that whereas the Founders of the Constitution in Article 44 in Part IV dealing with the Directive Principles of State Policy had hoped and expected that the State shall endeavour to secure for the citizens a Uniform Civil Code throughout the territories of India, till date no action has been taken in this regard. Though Hindu laws were codified in the year 1956, there has been no attempt to frame a Uniform Civil Code applicable to all citizens of the country despite exhortations of this Court in the case of Mohd. Ahmed Khan v. Shah Bano Begum and Sarla Mudgal v. Union of India. 25. However, Goa is a shining example of an Indian State which has a Uniform Civil Code applicable to all, regardless of religion except while protecting certain limited rights. It would also not be out of pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... living in a foreign country. Indian citizens living in India cannot, by any stretch of imagination, be said to be living in a foreign country. This person is only a Goan domicile living outside Goa in India, which is his country. Therefore, Article 24, in our opinion, has no applicability. 28. This brings us to the issue as to what will be the law which would be applicable. The parties are ad idem that the Code applies . 29. Article 1766 provides that a married person shall not on the penalty of nullity dispose of certain and specific properties of the couple except if the said properties have been allotted to the said person. The Article reads as follows: 1766. Prohibition of disposition of the assets of spouses.- Those married as per the custom of the country shall not, under penalty of nullity, dispose of certain and specific properties of the couple, except if the said properties have been allotted to them in partition, or are not included in the communion, or if the disposition has been made by one of the spouses in favour of the other, or if the other spouse has given consent by authentic form. The basis of this article is that both spouses are equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would apply but for the properties outside the territory of Goa, the Hindu Succession Act will apply. Similarly, for Muslims within the State of Goa, Civil Code would apply and outside Goa, the Muslim Personal Law (Shariat) Application Act, 1937 would apply. This would lead to many uncalled for disputes and total uncertainty with regard to succession. 32. There must be unity in succession. The Portuguese law is based on the Roman law concept of hereditas i.e. inheritance to the entire legal position of a deceased man. This concept of universal succession is described in the Comparative Analysis of Civil Law Succession,7 as under: 18. In Comparative Analysis of Civil Law Succession , Villanova Law Review Vol. 11 Issue 2, the concept of universal succession and hereditas has been described as succession by an individual to the entirety of the estate, which includes all the rights and duties of the decedent (de cujus), known collectively as the hereditas under Roman law. The succession to the whole of the estate could be by one heir (heres) or several (heredes), they taking jointly regardless of whether the succession was testate or intestate. The estate (he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. Oriental Insurance Co. Ltd. 36. As far as Goa is concerned, there is a specific judgment in this regard i.e. Justiniano Audusto De Piedade Barreto v. Antonio Vicente Da Fonseca, though relating to the interpretation of Section 29 of the Limitation Act, 1963, which deals with local and special laws. Dealing with the issue of the Portuguese Civil Code, the Court held that it could not escape from reaching the conclusion that the Portuguese Civil Code is a local law within the ambit of Section 29(2) of the Limitation Act, 1963. A special law is a law relating to a particular subject while a local law is a law confined to a particular area or territory. In our considered view, the Portuguese Civil Code, in matters of succession, is both a special law and a local law. It is special and local because it deals with laws of succession for the domiciles of Goa only. In para 14 of this judgment, the Court held as follows: 14. We, therefore, arrive at the conclusion that the body of provisions in the Portuguese Civil Code dealing with the subject of Limitation of suits etc. and in force in the Union Territory of Goa, Daman and Diu only is local law within the meaning of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining quantity of shares actually held in such company, one would have to ascertain the voting power attached to such shares. 50. The appellants have relied upon the dictionary meaning of the word beneficial owner , which as per Mitra s Legal and Commercial Dictionary, 6th Edition, means A beneficiary s interest in trust property; a corporate shareholder s power to buy or sell the shares, though the shareholder is not registered on the corporations books as the owner. The expression means such right to enjoyment of property as exist, where the legal title is in one person and the right of such beneficial use or interest is in another and where such right is recognized by law and can be enforced by the Courts at the suit of such owner or someone on his behalf. As per Advanced Law Lexicon, 6th Edition by P. Ramanath Aiyar, beneficial owner means One who, though not having apparent title, is in equity entitled to enjoy the advantage of ownership . 51. The appellants also rely upon the meaning of the term Moiety in the Black s Law Dictionary, which is A half of something (such as an estate), Also termed mediety. A portion less than half; a small segment. In federal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Portuguese Civil Code. We proceed to analyse these submissions in the subsequent paragraphs. 53. The provisions of the Portuguese Civil Code, 1867, continued to be in force after the annexation of the territory of Goa into the Indian Union by virtue of the provisions of Section 5 of the Goa, Daman and Diu (Administration) Act, 1962. Further, by virtue of the Goa, Daman and Diu (Laws) Regulation No. 12 of 1962 (GDD Laws Regulation 1) promulgated on 28.11.1962, the Companies Act, 1956 was extended to the territory of Goa and by virtue of amendment to the Companies Act, 1956, Section 2A was incorporated therein extending the Companies Act to the territory of Goa. 54. If we accept the argument of the appellants, that the provisions of Section 187C of the Companies Act would not be applicable to a person, who is governed by the Portuguese Civil Code, in view of the fact that half the ownership of any shares held by one spouse would vest in the other spouse, in terms of the provisions of the Code, we would be faced with a situation that wherever the provisions of the Companies Act may be in conflict with those of the Portuguese Civil Code, conflicting provisions of the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member , in relation to a company, is defined under Section 41 of the Companies Act, and shall be a person, who subscribes to the Memorandum of a Company or a person, who agrees in writing to become a member of a company and whose name is entered in its register of members or a person holding equity share capital of company and whose name is entered as beneficial owner in the records of the company shall be deemed to be a member. Here again, the Companies Act does not admit any person other than the above three categories of persons, as members of a company, who shall take membership of a company either by virtue of having subscribed to its Memorandum or who has agreed in writing to become a member of the company and entered his name in the register of members or who holds shares of the company and whose name is registered as a beneficial owner in the register of the company. A person whose name is not registered as one holding beneficial interest in any share of the company is therefore clearly excluded, in terms of Section 41(3) of the Act, from claiming to hold any beneficial interest in any share of the company or to have a claim of being a beneficial owner of such a share. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the company in the prescribed form, of the beneficial interest held by him in such shares. 59. In our opinion, a reading of the aforequoted provisions of the Companies Act would result in the following conclusions : 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, which in effect, is a contract that binds only those persons who have been admitted as members of the company. c) No third person who may claim to be beneficial ownership of a share can have any relationship with the company in terms of its Memorandum of Articles of Association, unless such person who is entered into the register of beneficial orders and declaration to that effect has been given by the holder of the beneficial interest, in the prescribed form under Section 187C. d) Any charge or agreement created in relation to any share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being a company in which the public are substantially 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 to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits; but dividend does not include (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ii) any advance or loan made to a shareholder 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 clause (e), to the extent to which it is so set off; Explanation . The expression accumulated profits , wherever it occurs in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuted document such as was contemplated by Regulation 18 of Table A of the Indian Companies Act 1913, or by what are known as blank transfers. In such blank transfers, the name of the transferor is entered, and the transfer deed signed by the transferor is handed over with the share scrip to the transferee, who, if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share. The company recognises no person except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable. Of course, between the transferor and the transferee, certain equities arise even on the execution and handing over of 'a blank transfer', and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee. These equities, however, do not touch the company, and no claim by the transferee whose name is not in the register of members can be made against the company, if the tranferor retains the mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read in that manner, the present assessee, notwithstanding the equitable right to the dividend, was not entitled to be regarded as a shareholder for the purpose of Section 18(5) of the Act. That benefit can only go to the person who, both in law and in equity, is to be regarded as the owner of the shares and between whom and the company exists the bond of membership and ownership of a share in the share capital of the company. In view of this, we are satisfied that the answer given by the Calcutta High Court on the question posed by the Tribunal was correct. 63. Thus, we see that in Howrah Trading Company Ltd. (supra), the Supreme Court has held that the words member , shareholder and holder of a share have been used interchangeably in the Companies Act even though they may carry the same meaning. The judgment further holds that the word shareholder contained in Section 18(5) of the Income Tax Act, 1922, would be given the very same meaning as those words as assigned to them in the Companies Act. The judgment further lays down the principle that a person can be considered to be the owner of a share of a company, in law and in equity, and the benefit of the dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In Commissioner of Income tax, Bombay City II, v. Shakuntala ors. (43 I.T.R. p. 352), a Hindu undivided family which was the beneficiary of certain shares in a company in which the public were not substantially interested held those shares in the names of different members of the family. The Income Tax Officer applied the provisions of Section 23A of the Act (before its amendment in 1955) and passed an order that undistributed portion of the distributable income of the company shall be deemed to be distributed, and the amount appropriate to the shares of the family were sought to be concluded in the income of the family. In that case again this Court ruled that the word shareholder in Section 23A meant the shareholder registered in books of the company and the amount appropriate to the shares had to be included in the incomes of the members of the family, in whose names the shares stood in the register of the company; and as the Hindu undivided family was not a registered shareholder of the company, that amount could not be considered as the income of the family under Section 23A. 12. From the above decisions it is clear that when the Act speaks of the shareholder it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. The judgment further holds that the only person, who is deemed to have received that income can be assessed in respect of the dividend, that person alone being a shareholder. 66. In C.I.T. ..V/s. Universal Medicare (Pvt. Ltd.), reported in (2010) 190 Taxmann 144, this Court was considering Clause (e) of Section 2(22) of the Income Tax Act, 1961, and whether the deeming fiction in that provision would apply to a transaction of a loan other than a shareholder . Whilst examining these provisions, it has laid down the following ratio : 8. Clause (e) of Section 2(22) is not artistically worded. For facility of exposition, the contents can be broken down for analysis: (i) Clause (e) applies to any payment by a company not being a company in which the public is substantially interested of any sum, whether as representing a part of the assets of the company or otherwise made after the 31 May 1987; (ii) Clause (e) covers a payment made by way of a loan or advance to (a) a shareholder, being a beneficial owner 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a dividend. Clause (e) of Section 2(22) includes a payment made by the company in which the public is not substantially interested by way of an advance or loan to a shareholder or to any concern to which such shareholder is a member or partner, subject to the fulfillment of the requirements which are spelt out in the provision. Similarly, a payment made by a company on behalf, of for the individual benefit, of any such shareholder is treated by Clause (e) to be included in the expression 'dividend'. Consequently, 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 by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not of the assessee. This view taken by the High Court rendered it unnecessary to decide the other four questions and the High Court accordingly declined to consider them. The result of this decision was that the assessment made by the Revenue Authorities was set aside in so far as it included the loans advanced by the company to the three business concerns of the assessee as deemed dividend and taxed it in the hands of the assessee. 4. The revenue, being aggrieved by the decision of the High Court, preferred an appeal after obtaining special leave of this Court. Now it seems that through some inadvertence which is difficult to understand, the revenue attacked only that part of the order of the High Court which held that the deemed dividend could be assessed to tax only in the hands of S. M. Saharia, the registered shareholder and not in the hands of the assessee which was merely the beneficial owner cf the shares. Neither in the statement of case filed on its behalf nor in the course of the arguments the revenue assailed the correctness of the view taken by the High Court that since the assessee was not a registered shaleholder, loans advanced to the assessee could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly not attracted and the amounts of the loans could not be taxed as deemed dividends in the hands of the assessee. We accordingly answer the first question in favour of the assessee so far as this aspect is concerned. In view of this answer to the first question, it is not necessary to consider the other two questions decided by the High Court on remand. The learned counsel appearing on behalf of the assesses, in fact, did not press them. 69. Thus, Rameshwar Lal Sanwarmal (supra) clearly takes a view that the word shareholder in Section 2(6A)(e) should mean a registered shareholder whose name is recorded in the register of the company as the holder of the share; the advances and loans made to persons, who are not registered shareholders, could not be regarded as deemed dividend within the meaning of that provision, and thus, could not be taxed as dividend income. This judgment further holds that the loans advanced to a beneficial owner of shares, whose name was not registered as such in the registers of the company, could not be treated as deemed dividend and consequently could not be regarded as a loan advanced to shareholder of the company within Section 2(6A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der' as used in Section 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913. A reference was made to the decision of the Bombay High Court in Shri Shakti Mills Ltd. v. Commissioner of Income-tax, Bombay City, 1948-16 ITR 187: (AIR 1948 Bom 394) and other decisions bearing on the subject. Similarly, we see no reason why the expression 'shareholder' in Section 23A should not have the same meaning, namely, a shareholder registered in the books of the company. It would be anomalous if the expression shareholder' has one meaning in Section 18(5) and a different meaning in Section 23-A of the Act; for that would mean that a Hindu undivided family treated as a shareholder for the purpose of Section 23-A would not be entitled to the benefit of Section 18(5) of the Act. 7. We do not think that either of the two points urged by the appellant is really decisive of the question. The question is really one of interpretation of Section 23A, and we must interpret Section 23A with reference to its own terms. The section in express terms says that the proportionate share of each shareholder shall be included in the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of persons other than the public, and that means that the companies are controlled by a group of persons allied together and having the same interest. In the case of such companies, the controlling group can do what it likes with the management of the company, its affairs and its profit within the limits of the Companies Act. It is for this group to determine whether the profits made by the company should be distributed as dividends or not. The declaration of dividend is entirely within the discretion of this group. When the legislature realized that though money was reasonably available with the company in the form of profits, those in charge of the company deliberately refused to distribute it as dividends to the shareholders, but adopted the device of advancing the said accumulated profits by way of loan or advance to one of its shareholders, it was plain that the object of such a loan or advance was to evade the payment of tax on accumulated profits under Section 23A. It will be remembered that an advance or loan which falls within the mischief of the 'impugned section is advance or loan made company which does not normally deal in money- lending is made with full knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch company on behalf of or for the individual benefit of a shareholder was considered as dividend. In the 1961 Act, the very same two categories of payments were considered as dividend but an additional condition that payment should be to a shareholder being a person who is the beneficial owner of shares and who has a substantial interest in the company viz., shareholding which carries not less than twenty per cent of the voting power, was introduced. By the 1987 amendment with effect from 1st April, 1988, the condition that payment should be to a shareholder who is the beneficial owner 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 per cent of the voting power was substituted. Thus, the Percentage of voting power was reduced from twenty per cent to ten per cent. By the very same amendment, a new category of payment was also considered as dividend viz., payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest. Substantial interest has been defined to mean holding of shares carrying 20 per cent of voting power. 13. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under Section 2(22) (e) of the Act. We have to keep in mind that this legal provision relates to dividend . Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to shareholder . When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under Section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under Section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is a person who is the beneficial owner of shares holding not less than 10% of the voting power in the Company, and whether the loan is made to any concern in which such shareholder is a partner and in which he has a substantial interest, which is defined as being an interest of 20% or more of the share of the profits of the firm. 5) This provision came up for consideration before a Bench of this Court in CIT v. C. P. Sarathy Mudaliar, (1972) 4 SCC 531 . In the context of the assessee being a Hindu Undivided Family, the question of law set out in the aforesaid judgment is as follows: Whether, on the facts and in the circumstances of the case, the amounts of Rs.5790 and Rs.39,085 could be deemed to be the dividend income of the Hindu Undivided Family in the respective assessment years? After setting out the aforesaid Section, this Court held: 6. Before a payment can be considered as dividend under Section 2(6-A)(e), the following conditions will have to be satisfied: 1. It must be a payment by a company not being a company in which the public are substantially interested within the meaning of Section 23A of any sum whether as representing a part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 342 , and that the Revenue s contention to refer Sarathy Mudaliar s case to a larger Bench was turned down. 8) The effect of these two judgments is clearly to hold that before Section 2(6-A)(e) of the 1922 Act can be attracted, the shareholder referred to in the said provision must be a shareholder whose name is on the register of members of the Company. 9. When the Income Tax Act, 1961 came into force and repealed the 1922 Act, the definition of dividend contained in Section 2(22)(e) was as follows: Section 2. Definition In this Act, unless the context otherwise requires- (22) dividend includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company or any payment by any such company on behalf, or for the individual benefits, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; 9) A cursory look at the aforesaid definition would go to show that the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the whole object of the amended provision would be stultified if the Division Bench judgment were to be followed. Ankitech s case, in stating that no change was made by introducing the deeming fiction insofar as the expression shareholder is concerned is, according to us, wrongly decided. The whole object of the provision is clear from the explanatory memorandum and the literal language of the newly inserted definition clause which is to get over the two judgments of this Court referred to hereinabove. This is why shareholder now, post amendment, has only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It is clear therefore that the moment there is a shareholder, who need not necessarily be a member of the company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, 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. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down by the Supreme Court in C. P. Sarathy Mudaliar (supra), Howrah Trading Com. Ltd. (supra) and CIT vs Shakuntala (supra), that under the scheme of the Companies Act, the words member , shareholder and holder of a share , which have been used interchangeably, would be given the very same meaning assigned to these words when used in the provisions of the Income Tax Act. Applying this principle to the interpretation of these words in the provisions of Clause (e) of Section 2(22) of the Income Tax Act, 1961, we are of the considered opinion that for the purpose of this provision, the beneficial owner of shares , shareholder and member in the company referred therein, shall only be the registered shareholder or registered beneficial owner of a share whose name is found in the register of members/shareholders of the company under Section 150 or register of beneficial owner under Section 152A of the Companies Act, 1956. We are of the further considered opinion that in the absence of any declaration 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 reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch regulates the incorporation of a company as a legal entity and further regulates the relationship with its members/shareholders, this conflict if any, can be ironed out, by adopting a harmonious approach between the two statues. Clearly, the Portuguese Civil Code would confer a right on the spouse who does not hold the shares in such company, to have a notional 50% right to the value of such shares, which notional value forms the spouses moiety. However, the wife, in this case would never have the actual right or ownership of the share. 79. We can also view this question from a slightly different angle. Under the Civil Code, the contract of marriage between the spouses stands dissolved either by the death of one of the spouses or by decree of divorce. In the event of the death of the shareholder spouse, the shares held by that spouse would devolve to the children of the deceased shareholder or be allotted in Inventory Proceeding to decide rights of succession on the spouse, subject to the company in which 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of the methods set out in the schedule to the Act. The judgment in Vasudeo V. Dempo (supra), was therefore rendered on the basis that spouses married under the Civil Code would constitute a body of individuals and would each have a right to claim deductions under Section 5 of that Act. As referred to in those judgments, the assessment of wealth tax was calculated on the value of the movable properties consisting mostly of shares of limited companies and deposits in banks; thus, the concept which formed the basis of calculation of the wealth was its value and not based upon the beneficial right to specific shares in a company. These judgments, therefore, are of no assistance to the arguments raised by the appellants. 80. Thus, in our opinion, under no circumstances would the provisions of the Civil Code confer or create an ownership right in the shares, of a company or give the right of voting, in proportion to the share in the capital of the company, to the other spouse. The provisions of Clause (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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the ITAT to challenge the deletion of the additions made under Section 2(22)(e) of the Act as deemed dividend. The appellants filed cross-objections to the Appeal only to the extent of challenging the finding of the CIT appeals that the proceedings under Section 153C were valid. The ITAT allowed the appeals of the Revenue only to the extent of the challenge to the part of the order of the CIT (Appeals) rejecting the AO s order of making additions by the income on the basis of treating the loans/advances from companies as deemed dividend under Section 2(22)(e) of the Act. The ITAT, by its order of 13.08.2015, remanded the case to the CIT (Appeals) for re-adjudication on the limited issue with regard to addition of deemed dividends under Section 2(22)(e) of the Act. The para 8 of the order of remand of the ITAT, the following words recorded : 8. At the outset, it was submitted by the learned A. R. (Assessees Representative) that in the cross objections for the AYs 2007-08, 2009-10 to 1011-12, the 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 77 to para 98, the very same factual ground raised on the powers of the Assessment Officer to proceed under Section 153A of the Act, which were given up before the ITAT, have been re-agitated in the written submissions before the CIT (Appeals), though this question was never subject matter of remand. 86. Though CIT (Appeals) was not called upon to decide this question, nevertheless, a finding on this question was given by the Appellate Authority, upholding the jurisdiction of the AO to proceed in terms of the provisions of Section 153C of the Act. Taking advantage of this finding, which our opinion was redundant as the order of remand was clearly restricted to the applicability of Section 2(22) of the Act, the appellants have raised this as a ground of appeal, claiming that the AO lacked the jurisdiction in terms of Section 143(3) read with Section 153C of the Act, that question has been concurrently answered on facts by the CIT (Appeals) and the ITAT in the first round between the parties. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heva) Ltd., reported in [2015] 58 Taxmann.com 78 (Bombay); e) Mani Square Ltd. ..V/s.. ACIT, reported in [2020] 83 ITR (T) 241 (Kolkata Tribunal). 88. To support the argument that the appellants are entitled to raise this ground even though it was specifically given up, on the plea that this ground goes to the root of the jurisdiction of the AO to proceed in terms of Section 153C read with Section 143(2) of the Act, the following judgments have been cited before us : a) PCIT ..V/s.. Jignesh P. Shah, reported in [2018] 99 Taxmann.com 111 (Bombay); b) Underwater Services Company Ltd. ..V/s.. ACIT, reported in [2022] 448 ITR 691 (Bombay), 89. In Principal Commissioner of Income Tax ..V/s.. Abhisar Buildwell P. Ltd (supra), the Hon ble Supreme Court was concerned with the conflict of decisions rendered by various High Courts on the scope of Section 153A of the Act and whether, whilst re-assessing, the AO may consider only the incriminating material found during 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 90. In CIT ..V/s.. Murli Agro Products Ltd., reported in [2014] 49 Taxmann.com 172 , the Bombay High Court was considering a case where the ITAT, on facts had concluded that there was no material unearthed during the search or during Section 153A proceedings which would justify passing of a fresh assessment order. The relevant paragraphs are quoted below : 12. Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under Section 80 HHC of the Income Tax Act as well as the loss computed under the assessment dated 29.12.2000 would attain finality. In such a case, the A.O. while passing the independent assessment order under Section 153A read with Section 143(3) of the IT Act could not have disturbed the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings under Section 153A of the Income Tax Act establish that the reliefs granted 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 uneart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 153(1)(a) and assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the crucial words search and requisition appear in the substantive provision and the provisos. That would throw light on the issue of applicability of the provision. It being enacted to a search or requisition that its construction would have to be accordingly. That is the conclusion reached by the Division Bench in Murli Agro (supra) with which we respectfully agree. These are the conclusions which can be reached and upon reading of the legal provisions in question. A reading of this judgment leaves no doubt that the only question decided therein was that the assessment under Section 153A of the Act could only be on the basis of incriminating material found during the search; however, the judgment does not deal with the question of what 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was one, where there was total absence of incriminating material found in the course of search. The entire judgment proceeds on that base and is therefore quite distinguishable on the facts before us, where the appellant claims that disclosure of the shareholding pattern during the search could not be considered to be incriminating material for the assumption of jurisdiction under Section 153A. 94. CIT ..V/s.. Kabul Chawla, reported in [2016] 380 ITR 573 (Delhi) was a judgment of the Delhi High Court to decide whether the additions made under Section 2(22)(e) of the Act were not sustainable because no incriminating material concerning such additions were found during the course of a search. In that case the ITAT concluded that the additions made were not based on any incriminating material found during the search operations and directed deletion of the same referring to the judgment of this Court in Continental Warehousing (supra), the 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. Thus, Kabul Chawla (supra), says no more than what has been held by this Court in Continental Warehousing (supra) and Murli Agro (supra), this view being approved by the Supreme Court in Abhisar Buildwell (supra). All that is required is that the assessment under Section 153A has to have some relevance to the incriminating material. 95. We then consider the submission of Shri Jain for the appellants, notwithstanding the fact that the appellants had given up the cross objections raised before the ITAT on the first round on 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminating material. This finding of fact was assailed before in the first round before the ITAT and specifically given up, thus bringing finality to the factual finding arrived at by the CIT (Appeals). The remand was limited only to the other question raised as to the applicability of Section 2(22)(e) of the Act. 96. Underwater Services Company Ltd. ..V/s.. ACIT, reported in [2022] 448 ITR 691 (Bombay), cited by the appellants was a judgment of this Court in which notice issued under Section 153A was under challenge in a writ petition, on the ground that the Assessing Officer was not in possession of any incriminating material on the basis of which the notice was issued. Since there was no reference made to any material found to be incriminating in the notice under Section 153A, the notice was quashed with a direction that the Assessment Officer could issue a fresh notice under Section 153A to word 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this stage because what we find is that the notice issued under Section 153A is bereft of any material. Nothing prevented respondent from mentioning in the notice the basis for issuing the notice under Section 153A so that petitioner could comply with the same as prescribed. Thus, Underwater Services Company (supra), was decided purely on the fact that there was no reference to the material seized in the notice, resulting in the notice be quashed and afresh notice being issued by the AO. In our view, this judgment would not advance the argument of the appellants in any manner. 97. We are, therefore, of the considered view that the CIT (Appeals), in its order dated 20.01.2015 passed in the first round of litigation, had come to a categorical finding of fact on page 73 of its order that it was for the first time during the search in the seizure that intragroup transactions and the fact that 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 orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in these companies, holding 30-33% of shares. The Assessing Authorities, including the Tribunal, have evaluated the arrangement between the KIPL and KCPL in the context of managing Kamat Holiday Homes, for which the KIPL was required to pay 15% of the sales to KCPL based on the audited figures of the sales. Therefore, to the extent of advances corresponding to 15% of the sales, the Assessing Authorities have accepted the transaction as a bona fide business or commercial transaction. However, in the absence of any proper explanation about the advances over and above the consideration of 15% of the sales to be paid by the KIPL to KCPL, the Assessing Authorities have considered such additional financial advances for computing deemed dividend under Section 2(22)(e), read with Section 2(32) of the IT Act. Accordingly, this factual assessment is not vitiated because of perversity or unreasonableness. 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, hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction projects. It was further contended that AVCTPL purchased the construction material from KIT, and a sum of ₹2.11 crore was payable by AVCTPL to KIT for the material supply. Still, KCPL made direct payment to KIT for the material supplied. Again, if genuine, the transaction of this nature would have certainly been backed by some paper trail or other documents. The Assessing Authorities have correctly held that this ex post facto defence was unacceptable. Again, this is a pure question of fact, and since no perversity is shown, no substantial question of law arises in this regard. 104. For all the above reasons, no case is made out to answer questions (E) and (F) favouring the assessee and against the Revenue. Though such questions were framed, on closer scrutiny and evaluation of the material on the record, We find that these are questions of fact giving rise to no substantial question 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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