Dattaprasad Kamat Vs ACIT (Bombay High Court)
Summary: The Bombay High Court at Goa upheld the common order of the ITAT, Panaji Bench, concerning additions under Section 2(22)(e) of the Income Tax Act, 1961 in the hands of individual assessees who held substantial shares in various closely held group companies. A principal controversy was whether, because the assessees and their spouses were governed by the Portuguese Civil Code and the system of communion of assets, the shares registered in the husbands’ names should be treated as beneficially owned equally by husband and wife. The assessees contended that a registered holding of 33% should effectively be divided into 16.5% each between the spouses, thereby affecting the voting-power thresholds relevant for deemed dividend.
The High Court rejected this contention. It held that the Portuguese Civil Code does not confer actual ownership or voting rights in specific company shares upon a spouse whose name is not registered as shareholder or beneficial owner. The Companies Act governs the relationship between a company and its shareholders and, in the absence of the requisite declaration of beneficial interest, the husband remained the exclusive holder of the entire 33% shareholding together with the voting rights attached to those shares. The wife could have a notional matrimonial right to the value of the shares as part of the communion of assets, but that did not make her the owner of the shares or confer voting power upon her. Consequently, substantial questions of law (A), (B) and (C) were answered against the appellants.
