MANSAROVAR COMMERCIAL PVT. LTD. versus COMMISSIONER OF INCOME TAX, DELHI on 10 April 2023

SUPREME COURT REPORTS[2023] 8 S.C.R. 452

[2023] 8 S.C.R.

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MANSAROVAR COMMERCIAL PVT. LTD.

v.

COMMISSIONER OF INCOME TAX, DELHI

(Civil Appeal No. 5769 of 2022)

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APRIL 10, 2023

[M. R. SHAH AND B. V. NAGARATHNA, JJ.]

Constitution of India – The Constitution (Thirty SixthAmendment) Act, 1975 – Art. 371-F – Sikkim State Income-TaxManual, 1948 – Sikkim (Collection of Taxes and Prevention ofCEvasion of Payment of Taxes) Act, 1987 – Income Tax Act, 1961 –ss. 2(35)(a), 2(35)(b), 6(3), 148, 271(1)(a), 271(1)(c), 273, 274,271-B – By a notification dated 07.11.1988 issued u/Art. 371-F(n) of theConstitution, the Income Tax Act, 1961 were extended to the State ofSikkim – The case of the assessees (incorporated under theDRegistration of Companies (Sikkim) Act, 1961) was that each ofthem was a resident of Sikkim, carrying on business in Sikkim andnot elsewhere and that till 31.03.1990, each of them were governedby the Sikkim Manual, 1948 and not the Income Tax Act, 1961 –Therefore, the stand of the assessees was that the income earned bythem till that date was income earned in Sikkim from the businessEconducted/done in Sikkim – On the other hand, the case of theRevenue was that the control and management of each of the assesseecompanies was wholly with their auditor, RG, Chartered Accountants,who had their offices in New Delhi and therefore, were companies’resident in India in terms of Section 6(3) of the Act – A search wasFconducted on 15.03.1990 at the premises of Chartered Accountantat New Delhi and during the course of the search, books of account,cheque books, signed blank cheques, vouchers and other incomedocuments of the assessees were found – Notices were issued by theACIT (Investigation), to each of the assessees u/s 148 of the Act, inrespect of Assessment Years 1987-88, 1988-89 and 1989-90 – Held:GOn appreciation of the entire evidence on record, the AO, CIT(A)and the High Court have specifically held against the assesseesthat in fact auditor (the chartered accountant, RG) did not merelyrender professional services but had a vital say in the control andmanagement of the assessee companies and in fact he was in controlHand management of the affairs of the respective assessee companies – Once documents were seized and statements were recorded fromvarious persons, the burden gets shifted to the assessees to producesome evidence to counter the picture and, the court found that itsextremely unusual that the seals and the signed blank cheques wouldbe lying with the Chartered Accountant – The head and seat anddirecting power of the affairs of the company and the control andmanagement is must be shown is not merely theoretical control andpower, i.e., not de jure control and power, but de facto control andpower actually exercised in the course of the conduct andmanagement of the affairs of the firm – The domicile or theregistration of the company is not at all relevant and the determinatetest is where the sole right to manage and control of the companylies and therefore the findings recorded by the AO, confirmed by theCIT(A), it was rightly concluded that the control and managementof the affairs of the respective assessees were with CharteredAccountant in Delhi – It appears that the assessees with mala fideintention and to evade the payment of tax under the Income Tax Act,1961 came out with a case that they earned the income within Sikkim,which has not been established and proved – It was an attempt towriggle out of the clutches of the Income Tax Act, 1961 – Further,the levy of interest u/s. 234A for default in furnishing the return ofincome is mandatory and automatic – s. 234A of the Act providesthat where the return of income for any assessment year is furnishedafter the due date or is not furnished, the assessee shall be liable topay simple interest.

Dismissing the appeals, the Court

Conclusion

Dismissing the appeals, the Court

HELD: 1. On appreciation of the entire evidence on record,the AO, CIT(A) and the High Court have specifically held againstthe assessees that in fact RG, Chartered Accountant in Delhi didnot merely render professional services but had a vital say in thecontrol and management of the assessee companies and in facthe was in control and management of the affairs of the respectiveassessee companies. [Para 7][483-A-B]

2. Where the head and seat and directing power of the affairsof the company and the control and management is must be shownis not merely theoretical control and power, i.e., not de jure controland power, but de facto control and power actually exercised in AB

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Athe course of the conduct and management of the affairs of thefirm; that the domicile or the registration of the company is not atall relevant and the determinate test is where the sole right tomanage and control of the company lies. Applying the aboveprinciples of law to the facts of the case at hand, and the findingsrecorded by the AO, confirmed by the CIT(A), it is rightlyBconcluded that the control and management of the affairs of therespective assessees were with RG, Chartered Accountant inDelhi. The findings of fact recorded by the AO, confirmed by theCIT(A) that the control and management of the affairs of theassessee companies was with RG are based on the entire materialCon record. In light of the aforesaid findings, the High Court hasnot committed any error in reversing the contrary findingsrecorded by the ITAT and it is rightly observed and held thatservice of notice upon RG treating him as the principal officerand/or as a principal officer for and on behalf of the assesseecompanies were valid notices and the High Court has rightly heldDthat the AO at New Delhi was having the jurisdiction to issuenotice under the Income Tax Act, 1961. [Paras 8, 9][491-G-H;492-A-C]

3. Insofar as the case on behalf of the respective assesseesthat the entire income was earned in Sikkim by way of commissionEon sale of cardamom and therefore such income shall not be liableto be taxed under the Income Tax Act, 1961 is concerned, at theoutset, it is required to be noted that there are concurrent findingsrecorded by the AO and the CIT(A), as approved by the HighCourt, that no income by way of commission, as claimed by theFassessees, has been established and proved by the assessees. Infact, the AO issued notices/summons to different persons whohad allegedly paid amounts as commission, however, those personshad not responded. Therefore, the AO as such has rightly drawnan adverse inference. At this stage, it is required to be noted thatas such the assessees did not produce any worthwhile evidenceGto prove the genuineness of the commission received. Despitethe above, the ITAT reversed the findings of fact recorded by theAO and the CIT(A) by observing that the AO did not proceedfurther (after issuing the summons/notices) and that since noadverse material has been brought on record the AO could notHhave proceeded to draw an adverse inference as the burden was

heavy on the revenue. Once, the AO issued summons to thosewho had allegedly paid the commission to the assessees and thesummons were issued under Section 131 which were not compliedwith and it was the assertion on behalf of the respective assesseesthat they earned the income of commission within Sikkim, theburden to prove the same was upon the assessees. Under thecircumstances, the ITAT wrongly and erroneously shifted theburden upon the AO to prove the contrary. Therefore, in absenceof any material on record that the commission was earned only inGangtok, the assessees cannot be permitted to say that they wereliable to pay the tax under the Sikkim Manual, 1948 and not underthe Income Tax Act, 1961. It appears that the assessees withmala fide intention and to evade the payment of tax under theIncome Tax Act, 1961 came out with a case that they earned theincome within Sikkim, which has not been established and proved.It was a clear attempt on the part of the respective assessees towriggle out of the clutches of the Income Tax Act, 1961. [Para10][492-D-H; 493-A-B]

4. In the case of Anjum M.H. Ghaswala, while dealing withthe interest under the provisions of Sections 234A, 234B and234C of the Income Tax Act, 1961, it is observed and held thatthe interest contemplated under the said provisions is mandatoryin nature and the power of waiver or reduction has not beenexpressly conferred on the Commission. The same indicates thatinsofar as the payment of statutory interest is concerned, the sameis outside the purview of the settlement contemplated in ChapterXIX-A of the Act. In the present case also, the levy of interestunder Section 234A for default in furnishing the return of incomeis mandatory and automatic. Section 234A of the Act providesthat where the return of income for any assessment year isfurnished after the due date or is not furnished, the assessee shallbe liable to pay simple interest. Thus, interest under section 234Ais statutory interest leviable and payable and therefore thedecision of this Court in the case of Anjum M.H. Ghaswala shallbe applicable with full force. Therefore, when the interest is leviedas per the workings mentioned in ITNS 150 which is forming partof the assessment order, it is rightly held to be sufficient and goodenough to charging interest. [Para 12.1][494-C-F]

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Commissioner of Income Tax, Mumbai v. Anjum M.H.Ghaswala (2002) 1 SCC 633 : [2001] 4 Suppl. SCR303 – followed.

Commissioner of Income Tax, Delhi v. BhagatConstruction Company Private Limited (2016) 15 SCC738; V.V.R.N.M. Subbayya Chettiar v. CIT, Madras, AIR1951 SC 101 : [1950] SCR 1961 – relied on.

Mahaveer Kumar Jain v. CIT, Jaipur (2018) 6 SCC 527: [2018] 3 SCR 875; Ajay Kumar v. State of Uttarakhand2021 SCC OnLine SC 48; Kiran Singh v. ChamanPaswan, AIR 1954 SC 340 : [1955] SCR 117; Trusteesof H.E.H, the Nizam’s Supplemental Family Trust v. CIT(2000) 3 SCC 501 : [2000] 1 SCR 863; StandardChartered Finance Limited v. CIT, Bangalore (2016) 14SCC 634; Erin Estate v. CIT 1959 SCR 573;Commissioner of Income Tax v. Sun Engineering WorksP. Ltd. (1992) 4 SCC 363 : [1992] 1 Suppl. SCR 732;Karanvir Singh Gossal v. Commissioner of Income Tax(2012) 13 SCC 802; State Bank of India v. S.N. Goyal(2008) 8 SCC 92 : [2008] 7 SCR 631; Shiv Raj Guptav. CIT, Delhi AIR 2020 SC 3556 : [2020] SCR 874 –referred to.

Narottan and Pereira Ltd. v. CIT, Bombay City 1953 23ITR 454; Estate of A. Mohammed Rowther v. CIT,Madras 1963 49 ITR 39; CIT v. Chitra Palayakat Co.1985 156 ITR 730; Commissioner of Income Tax v.Nandlal Gandalal 1960 40 ITR 1 (SC); B.R. Naik v.Commissioner of Income Tax, Bombay (1945) 13 ITR124; CIT v. Ranchi Club Limited (2001) 247 ITR 209 –referred to.

A.M.M. Firm v. Reserve Bank of India 1982 SCCOnLine Mad. 187; Commissioner of Income Tax v. Bankof China 1985 SCC OnLine Cal. 24; Universal CargoCarriers Inc. v. Commissioner of Income Tax 1990 SCCOnLine Cal. 385; India Glycols Ltd. v. Commissioner ofIncome Tax 2004 SCC OnLine Cal. 736 – referred to.San Paulo v. Carter (1896) AC 31 Lord Halsbury –referred to.

MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONEROF INCOME TAX, DELHI

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5769 of2022.

From the Judgment and Order dated 22.02.2016 of the High Courtof Delhi at New Delhi in ITA No. 162 of 2022.

With

Civil appeal Nos. 5773, 5772, 5771 and 5770 of 2022.

Arvind P. Datar, G. Umapathy, Sr. Advs., Venkat Subramanian,Rohit K. Singh, Suvin Kumaran, Advs. for the Appellant.

N. Venkataraman, ASG, H.R. Rao, Devashish Bharukha, SughoshSubramanyam, Rajat Nair, Bhuvan Kapoor, Pranay Ranjan, Vikrant Yadav,S.A. Haseeb, Ms. Gargi Khanna, Ram Narayan, Ms. AmrithaChandramouli, V. Chandrashekara Bharathi, Raj Bahadur Yadav, Advs.for the Respondent.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned commonjudgment and order dated 22.02.2016 passed by the High Court of Delhiat New Delhi in Income Tax Appeal Nos. 162/2002, 164/2002,165/2002, 167/2002 & 168/2002, by which the High Court has allowed

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Athe said appeals preferred by the Revenue and has quashed and setaside the common order dated 08[th] January, 2002 passed by the IncomeTax Appellate Tribunal, New Delhi (for short, ‘ITAT’) for AssessmentYears 1987-88, 1988-89 and 1989-90 and restored the orders passed bythe Assessing Officer, upheld by the Commissioner of Income Tax(Appeals) (for short, ‘CIT(A)), the respective assessees have preferredBthe present appeals.

Facts:

2. The facts leading to the present appeals in nutshell are as under:

The respective assessees, namely, Mansarovar Commercial PrivateCLimited, Sovereign Commercial Private Limited, Swastik CommercialPrivate Limited, Trishul Commercial Private Limited and Pasupati NathCommercial Private Limited were incorporated under the Registrationof Companies (Sikkim) Act, 1961. Each of the assessee companies claimto be carrying on the business of commercial agents in cardamon andDother agricultural products.

2.1 Sikkim became part of India in April, 1975. The Constitution(Thirty Sixth Amendment) Act, 1975 inserted Article 371-F into theConstitution of India, in terms of which not all the laws of India wereextended to the new State of Sikkim. Under Article 371-F (k) all laws inEforce immediately before the appointed day, i.e., 26[th] April, 1975, in theterritories comprising the State of Sikkim or any part thereof were tocontinue to be in force therein until amended or repealed by a competentlegislature or other competent authority. The Income Tax Act, 1961(hereinafter referred to as the ‘Act’) was not made straightway applicableto the State of Sikkim. Till such extension of the Act to Sikkim by aFnotification issued under Article 371-F(n), income tax was to be chargedand collected under the Sikkim State Income-tax Manual, 1948 (for short,‘Sikkim Manual, 1948’). The recovery of tax was under the scheme ofthe Sikkim (Collection of Taxes and Prevention of Evasion of Paymentof Taxes) Act, 1987.G2.2 By a notification No. S.O. 1028E dated 7[[th]] November, 1988

G2.2 By a notification No. S.O. 1028E dated 7[[th]] November, 1988issued under Article 371-F(n) of the Constitution, the Act, the WealthTax Act, 1957 and the Gift Tax Act, 1958 were extended to the State ofSikkim. In terms of para 2 of the said notification, the Central Governmentappointed, by Notification S.O. 148E dated 23[rd] February, 1989, the 1[st] ofApril, 1989 as the date on which the Act would come into force in theH

State of Sikkim in relation to the previous year relevant to the AssessmentYear commencing on the 1[st] day of April, 1989. However subsequently,by virtue of Section 26 of the Finance Act, 1989 the Act was madeapplicable to the State of Sikkim from the previous year relevant to theAssessment Year commencing from 1st April, 1990, thereby extendingthe date of applicability of the Act by one year from the date specified inthe notification dated 23[rd] February, 1989.

2.3 The case of the assessees was that each of them was a residentof Sikkim, carrying on business in Sikkim and not elsewhere and that till31[st] March, 1990, each of them were governed by the Sikkim Manual,1948 and not the Act. Therefore, the stand of the assessees was that theincome earned by them till that date was income earned in Sikkim fromthe business conducted/done in Sikkim. On the other hand, the case ofthe Revenue was that the control and management of each of the assesseecompanies was wholly with their auditor, M/s Rattan Gupta & Co.,Chartered Accountants, who had their offices in Karol Bagh, New Delhiand therefore, were companies’ resident in India in terms of Section 6(3)of the Act.

2.4 A search was conducted on 15[th] March, 1990 at the premisesof M/s Rattan Gupta & Co., Chartered Accountant at Daryaganj, NewDelhi and during the course of the search, books of account, chequebooks, signed blank cheques, vouchers and other income documents ofthe assessees were found. The statements of the partners, former andcurrent, of M/s Rattan Gupta & Co., CA were recorded.

2.5 On 10[th] July, 1990, following the search conducted on 15[th]March, 1990 at the premises of M/s Rattan Gupta & Co., CA atDaryaganj, New Delhi, notices were issued by the Assistant Commissionerof Income Tax (for short, ‘ACIT’) (Investigation), Circle 7(1), New Delhito each of the assessees under Section 148 of the Act, in respect ofAssessment Years 1987-88, 1988-89 and 1989-90 (Assessment Yearsunder consideration). An order was passed on 12[th] July, 1990 by ACIT(Investigation), Circle 13(1), New Delhi in respect of M/s Rattan Gupta& Co. under section 132(5) of the Act. It appears that the said RattanGupta informed the assessees about notices under section 148 of the Actissued to each of them at the address of M/s Rattan Gupta & Co. atDaryaganj, New Delhi and affixed at the said premises of M/s RattanGupta & Co.

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A2.6 Meanwhile, each of the assessees filed return of income interms of the Sikkim Manual, 1948 for the Assessment Years in questionon 27[th] April, 1990. A demand notice was issued to each of them inrespect thereof on 23[rd] July, 1990.

2.7 The respective assessees filed writ petitions in the High CourtBof Sikkim, challenging the notices issued under section 148 of the Act.The Sikkim High Court initially passed an interim order staying furtherproceedings. The said interim order was modified in terms of which theDepartment was permitted to continue with its enquiry and seek factsand information from the Directors of the assessee companies. Theassessee companies were required to furnish the necessary informationCand also to file returns and produce the books of accounts before theAssessing Officer, New Delhi in compliance of the notices under section148 of the Act. Thereafter, the Sikkim High Court dismissed the writpetitions holding that it had no jurisdiction to entertain the said writ petitionssince no part of the cause of action had arisen in the State of Sikkim. ItDwas observed that as the notices were issued by the ACIT (Investigation),Circle 7(1), New Delhi and served on the assessees in New Delhi, it hadno jurisdiction over the actions of that authority. It appears that the SikkimHigh Court also observed that “mere fact that the companies haveregistered offices in Sikkim does not confer jurisdiction on this Court.”

E2.8 It appears that in the meanwhile, on the basis of the returnsfiled by the assessees in Sikkim, the Income and Sales Tax Departmentof Government of Sikkim raised a revised demand on 30[th] November,1990, cancelling the earlier demand raised on 30[th] July, 1990.

2.9 After the dismissal of the writ petitions by the Sikkim HighFCourt on 20[th] July, 1993, the assessees filed writ petitions before theDelhi High Court being Writ Petition Nos. 5565 to 5569 of 1993. Initially,the Delhi High Court passed an interim order staying the proceedings.However thereafter on 13[th] August, 1998, an order was passed by theDelhi High Court directing the AO to frame the assessment subject tooutcome of the writ petitions.G

2.10 That thereafter on 24[th] August, 1998, notices were issued tothe assessee companies under section 148 of the ACT by ACIT, CompanyCircle 2, New Delhi.

2.11 That on 09[th] October, 1998, separate assessment orders werepassed by the ACIT, Company Circle 2(2), New Delhi for each of theH

Assessment Years in question. The Assessing Officer concluded thateach of the assessees were “intentionally trying to take advantage of theprevailing laws at Sikkim by routing money through Sikkim and ploughingback in India.” The Assessing Officer also rejected the objections raisedby the assessees as to the jurisdiction. The Assessing Officer madeadditions to the income of the assessees for the aforesaid three AssessmentYears in question under different heads of income, namely, (i) incomefrom commission (ii) unsecured loan from Dengzong Charitable Trust(iii) interest accrued/paid on the unsecured loans and (iv) provision forincome tax (which was disallowed). Separate penalty proceedings wereinitiated under sections 271(1)(a). 271(1)(c), 273/274 and 271-B of theAct.

2.12 The assessees then preferred appeals before the CIT(A).Subsequently on 08[th] December, 2000, the writ petitions filed by theassessees came to be dismissed by the High Court as the respectiveassessees moved the Appellate Authority prescribed under the statute.The appeals preferred by the assessees before the CIT(A) came to bedismissed vide order(s) dated 30[th] March, 2001.

2.13 Feeling aggrieved by the order(s) passed by the CIT(A)dismissing the appeals, the respective assessees preferred appeals beforethe ITAT. The ITAT observed and held that notices under Section 148 ofthe Act could not have been served on Mr. Rattan Gupta as the said Mr.Rattan Gupta cannot be said to be a “Principal Officer” of the assesseeswithin the meaning of section 2(35)(a) of the Act and the AO did notserve any notices of his intention of treating Mr. Rattan Gupta as the“Principal Officer” for the purposes of section 2(35)(b) of the Act. Onthe refusal of Mr. Rattan Gupta to receive notices, ITAT observed andopined that if Mr. Rattan Gupta refused to receive such notices, he wasjustified in doing so and his refusal did not authorise the AO to resort tosubstituted service within the meaning of Rule 20 of Order V of CPC.The order(s) passed by the ITAT allowing the appeals preferred by theassessees was/were the subject matter of appeals before the High Courtat the instance of the Revenue.

2.14 The High Court framed the following questions of law:

“1. Whether the Tribunal was right in holding that the ACITexceeded his jurisdiction in issuing notices under section 148 ofthe Act and the notices were not served in accordance with law?

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A2. Whether the order made by the ITAT is perverse based onconjectures and surmises and ignorance of evidence and materialand has relied upon incorrect facts?

3. Whether the income of the assessee is taxable in India?”

At the instance of the Assessees, an additional question wasBalso framed as under by the same order:

4. Whether the ITAT was right in law in holding that the assesseeis not a resident of India within the meaning of Section 6(3)(ii) ofthe Income Tax Act, 1961 and whether the said finding of theITAT is not also vitiated and perverse as it ignores relevantCadmissible evidence and materials and relies upon incorrect factsand has not given due consideration to several important materialsand evidence relevant for determination of residence of theassessee.”

2.15 By the impugned common judgment and order, the High CourtDhas answered all the questions in favour of the Revenue and against theassessees and consequently has allowed the appeals preferred by theRevenue. The High Court in the impugned judgment and order has dealtwith and considered the following main issues and both the parties wereheard on the said issues.

E1. Objection to the jurisdiction by the ACIT, Circle 7(1), New Delhiwho issued notices to the assessees under Section 148 of the Act;

2. Control and management in New Delhi;

3. No income accrued or was earned in Sikkim; F4. Service of notice;

5. Limitation for issuance of notice under section 147 of the Act;

6. Merits of the reopening of the assessments; and

7. InterestGBy the impugned common judgment and order, the High Court hassummarised the conclusion in paragraph 91 as under:

(i) The Assessees, incorporated under the company law ofSikkim, are resident Indian companies. If any incomeaccrued to them or was earned by them in India prior toH1[st] April 1990, then such income is taxable under the Act.

(ii) The Revenue is justified in contending that the Assesseesnot having raised such objection at the first availableopportunity should not be permitted to urge the ground oflack of jurisdiction of the Delhi officers to issue notices tothem under Sections 147/148 of the Act.

(iii) Mr. Rattan Gupta was not only doing the audit work of thefive Assessee companies, but determining who should bethe directors of the said companies. This coupled with thefact that the blank signed cheque books of all the fivecompanies together with rubber seals, the letter heads, theblank signed cheques and other records were also found inthe office of Rattan Gupta & Co., the factual determinationby the AO that the management and the control of the fivecompanies was actually wholly situated in Delhi getsfortified. The exhaustive evidence gathered by the Revenue,without being countered by the Assessees despite opportunitybeing afforded, serves to substantiate the case of theRevenue that the management and the control of the fiveAssessee companies was in fact located in Delhi.

(iv) The findings of the AO that the Assessees failed to provethat the commission payments were earned by themexclusively in Sikkim has not been dislodged by theAssessees by producing any tangible material.

(v) There was an implied authority of Mr. Rattan Gupta toreceive such notices even in terms of Section 252(2) of theAct, read with Order V Rule 20 CPC. Consequently, theCourt is unable sustain the finding of the ITAT that noticewas not properly served on the Assessees through RattanGupta & Co. There was no need for the Department tohave gone in for substituted service and the refusal by RattanGupta & Co. to receive the notice was sufficient to considerit as a deemed service of notice.

(vi) The plea of the Assessees that the proceedings under Section148 of the Act gets vitiated in the absence of a specificorder vesting the ACIT with the powers under Section 127of the Act to issue notice under Section 148 of the Act isrejected.

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A(vii)The plea of the Assessees that the notices under Section142(1) and 143(2) of the Act were issued for the first timein 1998 and were time barred is rejected.

(viii) On merits there were sufficient grounds for exercising thepower under Section 148 of the Act.B

(ix) The ITAT’s conclusion that the interest under Sections 234A and 234 B of the Act could not be charged since a specificnotice in that behalf was not issued by the AO is unsustainablein law and is overruled.”

Concluding as above, the High Court has accordingly answeredCthe questions framed in favour of the Revenue and against the assessees.The impugned common judgment and order passed by the High Court isthe subject matter of present appeals.

Submissions:D

3. Shri Arvind P Datar and Shri G. Umapathy, learned seniorcounsel have appeared on behalf of the respective assessee companiesand Shri N. Venkataraman, learned Additional Solicitor General of Indiahas appeared on behalf of the Revenue.

3.1 Shri Arvind P Datar, learned senior counsel appearing on behalfEof the assessee companies has submitted that the issue involved in thepresent appeals is, as to whether the provisions of Income Tax Act, 1961shall be applicable to the assessee companies which are registered underthe Sikkim Companies Act and amenable to Sikkim Tax Manual, 1948 inrespect of three Assessment Years, i.e., 1987-88, 1988-89 and 1989-90Fwhen Income Tax Act, 1961 was not extended to the State of Sikkim. Itis submitted that the further issue is, whether jurisdiction on the authoritiesin Delhi can be conferred solely based on the alleged effective place ofcontrol and management of the assessee companies for the purpose ofapplicability of Income Tax Act, 1961.

Issues

G3.2 Challenging the impugned judgment and order passed by theHigh Court, Shri Arvind P Datar, learned senior counsel appearing onbehalf of the assessee companies has vehemently submittedthat theimpugned judgment is based on an erroneous assumption that the effectivecontrol of the companies vested with one Mr. Rattan Gupta, a resident ofDelhi, who was rendering accounting and auditing services.H

3.3 It is submitted that the impugned judgment has erroneouslyallowed the Department to levy interest on the assessee companieswithout framing the issue as a specific question of law as mandated bySection 260A of the Act.

3.4 In support of his submission that the Income Tax Act, 1961shall not be applicable for the period during the relevant assessment years,it is vehemently submitted by Shri Datar, learned senior counsel appearingon behalf of the assessee companies that the Income Tax Act, 1961came to be extended to the State of Sikkim only on and after 1[st] April,1990. That therefore, the AO exceeded his jurisdiction.

3.5 It is contended that the assessee companies having beenassessed to tax under the Sikkim Manual, 1948 and having paid anddischarged income tax under the said law cannot be subjected to taxonce over again by applying the “head and brain” rule in the absence ofan express provision under the Income Tax Act, 1961, more so in view ofthe well settled law that “a taxing statute should not be interpreted insuch a manner that its effect will be to cast a burden twice over for thepayment of tax on the taxpayers unless the language of the statute is socompelling that the Court has no alternative than to accept it.” That in acase of reasonable doubt, the construction most beneficial to the taxpayeris to be adopted.

3.6 It is further contended that as such the present case is squarelycovered by the decision of this Court in the case of Mahaveer KumarJain v. CIT, Jaipur, reported in (2018) 6 SCC 527, wherein this Courtconsidered a question whether the appellant, who was a resident ofRajasthan and had won a lottery from Sikkim during the AssessmentYear 1986-87 was liable to be taxed in India where Income Tax Act,1961 was in force, notwithstanding that the said income had accrued orarisen to him at a place where Income Tax Act, 1961 was not in force,i.e., Sikkim, more particularly when the said income had already beentaxed in the State of Sikkim under the Sikkim Manual, 1948. Reliance isplaced on certain observations made in paragraphs 13 to 15 of the saiddecision.

3.7 It is next submitted that the assessee companies filed incometax returns before the appropriate authority as per Sikkim Manual, 1948and a demand was raised by the said authority, which was paid. That thefact that the appropriate Income Tax Authority under the Sikkim Manual, A

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A1948 accepted the income tax returns filed by the assessee companiesand raised demand based on such returns establish the bona fides of theassessee companies beyond reproach. Therefore, the allegation that theassessee companies have no real business in Sikkim is absolutely baseless,unfounded and untenable.

B3.8 Making above submissions, it is urged that the Income TaxAct, 1961 shall not be made applicableso far as the assessee companiesare concerned for the relevant assessment years.

3.9 It is further submitted that as such the ACIT, Delhi had noterritorial jurisdiction to assess the assessee companies and thereforeCclearly exceeded in his jurisdiction in issuing notices under section 148 ofthe Act on the assumption that the assessee companies were carrying onbusiness in India, on the basis of availability of books of accounts of theassessee companies at the premises of the Chartered Accountant of theassessee companies, i.e., M/s Rattan Gupta & Co. It is submitted thatsuch an approach is wholly untenable in law, besides being perverse.D

3.10 It is further submitted that as observed and held by this Courtin the cases of Ajay Kumar v. State of Uttarakhand, 2021 SCC OnLineSC 48 and Kiran Singh v. Chaman Paswan, AIR 1954 SC 340, anorder passed by the authority without jurisdiction is a nullity.

E3.11 It is contended that the exercise of territorial jurisdiction byCIT, Delhi is also wholly untenable in law in view of section 6(3) of theAct as it was at the relevant point of time. That Mr. Rattan Gupta was apractising Chartered Accountant and providing accounting and auditingservices to several corporates and individuals and could have never beenthe “head and brain” behind the assessee companies.F

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3.12 It is further contended that even otherwise the re-assessmentwas impermissible in law in the absence of any original orders passedunder section 143(3) of the Act. Reliance is placed on the decision of thisCourt in the case of trustees of H.E.H, the Nizam’s SupplementalFamily Trust v. CIT, reported in (2000) 3 SCC 501 (paragraphs 10G& 11). It is submitted that the said decision was subsequently followedand affirmed by this Court in the case of Standard Chartered FinanceLimited v. CIT, Bangalore, (2016) 14 SCC 634 (Civil Appeal No.1101 of 2016 dated 9.2.2016).

3.13 It is further submitted by Shri Datar, learned senior counselHappearing on behalf of the assessee companies that as such there was no material to substantiate that the assessee companies’ control andmanagement was situated wholly in India. That the High Court hasproceeded on an erroneous presumption that the assessee companieswere controlled by one Rattan Gupta, who was rendering accountingand auditing services, simply because books of accounts had been foundin his office. It is submitted that no evidence was produced to the effectthat he ever appointed any person as the Director of the assesseecompanies or dictated the manner in which such Directors were todischarge duties towards assessee companies. That the finding of theHigh Court that the control over management vested with Rattan Guptaand therefore the assessee companies were situated in India, is thereforewholly untenable and consequently to draw such presumption is legallyunsustainable.

3.14 It is further submitted that there was no cogent material atthe time of issuance of notices under section 148 of the Act to form abelief that income was chargeable under the Income Tax Act, 1961 andthat the burden to prove that the control and management of assesseecompanies was situated wholly in India lie with the Department. Thatthe law is well settled that the onus was on the Revenue, which has notbeen discharged. That on the contrary the High Court has erred in shiftingthe onus on the assessee companies to prove that they had legitimatebusiness interest and income arising from the State of Sikkim.

3.15 It is contended that the impugned order is based solely on anerroneous supposition that Mr. Rattan Gupta was in control of themanagement of the assessee companies. That as such until theAssessment Years 1988-89, the audit and accounts of the assesseecompanies were being handled by one Ravinder Singh & Co. That theHigh Court has committed an error in treating the said Ravinder Singh tobe the partner of M/s Rattan Gupta & Co. It is submitted that therefore,the impugned order is based on a flawed presumption of a critical factand therefore the impugned judgment deserves to be set aside by thisCourt.

3.16. Shri Datar further submitted that in the absence of framingof any substantial question of law under Section 260A of the Act on levyof interest, the liability of interest could not have been fastened upon theassessee companies. That section 260A of the Income Tax Act isanalogous to Section 100 CPC which mandates framing of question oflaw before exercising its jurisdiction on the said issue. It is submitted that A

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Aas such no issue of levy of interest was framed by the High Court. Thattherefore the High Court has committed a jurisdictional error in recordinga finding that ITAT’s conclusion that interest under section 234 A & B ofthe Act could not be charged since a specific notice in that behalf wasnot issued by the Assessing Officer, is unsustainable in law.

B3.17 In addition, it is submitted on the aspect on territorial jurisdictionof the authorities at Delhi that the assessee companies were having theirregistered offices in Sikkim. Therefore, the issuance of notices underSection 148 of the Act is beyond jurisdiction. That on the issue of territorialjurisdiction, the ITAT found that since the business premises of theassessees were in Sikkim, the territorial jurisdiction to assess vested withCthe ACIT, Gangtok. Therefore, the ITAT rightly held that the ACIT Delhiwho issued notices under section 148 of the Act had no territorialjurisdiction. That the proper course for the Department was to have thematter entrusted to ACIT, Gangtok after complying with the mandate ofsection 127 of the Act for transferring jurisdiction of ACIT, Gangtok toDNew Delhi. It is submitted that though the Revenue in its appearancebefore the High Court raised a question of law on the finding recordedby the ITAT on territorial jurisdiction of the authorities at Delhi, whileframing question(s) of law, the High Court did not frame an issue withregard to territorial jurisdiction. Thus, the finding with regard to lack ofterritorial jurisdiction by ITAT had attained finality.

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3.18 Insofar as the levy of interest is concerned, it is submittedthat the ITAT specifically observed that no direction was made by theAO for levy of interest. Therefore relying upon the decision of this Courtin the case of CIT v. Ranchi Club Limited, (2001) 247 ITR 209 takingthe view that levy of interest was under Section 234A, B & C of the Act,Fwithout a direction by the AO in the assessment order is not legallysustainable. It is further submitted that the High Court, while upsettingthe finding recorded by the ITAT on levy of interest, has erred in relyingupon the decisions of this Court in the cases of Commissioner of IncomeTax, Mumbai v. Anjum M.H. Ghaswala, (2002) 1 SCC 633 andGCommissioner of Income Tax, Delhi v. Bhagat ConstructionCompany Private Limited, (2016) 15 SCC 738.

3.19 Shri Datar, learned senior counsel appearing on behalf of theassessee companies contended that as such there was no notice servedupon the proper person and the notice served upon Rattan Gupta cannotHbe said to be a valid service of notice. That under section 2(35)(b) of the

Act, the Assessing Officer is required to serve a notice only on personswho are connected with the management or administration of theassessee companyto treat them as Principal Officer. That Rattan Guptawas never connected with the management or administration of theassessee companies so as to treat him as a Principal Officer. That RattanGupta was not the Secretary, Treasurer, Manager or Agent of the assesseecompanies under section 2(35)(a) of the Act. Therefore, the AO oughtto have served a notice on Rattan Gupta informing him of his intention totreat him as the Principal Officer of the assessee companies on the groundthat he was a person connected with the management or administrationof the assessee companies under section 2(35)(b) of the Act. However,in the present case, the AO never served a notice on Rattan Gupta undersection 2(35)(b) of the Act expressing his intention to treat him as thePrincipal Officer of the assessee companies. Therefore, this failure vitiatesthe entire proceedings.

3.20 It is submitted that there is adequate evidence on record toestablish that:

(a) the business was managed from Gangtok in Sikkim where thebusiness was carried on by one Mr. Ajay Kumar Agarwal, LocalDirector and Mr. H.L. Verma, (b) the income was earned and assessed to income tax in Sikkimas per the Sikkim Manual, 1948, and

(c) income tax was paid in Sikkim under Sikkim Manual, 1948.

3.21 That further, seized vouchers and records clearly establishthat commission payments were received into the bank accounts of thesecompanies from identified traders of large cardamom and that departmenthad no material in its possession to disbelieve that these traders hadmade the commission payments only on sale of cardamom.

3.22 It is submitted that books of accounts, ledgers etc. whichwere found at the office premises of Mr. Rattan Gupta’s office atDaryaganj, Delhi were handed over to Mr. Rattan Gupta for providingprofessional accounting services as he was a practising CharteredAccountant. He had clearly stated that the books of accounts, ledgersetc. were handed over to him for providing professional services andthat the business operations were carried out from Gangtok in Sikkim byMr. Ajay Kumar Agarwal, Local Director and Mr. H.L. Verma and thathe had nothing to do with the business operations of the assessee A

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Acompanies. A mere allegation that he is in charge of the conduct of thecompany is not sufficient to hold that he is the Principal Officer. Thereshould be credible material to how his active involvement in the conductand management of the business.

3.23 It is next submitted that assumption of jurisdiction based onBthe seizure of books of accounts from the office premises of the practisingChartered Accountant Mr. Rattan Gupta at New Delhi and treating himas the Principal Officer or “head and brain” of the companies incorporatedunder the Sikkim Companies Registration Act, 1961 when the saidChartered Accountant had categorically stated on oath that he wasrendering professional accounting and reconciliation services to theCcompanies in question, is without jurisdiction, perverse and deserves tobe set aside. The failure of same would set a very bad precedent andhave far reaching consequences on the rights of Chartered Accountantsto carry on their profession.

3.24 Making above submissions and relying upon the aforesaidDdecisions, it is prayed that the present appeals be allowed.

4. The present appeals are vehemently opposed by Shri N.Venkataraman, learned Additional Solicitor General of India appearingon behalf of the Revenue. He has taken us through the findings recordedby the Assessing Officer in the Assessment Order, findings of the CIT(A)Evide order dated 30[th] March, 2001, findings recorded by the ITAT videorder dated 8[th] January, 2002 and the findings recorded by the HighCourt including the findings recorded regarding the issue pertaining toservice of notice and levy of interest.

4.1 Insofar as the submission on behalf of the appellants on controlFand management of affairs of the companies is concerned, it is submittedthat section 6 of the Act defines residence in India. That the relevantprovision is section 6(3) of the Act. That this principle of control andmanagement of its affairs is not something which had originated for thefirst time in the Income Tax Act, 1961. This expression had existed evenGunder the Income Tax Act, 1922. It is submitted that under the erstwhileIncome Tax Act, 1922, Section 4A defined residence in taxable territories.Section 6 of the Act deals with residence in India and the relevant provisionwould be Section 6(3) pre-amendment in 2017 and post-amendment 2017w.e.f. 01.04.2017. He has taken us through the relevant provisions underHthe Income Tax Act, 1922 (Section 4A), Section 6(3) of the Act (existed prior to 01.04.2017) and Section 6(3) of the Act substituted by FinanceAct w.e.f. 01.04.2017.

4.2 On the interpretation on the control and management of affairs,Shri N. Venkataraman, learned ASG has relied upon the following English,Supreme Court and High Court judgments both under the Act, 1922 andAct, 1961:

i) San Paulo v. Carter (1896) AC 31 Lord Halsbury;

ii) V.V.R.N.M. SubbayyaChettiar v. CIT, Madras, AIR 1951SC 101;

iii) Erin Estate v. CIT, 1959 SCR 573;

iv) Narottan and Pereira Ltd. v. CIT, Bombay City, 1953 23ITR 454 (paragraphs 3 & 4) (Bombay High Court Judgment);

v) Estate of A. Mohammed Rowther v. CIT, Madras, 1963 49ITR 39, (Madras High Court Judgment);

vi) CIT v. Chitra Palayakat Co., 1985 156 ITR 730 (MadrasHigh Court Judgment);

vii) Commissioner of Income Tax v. Nandlal Gandalal, 196040 ITR 1 (SC);

viii) A.M.M. Firm v. Reserve Bank of India, 1982 SCC OnLineMad. 187 (Madras High Court Judgment);

ix) Commissioner of Income Tax v. Bank of China, 1985 SCCOnLine Cal. 24 (Calcutta High Court Judgment); and

x) Universal Cargo Carriers Inc. v. Commissioner of IncomeTax, 1990 SCC OnLine Cal. 385 (Calcutta High CourtJudgment)

4.3 Relying upon the aforesaid decisions, it is submitted as under:

a) Holding lands, receipt of payments and carrying on trade is ofno consequence as long as the control of the commercial ventureand directions governing the commercial venture are given fromelsewhere.

b) Domicile or registration of the company is not relevant. Themaking, maintaining, managing and working is insufficient.

c) Directors authorised to manage the work and employeesrendering service again are insufficient.

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d) The determinative test is where the sole right to manage andcontrol every department of its affairs lies. Managers and directorswhose services are merely remunerated is not a relevant criterion.The profits although received by the employees as remuneration,do not belong to them and are not in their disposal. Incurring ofdebts or payment to agents are of no consequence.

e) The test is, where the head and seat and directing power of theaffairs of the company is, which works with some degree ofpermanence while the expression ‘wholly’ would seem to recognizethe possibility of the seat of such power being divided betweentwo distinct and separate places.

f) The question to be asked is from where the person or group ofpersons control or direct the business.

g) Mere activity by the company does not create residence.

h) In case of dual residence, it is necessary to show that thecompany performs some of the vital organic functions incidentalto its existence in both the places so that there are in fact twocentres of management.

i) Control and management which must be shown is not merelytheoretical control and power, or de jure control and power butthe de facto control and power actually exercised in the course ofthe conduct and management of the affairs of the firm. Merepresence of directors or vesting of power in them is insufficientunless otherwise they had exercised the power elsewhere in theterritory under question.

j) Even acting under a power of attorney is not sufficient as thesame can be cancelled at any moment and as a power of attorneyholder they must submit to the principal an explanation of whatthey have been doing and the principal has the right of keeping avigilant eye over their work from the board room and the powerexercised by the power of attorney holder is only de jure controland not de facto control and management.

k) The intrinsic test is where the central control and managementactually abides. Mere presence of even the managing partner ormere delegation of power is insufficient.

l) The expression control and management of its affairs is muchwider than the expression used in some treatises ‘Control andManagement of the business.’

4.4 It is further submitted that in light of the principles laid down inthe aforesaid decisions, it is well settled that a question, as to where thecontrol and management lies is to be decided in light of the actual or thefactual exercise of control, inasmuch as the Courts consistently havetaken the view that mere presence of a partner firm in India even whenhe happens to be the managing partner, is not conclusive of the issue.

4.5 It is further submitted that to cull out the meaning ofmanagement and control under the old Section 6(3) pre-amendment 2017,which shall be applicable in the present case, section 6(3) post 1[st] April,2017 is also required to be considered. That the test under the new lawpost 1[st] April, 2017 is “Key management and commercial decisionsnecessary for the conduct of the business as a whole or in substance.” Itis submitted that the place of effective management (POEM) is the newstandard prescribed by the Parliament, w.e.f. 1[st] April, 2017, in alignmentwith the global needs and business practices.

4.6 Taking us to the findings recorded by the AO, CIT(A) and theHigh Court which are on appreciation of evidence/material on record, itis vehemently submitted by Shri N. Venkataraman, learned ASG that itwas rightly concluded that the control and management of the companieswas in Delhi and that it was a clear design on the part of the respectiveassessees to treat the income as arising from Sikkim to avoid the paymentof tax under the Act, 1961. It is submitted that the control and managementof the companies was being done by Rattan Gupta from his Delhi office.Therefore, the assessees can be said to be residence in India and thereforeliable to pay tax under the Income Tax Act, 1961.

4.7 Insofar as the submission on behalf of the appellants that inthe absence of any original assessment, there shall not be any re-assessment under sections 147/148 of the Act, Shri N. Venkataraman,learned ASG has heavily relied upon the decision of this Court in thecase of Commissioner of Income Tax v. Sun Engineering Works P.Ltd. (1992) 4 SCC 363 (paragraph 14). It is submitted that in the saiddecision, it is observed and held by this Court that under section 147, theAO has been vested with the power to ‘assess or reassess’ the escapedincome of an assessee. That the term ‘escaped assessment’ includesboth “non-assessment” as well as “under assessment.”

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A4.8 Insofar as the submission on behalf of the appellants on serviceof notice is concerned, it is submitted that the principal place of businessis the seat of control and therefore notice sent to Delhi is sufficient. Onthe service of notice at Delhi, Shri N. Venkataraman, learned ASG hasheavily relied upon the observations/findings recorded by the High Courtin the impugned judgment and order in paragraphs 78 to 83. Thereafter,Brelying upon the decision of the Calcutta High Courtin the case of IndiaGlycols Ltd. v. Commissioner of Income Tax, 2004 SCC OnLineCal. 736, it is submitted that notices sent/served at Delhi can be said tobe valid notice/service.

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4.9 As regards levy of interest under Section 234A of the Act isCconcerned, it is urged by Shri N. Venkataraman, learned ASG that interestlevied under Section 234A is mandatory and there is no discretion withthe AO and therefore there is no question of non-compliance of principlesof natural justice. It is submitted that so far as the penalty leviable undersection 271 of the Act is concerned, the same is discretionary, howeverDthe interest is not discretionary. Therefore, for imposing penalty, principlesof natural justice are required to be complied with, however in case ofinterest, the same being mandatory in nature and automatic there is norequirement of following principles of natural justice and/or even if in theassessment order there is no specific order to levy the interest but theinterest charged is indicated in the ITNS 150 accompanying theEassessment order and the same would be sufficient compliance fordemanding interest. Heavy reliance is placed on the Constitution Benchdecision of this Court in the case of Anjum M.H. Ghaswala (supra) aswell as subsequent decision in the case of Karanvir Singh Gossal v.Commissioner of Income Tax, (2012) 13 SCC 802 and the decisionFof this Court in the case of Bhagat Construction Company PrivateLimited (supra).

4.10 It is submitted that the ITAT has relied upon the decision ofthis Court in the case of Ranchi Club Ltd. (supra). However, the saiddecision has been subsequently overruled and/or held not to be good lawGin view of the subsequent decisions in the cases of Anjum M.H.Ghaswala (supra) and Bhagat Construction Company PrivateLimited (supra).

4.11 Insofar as the submission regarding non-framing of thesubstantial question of law on levy of interest is concerned, heavy relianceHis placed on the decision of this Court in the case of State Bank of India

v. S.N. Goyal, (2008) 8 SCC 92 (paragraph 13). It is submitted thatas observed and held by this Court in the aforesaid decision, when aquestion of law arises incidentally or collaterally, having no bearing onthe final outcome, it will not be a substantial question of law. It is submittedthat in the present case, the Constitution Bench in Anjum M.H. Ghaswala(supra) has held that the interest is both mandatory and automatic andthe decision of this Court and various High Courts had concluded that itdoes not require a separate notice, hearing and an independent order. Itis submitted that this Court in the case of Bhagat Construction CompanyPrivate Limited (supra) had in no uncertain terms made the legal positionclear by holding that should the assessing authority enclose an ITNS 150form computing the interest liability and annexed the same with theassessment order, the same would constitute adequate compliance forsustaining the interest and upholding it. That the aforesaid judgment makesit evidently clear that when an issue is incidental or collateral then it doesnot give rise to a substantial question of law. Once the tax liability isupheld, interest become automatic, mandatory and collateral.

4.12 It is next submitted that the final outcome of the tax liabilityor the final outcome of the substantial questions raised and decided bythe High Court, had been decided without any sense of dependence onthe issue of interest. That the final legal outcome of the substantialquestions raised and decided is not dependent or contingent upon a decisionon interest. On the contrary, the moment the tax liability gets upheld, ifthe AO had imposed interest at the first instance, (which in this case isnot under dispute) then interest would get added to the tax liability as itdoes not require an independent and stand alone consideration as towhether the same is leviable.

4.13 As regards the reliance placed upon the decision of this Courtin the case of Shiv Raj Gupta v. CIT, Delhi, AIR 2020 SC 3556, bythe learned senior counsel appearing on behalf of the appellants on non-framing of substantial question of law in terms of Section 260A of theAct so far as the interest liability is concerned, it is submitted that thesaid decision shall not be applicable to the facts of the case at hand andmore particularly in case of an interest which is automatic and mandatory.It is submitted that in the said case, the dispute was with respect tocapital gains which by its very nature is a separate head of income andthe issue relates to the very taxability. That therefore, failure to raise aquestion of taxability of capital gains in a particular case may tantamount A

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Ato a failure in raising a substantial question of law in terms of Section260A of the Act. However, the same may not apply on interest as theinterest is automatic and mandatory.

4.14 Making above submissions and relying upon the aforesaiddecisions, it is prayed that the present appeals be dismissed.

BConsideration:

5. We have heard learned counsel for the respective parties atlength.

We have also gone through the orders passed by the AssessingCOfficer, CIT(A), ITAT and the impugned judgment and order passed bythe High Court in great detail.

At the outset, it is required to be noted that the AO held againstthe respective assessees on all points including Rattan Gupta being themain person in management and control of the respective companiesDsituated in Delhi as well as the jurisdiction of the AO in Delhi. The findingsshall be referred to hereinbelow. The findings recorded by the AO havebeen upheld by the CIT(A), which are also against the respectiveassessees. However, the ITAT reversed the order passed by the CIT(A),which order has been reversed by the High Court by holding that thedecision of the ITAT is perverse both, on facts and in law.

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6. While appreciating the correctness of the impugned judgmentand order passed by the High Court and while appreciating the submissionsmade by the learned counsel appearing for the respective parties, thefindings recorded by the AO, CIT(A), ITAT and the High Court in theimpugned judgment and order are required to be referred to, which areFas under:

Findings record by the AO while passing the AssessmentOrder:

i)The directors are all from outside Sikkim and had neverGbeen to Sikkim, and the lone director Mr. Ajay Agarwalwas projected as a resident of Gangtok, Sikkim, which couldnot be sustained as no proof or identity was shown;

ii)The entire books of accounts were found and seized at NewDelhi at the address of Mr. Rattan Gupta, CharteredAccountant, 4556/4, Ansari Road, Darya Ganj, New Delhi.H

Returns were filed without audit reports and auditors havenot signed balance sheets and the auditors were also basedout of Delhi. Though bank accounts were available both inDelhi and Sikkim, the authorized signatories, to operate boththe accounts were located only in Delhi;

iii)The statutory books, registers and the shareholders wereall located in Delhi;

iv)No evidence was ever produced for having conducted boardmeetings in Sikkim;

v)When it came to earning of commission from various agents,the genuineness of the addresses given at Sikkim could notbe proved. When notices were issued under Section 131 ofthe Act, no response was forthcoming and, from thememorandum and articles of association it was clear thatthe agents were kith and kin of the directors;

vi)Shockingly, the total commission alleged to have been earnedwas more than the sale of cardamom and what could havebeen produced by the State of Sikkim in a year. These factshave been corroborated by the intelligence wing of thedepartment;

vii)There were no employees and no expenses incurred atSikkim;

viii)At the time of search and seizure on 15.03.1990 at thepremises of Mr. Rattan Gupta & Co., the following thingswere seized:

1) Books of accounts

2) Funds

3) Memorandum and Articles of Association

4) Blank cheque books of the bank accounts held both inNew Delhi, Gangtok and Sikkim

5) Pass books of all the 5 companies both Delhi andGangtok

6) Blank printed letter pads and rubber stamps

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Aix)Mr. Rattan Gupta in his statement dated 15[th] March, 1990,confirmed that as part of reconciliation, the personscontacted were Dalmia Resorts International Private Limitedand Gujarat Heavy Chemicals Limited and other entities.He further confirmed that Mr. Rajiv Jain became a directorin 3 companies on his instructions and he had also madeBdirectors in all the 5 Sikkim companies and named a few ofthem. It was conceded clearly that though these personsbecame directors at his behest no work was performed bythese persons except signing papers;

x)Mr. Rajiv Jain in his statement dated 15[th] March, 1990Cconfirmed that cheque books and pass books were found atthe office of Mr. Rattan Gupta and so is the case with rubberstamps and blank printed letter heads;

xi)Mr. Ravinder Singh in his statement confirmed that he hadbeen looking after the day-to-day affairs of these companiesDfrom Delhi till March, 1998, after which Rattan Gupta tookover the position as the only director and the other directorswere his nominees, and Rattan Gupta functioned andoperated only from Delhi and no office expenses have beenincurred in Sikkim; Exii)The AO also entered a finding that there has been a fundtransfer from Delhi into the bank accounts at Sikkim to claimexemption and these have been round tripping of moneygoing from Delhi to Sikkim and getting remitted back intoDelhi and claiming exemption in Sikkim; and Fxiii)This was done till 31[st] March, 1989 and the moment IncomeTax Act was extended in 1990 the whole apparatus erasedand no commission was shown by any of the companies.

Findings recorded by the CIT(A):

1) That the appellate authority upheld the findings of the AO,Gmore specifically regarding commission alleged to have beenreceived by reiterating that the summons sent to differentpersons who had allegedly paid amounts as commission hadnot responded to him and that the assessees had also notproduced any worthwhile evidence to prove the genuinenessHof commission received.

2) That even U.P. Karma was examined on 8[th] October, 1998Aand he confirmed that he had joined in 1998 and had no ideaof earlier annual general body meetings and could not produceany minutes. He also confirmed that he did not have any ideaabout the business in which all the 5 companies were involvedearlier. That he is a working director claiming that he hadBnever visited Gangtok, which shows that Sikkim has beenmerely used without actual rendition of any affairs.

3) As regards the charging of interest, the CIT(A) gave a findingthat the interest was charged as per the workings mentionedin ITNS 150 which was forming part of the assessment order,which is sufficient and good enough to uphold interest in termsof the decision of this Court.

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Findings recorded by the ITAT:

1) After confirming the fact that the notices were dispatchedonly in the name of the respective companies in c/o RattanGupta, Chartered Accountant, it was observed that RattanGupta would not qualify as a principal officer within themeaning of section 2(35)(a) of the Act. At this stage, it isrequired to be noted that the High Court has observed thatin any event the authorised representative of the assesseeappeared before the AO and accepted that the notices hasbeen issued. In that view of the matter, thereafter it is notopen for the assessees to make a grievance with respect tonon-service of the notice; D

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2) On the aspect relating to the control and management of theaffairs, the ITAT recorded the findings as under:

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i)It is important to highlight that the ITAT had neitherreserved nor found the findings of the AO as upheld bythe CIT(A), as not maintainable or factually erroneousor perverse.

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ii)The findings of fact rendered by the AO as upheld bythe CIT(A) remain undisturbed and unquestioned.

iii) The entire discussion by the ITAT has only been ananalysis of various case law on this point withoutquestioning the underlying findings.

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Aiv) The ITAT finally came to a conclusion that since all the5 companies had been registered in Sikkim, Sikkim willget the jurisdiction to tax.

Thereafter, the ITAT concluded that the revenue could notdischarge its burden and, therefore, control and management was only inBSikkim and the income had accrued only in Sikkim.

6.1 While reversing the finding of the AO on whether thecommission was not earned in Gangtok, though the AO found that thenotices were sent to those who had allegedly paid the commission to theassessees and the summons under Section 131 had not been compliedCwith, the ITAT gave a finding that the AO did not proceed further andthus, since no adverse material has been brought on record, the AOcould not have proceeded to draw adverse inference as the burden washeavily on the revenue.

6.2 On the levy of interest, the ITAT concluded that the interestDcould not have been levied since the AO had not applied his mind beforelevying interest following the decision of the Patna High court in the caseof Ranchi Club Limited (supra).

Findings recorded by the High Court:

1. That a company, though incorporated in Sikkim, if it had earnedEany income outside Sikkim and within India, Income Tax Act,1961 would apply to such income and the jurisdiction of theincome tax authorities would not get excluded as long as whatis sought to be brought to take is the income of the companyincorporated in Sikkim, which income accrued to it and wasearned in India.F

2. While referring to the various statements made by the directorswho are all stationed in Delhi, the High Court has given thefollowing findings:

i)Rattan Gupta had not acted merely as an auditor givingGprofessional advice to the 5 entities;

ii)His own employees are appointed as directors;

iii)The explanation offered for signed cheque books, rubberseals and letter heads being available in his office is notconvincing; H

MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER481OF INCOME TAX, DELHI [M. R. SHAH, J.]iv)Rattan Gupta had tried to shift the entire responsibilityAof handling of cheques to Mr. Verma; Mr. Verma wasnever produced by the assessee;

v)The burden of proof could not be discharged in the instantcase and therefore, the High Court upheld the findingsof the AO that the precise role of Mr. Rattan Gupta asBbeing in de facto control of the 5 entities appears to becorrect;

vi)That two persons who had been identified to have handledthe business and supervised it, namely, H.L. Verma andUma Shankar Sitani were produced by the assesseesCfor their statements to be recorded. The High Court foundthat Mr. R.K. Goswami, Mr. Vedant Mehta and Mr. RajivJain had all become directors on the request of Mr. RattanGupta, a fact which was not disproved or found to beincorrect.

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6.3 Thereafter, the High Court concluded that the control andmanagement of affairs was wholly in India for the following reasons:

a) Rattan Gupta was not only doing audit work but determiningwho should be the directors of the said companies.

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b) The rubber seals, letter heads, blank signed cheques and otherrecords were all found in the office of Rattan Gupta. The factualdetermination by the AO remains undisputed and this fortifies thatthe control and management was in Delhi.

c) The statement of Rattan Gupta suggesting that H.L. Verma orUma Shankar Sitani were actually handling the affairs of the 5Fentities could not be made good by offering either of them forexamination.

d) Once documents were seized and statements were recordedfrom various persons, the burden gets shifted to the assessees toproduce some evidence to counter the picture and, the court foundthat its extremely unusual that the seals and the signed blankcheques would be lying with the Chartered Accountant.

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e) The High Court in paragraph 70 held that the revenue is right asthere can be no presumption in law that control and managementis at the registered office.

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f) In paragraph 71, the High Court held that “it appears to theCourt that the ITAT has not upset the factual finding of the AO,which was confirmed by the CIT(A). The above exhaustiveevidence gathered by the revenue, without being countered by theassessee despite opportunity being afforded, serves to substantiatethe case of the revenue that the management and control of the 5assessee companies was in fact located in Delhi. The finding bythe ITAT in this regard is plainly perverse and unsustainable inlaw.”

g) On commission and accrual of income, the High Court concludedas under:

i) The findings by the AO that the assessee had failed to provethat the commission payments earned by them is exclusively inSikkim had not been dislodged by the assessee by producingany tangible material;

ii) The evidence produced by the assesses are only copies ofbills and vouchers and receipt of money from such agents atSikkim in its bank accounts and assessments have been madeunder the Sikkim Manual, 1948; iii) The High Court in para 76 held that “none of the 5 entitiesnamed by the assessees as having paid the commission to themappeared in the course of assessment proceedings to confirmthe payments having been made to the assessees.” The HighCourt also recorded that the rate of commission paid wasunrealistic and beyond human probabilities, non-existence ofany employees in Sikkim, non-incurring of any expenditure inSikkim as found in the P&L account and finally the balancesheet showing that notwithstanding that the income was fromcommission the assets were in the form of investments in DalmiaGroup would stare at the face of the assessees and remainsunrebutted. The High Court concluded that the findings by theITAT in this regard is contrary to the record and is based onsurmises and unsustainable in law.

6.4 In light of the above findings, the submissions made by thelearned counsel for the respective parties on service of notice upon RattanGupta being in the control and management of the respective assessees;the control and management of the affairs of the assessee companies; the applicability of the Income Tax Act, 1961; jurisdiction of the AO andlevy of interest are required to be considered.

7. On appreciation of the entire evidence on record, the AO,CIT(A) and the High Court have specifically held against the assesseesthat in fact Rattan Gupta did not merely render professional services buthad a vital say in the control and management of the assessee companiesand in fact he was in control and management of the affairs of therespective assessee companies.

7.1 On control and management of business, few decisions oninterpretation of Section 4A of the erstwhile Income Tax Act, 1922 andinterpretation of Section 6(3) of the Income Tax Act, 1961 are requiredto be referred to, which are as under:

i) In the case of V.V.R.N.M. SubbayyaChettiar (supra), it isobserved in paragraph 10 as under:

“10. The principles which are now well established in Englandand which will be found to have been very clearly enunciatedin Swedish Central RailwayCo. Ltd. v. Thompson (Inspectorof Taxes) [Swedish Central Railway Co. Ltd. v. Thompson(Inspector of Taxes), 1925 AC 495 : 9 TC 373 (HL)] , whichis one of the leading cases on the subject, are:

(1) That the conception of residence in the case of afictitious “person”, such as a company, is as artificial as thecompany itself, and the locality of the residence can only bedetermined by analogy, by asking where is the head andseat and directing power of the affairs of the company. Whatthese words mean have been explained by M. PatanjaliSastri, J. with very great clarity in the following passagewhere he deals with the meaning of Section 4-A(b) of theIncome Tax Act:

“4-A. (b) ‘Control and management’ signifies, in thepresent context, the controlling and directive power, ‘the headand brain’ as it is sometimes called, and ‘situated’ implies thefunctioning of such power at a particular place with some de-gree of permanence, while ‘wholly’ would seem to recognisethe possibility of the seat of such power being divided betweentwo distinct and separated places.”

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As a general rule, the control and management of a businessremains in the hand of a person or a group of persons, and thequestion to be asked is wherefrom the person or group of per-sons controls or directs the business.

(2) Mere activity by the company in a place does notcreate residence, with the result that a company may be “re-siding” in one place and doing a great deal of business in an-other.

(3) The central management and control of a companymay be divided, and it may keep house and do business in morethan one place, and, if so, it may have more than one resi-dence.

(4) In case of dual residence, it is necessary to showthat the company performs some of the vital organic functionsincidental to its existence as such in both the places, so that infact there are two centres of management.”

ii) Thereafter, in the case of Erin Estate (supra), it is observed inparagraphs 6 & 9 as under:

“6. There is no doubt that the question raised for our decision is aquestion of law. Whether or not the appellant is a resident firmunder Section 4-A(b) would depend upon the legal effect of thefacts proved in the case. The status of the appellant which has tobe determined by reference to the relevant section of the Act is amixed question of fact and law and in determining this questionthe principles of law deducible from the provisions of the saidsection will have to be applied. This position has not been disputedbefore us in the present proceedings. Section 4-A(b) provides in-ter alia that “for the purpose of the Act, a firm is resident in thetaxable territories unless the control and management of its af-fairs is situated wholly without the taxable territories”. This provi-sion shows that, where the partners of a firm are residents of thiscountry, the normal presumption would be that the firm is residentin the taxable territories. This presumption is rebuttable and it canbe effectively rebutted by the assessee showing that the controland management of the affairs of the firm is situated wholly with-out the taxable territories. The onus to rebut the initial presump-tion is on the assessee. The control and management contem-

plated by the section evidently refers to the controlling and direct-ing power. Often enough, this power has been described in judicialdecisions as the “head and brain”; the affairs of the firm whichare subject to the said control and management refer to the affairswhich are relevant for the purpose of taxation and so they musthave some relation to the income of the firm. When the sectionrefers to the control and management being situated wholly with-out the taxable territories it implies that the control and manage-ment can be situated in more places than one. Where the controland management are situated wholly outside India the initial pre-sumption arising under the section is effectively rebutted. It is truethat the control and management which must be shown to, besituated at least partially in India is not the merely theoretical con-trol and power, not a de jure control and power but the de factocontrol and power actually exercised in the course of the conductand management of the affairs of the firm. Theoretically, if thepartners reside in India they would naturally have the legal right tocontrol the affairs of the firm which carries on its operations out-side India. The presence of this theoretical de jure right to controland manage the affairs of the firm which inevitably vests in all thepartners would not by itself show that the requisite control andmanagement is situated in India. It must be shown by evidencethat control and management in the affairs of the firm is exer-cised, may be to a small extent, in India before it can be held thatthe control and management is not situated wholly without thetaxable territories. (Vide B.R. Naik v. CIT [(1945) 13 ITR 124 :(1946) 14 ITR 334] ). The effect and scope of the provisions ofSection 4-A(b) has been considered by this Court in V.V.R.N.M.Subbayya Chettiar v. CIT [1950 SCC 971 : (1950) SCR 961, 965]. After examining the relevant decisions on this point, Fazi Ali, J.,who delivered the judgment of the Court, has observed “(1) thatthe conception of residence in the case of a fictitious ‘person’such as a company, is as artificial as the company itself and thelocality of the residence can only be determined by analogy, byasking where is the head and seat and directing power of theaffairs of the company. …(2) Mere activity by the company in aplace does not create residence, with the result that the companymay be residing in one place and doing a great deal of business inanother. (3) The central management and control of a company A

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may be divided and it may keep house and do business in morethan one place, and, if so, it may have more than one residence.(4) In case of dual residence, it is necessary to show that thecompany performs some of the vital organic functions incidentalto its existence as such in both the places so that in fact there aretwo centres of management”. It is in the light of these principlesthat Section 4-A(b) has to be construed. Thus, the only questionwhich remains to be considered is whether the High Court ofMadras was right in holding that the appellant was resident inIndia under Section 4-A(b).

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9. Mr Kolah then raised a further point which had not been urgedbefore the High Court. He contended that the control and man-agement mentioned in Section 4-A(b) must be control and man-agement valid and effective in law. Under Section 12 of the Part-nership Act, it is only the majority of partners who could havegiven effective directions to the superintendent and since there isno evidence that the alleged control and management has beenexercised by the majority of partners acting in concert it would notbe possible to hold that any control and management of the firm’saffairs resided in India. We do not think there is any substance inthis argument. Under Section 12(a), every partner has a right totake part in the conduct of the business and it is only where differ-ence arises as to ordinary matters connected with the business ofthe firm that the same has to be decided by majority of partnersunder sub-section (c) of the said section. It has not been sug-gested or shown that there was any difference between the part-ners in regard to the matters covered by the individual partner’sletters of instruction to the superintendent. Indeed the course ofconduct evidenced by these letters shows that Andiappa Pillai whoholds the maximum number of individual shares has purported toact for the partnership and usually gave instructions in regard tothe conduct and management of the firm’s affairs. On the recordwe see no trace of any protest against, or disagreement with, thisconduct of Andiappa Pillai. Besides, it was never suggested dur-ing the course of the enquiry before the Income Tax Officers thatthe directions given by Andiappa Pillai were not valid or effectiveand had not been agreed upon by the remaining partners. That iswhy we think this technical point raised by Mr Kolah must fail.”

iii) That thereafter the Bombay High Court in the case of Narottamand Pareira Ltd. (supra) through Justice M.C. Chagla, as HisLordship then was, observed and held in paragraphs 3 and 4 asunder:

“3. It is also necessary that the control and management of theaffairs of the company should be situated wholly in the taxableterritories. Therefore, if any part of the control and managementis outside the taxable territories then the company would not beresident. In this connection it is perhaps necessary to look at theconverse definition for a Hindu undivided family, firm or otherassociation of persons. In their case they are resident unless thecontrol and management of its affairs is situated wholly withoutthe taxable territories. Therefore; whereas in the case of a Hinduundivided family or firm or association of persons any measure ofcontrol and management within the taxable territories would makethem resident, in the case of a company any measure of controland management of its affairs outside the taxable territories wouldmake it non-resident. In construing the expression “control andmanagement” it is necessary to bear in mind the distinction betweendoing of business and the control and management of business.Business and the whole of it may be done outside India and yetthe control and management of that business may be wholly withinIndia. In this particular case considerable emphasis is placed uponthe fact that the whole of the business of the company is done inCeylon and the whole of the income which is liable to tax has beenearned in Ceylon. But that is not a factor which the Legislaturehas emphasised, It is entirely irrelevant where the business is doneand where the income has been earned. What is relevant andmaterial is from which place has that business been controlled andmanaged. “Control and management” referred to in Section 4A(c)is, as we shall presently point out on the authorities, central controland management. The control and management contemplated bythis sub-section is not the carrying on of day to day business byservants, employees or agents. The real test to be applied is, whereis the controlling and directing power, or rather, where does thecontrolling and directing power function or to put it in a differentlanguage there is always a seat of power or the head and brain,and what has got to be ascertained is, where is this seat of power,or the head and brain. A company or for the matter of that a firm

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or an undivided Hindu family has got to work through servantsand agents, but it is not the servants and agents that constitute theseat of power or the controlling and directing power. It is thatauthority to which the servants, employees and agents are subject,it is that authority which controls and manages them, which is thecentral authority, and it is at the place where the central authorityfunctions that the company resides. It’ may be in some cases thatlike an individual a company may have residence in more than oneplace. It may exercise control and management not only from onefixed abode, but it may have different places. That would again bea question dependent upon the circumstances of each case. Butthe contention which Mr. Kolah has most strongly pressed beforeus is entirely unacceptable that a company controls or manages ata particular place because its affairs are carried on at a particularplace and they are carried on by people living there appointed bythe company with large powers of management. A company mayhave a dozen local branches at different places outside India, itmay send out agents fully armed with authority to deal with andcarry on business at these branches, and yet it may retain thecentral management and control in Bombay and manage and controlall the affairs of these branches from Bombay and at Bombay. Itwould be impossible to contend that because there are authorisedagents doing the business of the company at six different placesoutside India, therefore the company is resident not only in Bombaybut at all these six different places.

4. ….It is perfectly true that these two managers do all the businessof the company in Ceylon and in doing that business naturally alarge amount of discretion is given to them and a considerableamount of authority. But the mere doing of business does notconstitute these managers the controlling and directing power. Theirpower-of-attorney can be cancelled at any moment, they mustcarry out any orders given to them from Bombay, they must submitto Bombay an explanation of what they have been doing, andthroughout the time that they are working in Ceylon a vigilant eyeis kept over their work from the directors’ board room in Bombay.The correspondence which has also been relied upon between thecompany here and its office in Colombo also goes to show andemphasises the same state of affairs. Mr. Kolah is right againwhen he puts emphasis upon the fact that what we have to consider in this case is not the power or the capacity to manage and control,but the actual control and management, or, in other words, not thedejure control and management but thede facto control andmanagement, and in order to hold that the company is residentduring the years of account it must be established that the companyde facto controlled and managed its affairs in Bombay. Mr. Kolahsays that the two powers-of-attorney go to show that whateverlegal or juridical control and management the company might havehad, in fact the actual management was exercised by the twomanagers in Ceylon. In our opinion this is not a case where thecompany did nothing with regard to the actual management andcontrol of its affairs and left it to some other agency. As we saidbefore, the two managers were the employees of the companyacting throughout the relevant period under the control andmanagement of the company, and therefore in the case we areconsidering there was not only a dejure control and management,but also a de facto control and management.”

That thereafter, Justice Kania, as His Lordship then was, afterreferring to the decision in the case of B.R. Naik v. Commissioner ofIncome Tax, Bombay, (1945) 13 ITR 124 has observed and held thatthe expression “control and management” means where the central controland management actually abides.

iv) The Calcutta High Court in the case of Bank of China (supra)has specifically held that a company may be simultaneously residentin more than one place, but the control and management is wherethe head and brain is situated. While holding so, in paragraphs 7 to9, it is observed and held as under:

“7. Under s. 6(3), a non-Indian company is said to be residentin India in any previous year if during that year the control andmanagement of its affairs is situated wholly in India. Thedetermination as to at what place or places the control andmanagement of a particular company is situated is essentially aquestion of fact to be determined on the facts and circumstancesof the particular case. A company can be simultaneously residentin more than one place but the question is whether the controland management is situated wholly in India during the relevantprevious year. The expression “control and management”signifies the controlling and directive power, “the head and brain”, A

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as it is sometimes called, and “situated” implies the functioningof such power at a particular place with some degree ofpermanence. The word “wholly” as used in s. 6(3) wouldindicate that the seat of such power may be divided betweentwo distinct and separate places. The expression “control andmanagement” means de facto control and management andnot merely the right or power to control and manage. In orderto hold that a non-Indian company is resident in India duringany previous year, it must be established that such company defacto controls and manages its affairs in India. The principlesare by now well settled.

8. Lord Loreburn L.C. in De Beers Consolidated Mines Ltd.v. Howe, [1906] 5 TC 198 (HL) at page 212, observed asfollows:

“Mr. Cohen propounded a test which had the merits ofsimplicity and certitude. He maintained that a companyresides where it is registered, and nowhere else…… I cannotadopt Mr. Cohen’s contention. In applying the conceptionof residence to a company, we ought, I think, to proceed asnearly as we can upon the analogy of an individual. Acompany cannot eat or sleep, but it can keep house and dobusiness. We ought, therefore, to see whether it really keepshouse and does business. An individual may be of foreignnationality, and yet reside in the United Kingdom. So may acompany. Otherwise, it might have its chief seat ofmanagement and its centre of trading in England, under theprotection of English law, and yet escape the appropriatetaxation by the simple expedient of being registered abroadand distributing its dividends abroad. The decision of ChiefBaron Kelly and Baron Huddleston in Calcutta Jute MillsCo. Ltd. v. Henry Nicholson, [1876] 1 TC 83 : [1876] 1 ExD 428 and Cesena Sulphur Co. Ltd. v. Henry Nicholson,[1876] 1 TC 83 : [1876] 1 Ex D 428, now thirty years ago,involved the principle that a company resides for purposesof income-tax where its real business is carried on. Thosedecisions have been acted upon ever since. I regard that asthe true rule; and the real business is carried on where thecentral management and control actually abides.”

9. Since that judgment, the words underlined have beentaken as the test, although central management and controlhas sometimes been stated in the form “head, seat anddirecting power”. The question depends on the fact of themanagement and not on the physical situation of the thingthat is managed. A company is managed by the board ofdirectors and if the meetings of the board of directors areheld within India, it may be said that the central control andmanagement is situated here. The direction, managementand control “the head and seat and directing power” of acompany’s affairs is, therefore, situate at the place wherethe directors’ meetings are held and, consequently, a non-Indian company would be a resident in this country if themeetings of the directors who manage and control thebusiness are held here. The word “affairs” means affairswhich are relevant for the purpose of the I.T. Act and whichhave some relation to the income sought to be assessed. Itis not the bare possession of powers by the directors, buttheir taking part in or controlling the affairs relating to thetrading, that is of importance in determining the question ofthe place where the control is exercised. They must exercisetheir power of control in relation to business or activitywherefrom the profit is derived. (See Egyptian HotelsLtd. v. Mitchell, [1915] 6 TC 542 (HL)).”

v) In the case of Nandlal Gandalal (supra), this Court hasheld that the expression “control and management” in Section4A(b) of the Income Tax Act, 1922, means de facto control and management and not merely the right or power to controland manage.

8. The sum and substance of the above decisions of this Court aswell as various High Courts would be that where the head and seat anddirecting power of the affairs of the company and the control andmanagement is must be shown is not merely theoretical control and power,i.e., not de jure control and power, but de facto control and power actuallyexercised in the course of the conduct and management of the affairs ofthe firm; that the domicile or the registration of the company is not at allrelevant and the determinate test is where the sole right to manage andcontrol of the company lies.

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A9. Applying the above principles of law to the facts of the case athand, and the findings recorded by the AO, confirmed by the CIT(A), itis rightly concluded that the control and management of the affairs of therespective assessees were with Rattan Gupta, Chartered Accountant inDelhi. The findings of fact recorded by the AO, confirmed by the CIT(A)that the control and management of the affairs of the assessee companiesBwas with Rattan Gupta are based on the entire material on record. Inlight of the aforesaid findings, the High Court has not committed anyerror in reversing the contrary findings recorded by the ITAT and it isrightly observed and held that service of notice upon Rattan Gupta treatinghim as the principal officer and/or as a principal officer for and on behalfCof the assessee companies were valid notices and the High Court hasrightly held that the AO at New Delhi was having the jurisdiction to issuenotice under the Income Tax Act, 1961.

10. Insofar as the case on behalf of the respective assessees thatthe entire income was earned in Sikkim by way of commission on sale ofDcardamom and therefore such income shall not be liable to be taxedunder the Income Tax Act, 1961 is concerned, at the outset, it is requiredto be noted that there are concurrent findings recorded by the AO andthe CIT(A), as approved by the High Court, that no income by way ofcommission, as claimed by the assessees, has beenestablished and provedby the assessees. In fact, the AO issued notices/summons to differentEpersons who had allegedly paid amounts as commission, however, thosepersons had not responded. Therefore, the AO as such has rightly drawnan adverse inference. At this stage, it is required to be noted that as suchthe assessees did not produce any worthwhile evidence to prove thegenuineness of the commission received. Despite the above, the ITATFreversed the findings of fact recorded by the AO and the CIT(A) byobserving that the AO did not proceed further (after issuing the summons/notices) and that since no adverse material has been brought on recordthe AO could not have proceeded to draw an adverse inference as theburden was heavy on the revenue. Once, the AO issued summons to those who had allegedly paid the commission to the assessees and theGsummons were issued under Section 131 which were not complied withand it was the assertion on behalf of the respective assessees that theyearned the income of commission within Sikkim, the burden to prove thesame was upon the assessees. Under the circumstances, the ITAT wronglyand erroneously shifted the burden upon the AO to prove the contrary.HTherefore, in absence of any material on record that the commission was earned only in Gangtok, the assessees cannot be permitted to saythat they were liable to pay the tax under the Sikkim Manual, 1948 andnot under the Income Tax Act, 1961. It appears that the assessees withmala fide intention and to evade the payment of tax under the IncomeTax Act, 1961 came out with a case that they earned the income withinSikkim, which has not been established and proved. It was a clear attempton the part of the respective assessees to wriggle out of the clutches ofthe Income Tax Act, 1961.

11. As regards the submission on behalf of the respective assesseesthat as there was no original assessment under the Income Tax Act,1961, there could not have been the re-assessment under sections 147/148 of the Act, 1961 is concerned, the same has no substance in view ofthe binding decision of this Court in the case of Sun Engineering WorksP. Ltd. (supra). In paragraph 14 of the said decision, it is observed andheld as under:

“14…..Thus, under Section 147, the assessing officer has beenvested with the power to ‘assess or reassess’ the escapedincome of an assessee. The use of the expression “assess orreassess such income or recompute the loss or depreciationallowance” in Section 147 after the conditions for reassessmentare satisfied, is only relatable to the preceding expression in clauses(a) and (b) viz., “escaped assessment”. The term “escapedassessment” includes both “non-assessment” as well as “underassessment”. Income is said to have “escaped assessment” withinthe meaning of this section when it has not been charged in thehands of an assessee in the relevant year of assessment. Theexpression “assess” refers to a situation where the assessment ofthe assessee for a particular year is, for the first time, made byresorting to the provisions of Section 147 because the assessmenthad not been made in the regular manner under the Act. Theexpression “reassess” refers to a situation where an assessmenthas already been made but the Income Tax Officer has, on thebasis of information in his possession, reason to believe that therehas been under assessment on account of the existence of any ofthe grounds contemplated by the provisions of Section 147(b) readwith the Explanation (1) thereto.”

12. Insofar as the submission on behalf of the respective assesseesregarding levy of interest and the submission on behalf of the assessees A

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Athat in absence of any specific order passed in the assessment order tolevy interest, the interest could not have been levied, is concerned, thesaid issue as such is concluded against the assessees in view of theConstitution Bench decision of this Court in the case of Anjum M.H.Ghaswala (supra) as well as the subsequent decision in the case ofKaranvir Singh Gossal (supra). The ITAT relied upon the decision ofBthe Patna High Court in the case of Ranchi Club Ltd. (supra), however,the decision of the Patna High Court in the case of Ranchi Club Ltd.(supra) is held to be not good law, in view of the Constitution Benchdecision of this Court in the case of Anjum M.H. Ghaswala (supra).

12.1 In the case of Anjum M.H. Ghaswala (supra), while dealingCwith the interest under the provisions of Sections 234A, 234B and 234Cof the Income Tax Act, 1961, it is observed and held that the interestcontemplated under the said provisions is mandatory in nature and thepower of waiver or reduction has not been expressly conferred on theCommission. The same indicates that insofar as the payment of statutoryDinterest is concerned, the same is outside the purview of the settlementcontemplated in Chapter XIX-A of the Act. In the present case also, thelevy of interest under Section 234A for default in furnishing the return ofincome is mandatory and automatic. Section 234A of the Act providesthat where the return of income for any assessment year is furnishedafter the due date or is not furnished, the assessee shall be liable to payEsimple interest. Thus, interest under section 234A is statutory interestleviable and payable and therefore the decision of this Court in the caseof Anjum M.H. Ghaswala (supra) shall be applicable with full force.Therefore, when the interest is levied as per the workings mentioned inITNS 150 which is forming part of the assessment order, it is rightly heldFto be sufficient and good enough to charging interest. (See decision ofthis Court in the case of Bhagat Construction Company PrivateLimited (supra)).

13. As regards the submission on behalf of the assessees that nosubstantial question of law was framed on levy of interest, at the outset,Git is required to be noted that both the parties made submissions on levyof interest elaborately which have been dealt with and considered by theHigh Court in light of the Constitution Bench decision of this Court in thecase of Anjum M.H. Ghaswala (supra). Even otherwise, the said issuecan be said to be incidental or collateral. Even otherwise, in view of thedecision of this Court in the case of Anjum M.H. Ghaswala (supra)H

holding that the levy of interest under Section 234A is statutory interestand mandatory and automatic, thereafter the said issue cannot be said tobe a question of law.

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14. In view of the above and for the reasons stated above and thefindings recorded by the AO, CIT(A), confirmed by the High Court, itcannot be said that the High Court has committed any error in upsettingthe findings recorded by the ITAT. We are in complete agreement withthe view taken by the AO, CIT(A) and the High Court on all issuesincluding the issue of control and management of the affairs of theassessee companies by Rattan Gupta from Delhi; jurisdiction of the AOat New Delhi; applicability of the Income Tax Act, 1961; that the assesseesdid not prove that the income was earned by way of commission in Sikkimand therefore the tax was not liable to be paid under the Income Tax Act,1961 and was liable to be paid under the Sikkim Manual, 1948. We arealso in agreement with the view taken by the High Court on levy ofinterest in view of the binding decision of the Constitution Bench in thecase of Anjum M.H. Ghaswala (supra), which has been subsequentlyfollowed in the case of Karanvir Singh Gossal (supra).

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