# MANSAROVAR COMMERCIAL PVT. LTD v. COMMISSIONER OF INCOME TAX, DELHI

- **Citation:** [2023] 8 S.C.R. 452
- **Court:** Supreme Court of India
- **Decided:** 2023-04-10
- **Case number:** Civil Appeal No. 5769 of 2022
- **Bench:** M. R. Shah, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mansarovar-commercial-pvt-ltd-v-commissioner-of-income-tax-delhi-37548
- **Pages:** 44

## Headnote

Constitution of India - The Constitution (Thirty Sixth
Amendment) Act, 1975 - Art. 371-F - Sikkim State Income-Tax
Manual, 1948 - Sikkim (Collection of Taxes and Prevention of
Evasion 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, 274,271B - By a notification dated 07.11.1988 issued u/Art. 371-F(n) of the
Constitution, the Income Tax Act, 1961 were extended to the State of
Sikkim - The case of the assessees (incorporated under the
Registration of Companies (Sikkim) Act, 1961) was that each of
them was a resident of Sikkim, carrying on business in Sikkim and
not elsewhere and that till 31.03.1990, each of them were governed
by the Sikkim Manual, 1948 and not the Income Tax Act, 1961 -
Therefore, the stand of the assessees was that the income earned by
them till that date was income earned in Sikkim from the business
conducted/done in Sikkim - On the other hand, the case of the
Revenue was that the control and management of each of the assessee
companies 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 was
conducted on 15.03.1990 at the premises of Chartered Accountant
at New Delhi and during the course of the search, books of account,
cheque books, signed blank cheques, vouchers and other income
documents of the assessees were found - Notices were issued by the
ACIT (Investigation), to each of the assessees u/s 148 of the Act, in
respect of Assessment Years 1987-88, 1988-89 and 1989-90 - Held:
On appreciation of the entire evidence on record, the AO, CIT(A)
and the High Court have specifically held against the assessees
that in fact auditor (the chartered accountant, RG) did not merely
render professional services but had a vital say in the control and
management of the assessee companies and in fact he was in control
and management of the affairs of the respective assessee companies
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- Once documents were seized and statements were recorded from
various persons, the burden gets shifted to the assessees to produce
some evidence to counter the picture and, the court found that its
extremely unusual that the seals and the signed blank cheques would
be lying with the Chartered Accountant - The head and seat and
directing power of the affairs of the company and the control and
management 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 actually exercised in the course of the conduct and
management of the affairs of the firm - The domicile or the
registration of the company is not at all relevant and the determinate
test is where the sole right to manage and control of the company
lies and therefore the findings recorded by the AO, confirmed by the
CIT(A), it was rightly concluded that the control and management
of the affairs of the respective assessees were with Chartered
Accountant in Delhi - It appears that the assessees with mala fide
intention 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 to
wriggle out of the clutches of the Income Tax Act, 1961 - Further,
the levy of interest u/s. 234A for default in furnishing the return of
income is mandatory and automatic - s. 234A of the Act provides
that where the return of income for any assessment year is furnished
after the due date or is not furnished, the assessee shall be liable to
pay simple interest.
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 against
the assessees that in fact RG, Chartered Accountant in Delhi did
not merely render professional services but had a vital say in the
control and management of the assessee companies

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SUPREME COURT REPORTS
[2023] 8 S.C.R.
[2023] 8 S.C.R. 452
452
MANSAROVAR COMMERCIAL PVT. LTD.
v.
COMMISSIONER OF INCOME TAX, DELHI
(Civil Appeal No. 5769 of 2022)
APRIL 10, 2023
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Constitution of India - The Constitution (Thirty Sixth
Amendment) Act, 1975 - Art. 371-F - Sikkim State Income-Tax
Manual, 1948 - Sikkim (Collection of Taxes and Prevention of
Evasion 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, 274,271B - By a notification dated 07.11.1988 issued u/Art. 371-F(n) of the
Constitution, the Income Tax Act, 1961 were extended to the State of
Sikkim - The case of the assessees (incorporated under the
Registration of Companies (Sikkim) Act, 1961) was that each of
them was a resident of Sikkim, carrying on business in Sikkim and
not elsewhere and that till 31.03.1990, each of them were governed
by the Sikkim Manual, 1948 and not the Income Tax Act, 1961 -
Therefore, the stand of the assessees was that the income earned by
them till that date was income earned in Sikkim from the business
conducted/done in Sikkim - On the other hand, the case of the
Revenue was that the control and management of each of the assessee
companies 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 was
conducted on 15.03.1990 at the premises of Chartered Accountant
at New Delhi and during the course of the search, books of account,
cheque books, signed blank cheques, vouchers and other income
documents of the assessees were found - Notices were issued by the
ACIT (Investigation), to each of the assessees u/s 148 of the Act, in
respect of Assessment Years 1987-88, 1988-89 and 1989-90 - Held:
On appreciation of the entire evidence on record, the AO, CIT(A)
and the High Court have specifically held against the assessees
that in fact auditor (the chartered accountant, RG) did not merely
render professional services but had a vital say in the control and
management of the assessee companies and in fact he was in control
and management of the affairs of the respective assessee companies
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- Once documents were seized and statements were recorded from
various persons, the burden gets shifted to the assessees to produce
some evidence to counter the picture and, the court found that its
extremely unusual that the seals and the signed blank cheques would
be lying with the Chartered Accountant - The head and seat and
directing power of the affairs of the company and the control and
management 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 actually exercised in the course of the conduct and
management of the affairs of the firm - The domicile or the
registration of the company is not at all relevant and the determinate
test is where the sole right to manage and control of the company
lies and therefore the findings recorded by the AO, confirmed by the
CIT(A), it was rightly concluded that the control and management
of the affairs of the respective assessees were with Chartered
Accountant in Delhi - It appears that the assessees with mala fide
intention 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 to
wriggle out of the clutches of the Income Tax Act, 1961 - Further,
the levy of interest u/s. 234A for default in furnishing the return of
income is mandatory and automatic - s. 234A of the Act provides
that where the return of income for any assessment year is furnished
after the due date or is not furnished, the assessee shall be liable to
pay simple interest.
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 against
the assessees that in fact RG, Chartered Accountant in Delhi did
not merely render professional services but had a vital say in the
control and management of the assessee companies and in fact
he was in control and management of the affairs of the respective
assessee companies. [Para 7][483-A-B]
2. Where the head and seat and directing power of the affairs
of the company and the control and management 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 actually exercised in
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
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the course of the conduct and management of the affairs of the
firm; that the domicile or the registration of the company is not at
all relevant and the determinate test is where the sole right to
manage and control of the company lies. Applying the above
principles of law to the facts of the case at hand, and the findings
recorded by the AO, confirmed by the CIT(A), it is rightly
concluded that the control and management of the affairs of the
respective assessees were with RG, Chartered Accountant in
Delhi. The findings of fact recorded by the AO, confirmed by the
CIT(A) that the control and management of the affairs of the
assessee companies was with RG are based on the entire material
on record. In light of the aforesaid findings, the High Court has
not committed any error in reversing the contrary findings
recorded by the ITAT and it is rightly observed and held that
service of notice upon RG treating him as the principal officer
and/or as a principal officer for and on behalf of the assessee
companies were valid notices and the High Court has rightly held
that the AO at New Delhi was having the jurisdiction to issue
notice 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 assessees
that the entire income was earned in Sikkim by way of commission
on sale of cardamom and therefore such income shall not be liable
to be taxed under the Income Tax Act, 1961 is concerned, at the
outset, it is required to be noted that there are concurrent findings
recorded by the AO and the CIT(A), as approved by the High
Court, that no income by way of commission, as claimed by the
assessees, has been established and proved by the assessees. In
fact, the AO issued notices/summons to different persons who
had allegedly paid amounts as commission, however, those persons
had not responded. Therefore, the AO as such has rightly drawn
an adverse inference. At this stage, it is required to be noted that
as such the assessees did not produce any worthwhile evidence
to prove the genuineness of the commission received. Despite
the above, the ITAT reversed the findings of fact recorded by the
AO and the CIT(A) by observing that the AO did not proceed
further (after issuing the summons/notices) and that since no
adverse material has been brought on record the AO could not
have proceeded to draw an adverse inference as the burden was
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heavy on the revenue. Once, the AO issued summons to those
who had allegedly paid the commission to the assessees and the
summons were issued under Section 131 which were not complied
with and it was the assertion on behalf of the respective assessees
that they earned the income of commission within Sikkim, the
burden to prove the same was upon the assessees. Under the
circumstances, the ITAT wrongly and erroneously shifted the
burden upon the AO to prove the contrary. Therefore, in absence
of any material on record that the commission was earned only in
Gangtok, the assessees cannot be permitted to say that they were
liable to pay the tax under the Sikkim Manual, 1948 and not under
the Income Tax Act, 1961. It appears that the assessees with
mala fide intention 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 a clear attempt on the part of the respective assessees to
wriggle out of the clutches of the Income Tax Act, 1961. [Para
10][492-D-H; 493-A-B]
4. In the case of Anjum M.H. Ghaswala, while dealing with
the interest under the provisions of Sections 234A, 234B and
234C of the Income Tax Act, 1961, it is observed and held that
the interest contemplated under the said provisions is mandatory
in nature and the power of waiver or reduction has not been
expressly conferred on the Commission. The same indicates that
insofar as the payment of statutory interest is concerned, the same
is outside the purview of the settlement contemplated in Chapter
XIX-A of the Act. In the present case also, the levy of interest
under Section 234A for default in furnishing the return of income
is mandatory and automatic. Section 234A of the Act provides
that where the return of income for any assessment year is
furnished after the due date or is not furnished, the assessee shall
be liable to pay simple interest. Thus, interest under section 234A
is statutory interest leviable and payable and therefore the
decision of this Court in the case of Anjum M.H. Ghaswala shall
be applicable with full force. Therefore, when the interest is levied
as per the workings mentioned in ITNS 150 which is forming part
of the assessment order, it is rightly held to be sufficient and good
enough to charging interest. [Para 12.1][494-C-F]
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
OF INCOME TAX, DELHI
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Commissioner of Income Tax, Mumbai v. Anjum M.H.
Ghaswala (2002) 1 SCC 633 : [2001] 4 Suppl. SCR
303 - followed.
Commissioner of Income Tax, Delhi v. Bhagat
Construction Company Private Limited (2016) 15 SCC
738; V.V.R.N.M. Subbayya Chettiar v. CIT, Madras, AIR
1951 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 Uttarakhand
2021 SCC OnLine SC 48; Kiran Singh v. Chaman
Paswan, AIR 1954 SC 340 : [1955] SCR 117; Trustees
of H.E.H, the Nizam's Supplemental Family Trust v. CIT
(2000) 3 SCC 501 : [2000] 1 SCR 863; Standard
Chartered Finance Limited v. CIT, Bangalore (2016) 14
SCC 634; Erin Estate v. CIT 1959 SCR 573;
Commissioner of Income Tax v. Sun Engineering Works
P. 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 Gupta
v. CIT, Delhi AIR 2020 SC 3556 : [2020] SCR 874 -
referred to.
Narottan and Pereira Ltd. v. CIT, Bombay City 1953 23
ITR 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 ITR
124; CIT v. Ranchi Club Limited (2001) 247 ITR 209 -
referred to.
A.M.M. Firm v. Reserve Bank of India 1982 SCC
OnLine Mad. 187; Commissioner of Income Tax v. Bank
of China 1985 SCC OnLine Cal. 24; Universal Cargo
Carriers Inc. v. Commissioner of Income Tax 1990 SCC
OnLine Cal. 385; India Glycols Ltd. v. Commissioner of
Income Tax 2004 SCC OnLine Cal. 736 - referred to.
San Paulo v. Carter (1896) AC 31 Lord Halsbury -
referred to.
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Case Law Reference
[2018] 3 SCR 875
referred to
para 3.6
[1955] SCR 117
referred to
para 3.10
[2000] 1 SCR 863
referred to
para 3.12
(2016) 14 SCC 634
referred to
para 3.12
[2001] 4 Suppl. SCR 303
followed
para 3.18
(2016) 15 SCC 738
relied on
para 3.18
[1950] SCR 1961
relied on
para 4.2
[1992] 1 Suppl. SCR 732
referred to
para 4.7
(2012) 13 SCC 802
referred to
para 4.9
[2008] 7 SCR 631
referred to
para 4.11
[2020] SCR 874
referred to
para 4.13
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5769 of
2022.
From the Judgment and Order dated 22.02.2016 of the High Court
of 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, Sughosh
Subramanyam, Rajat Nair, Bhuvan Kapoor, Pranay Ranjan, Vikrant Yadav,
S.A. Haseeb, Ms. Gargi Khanna, Ram Narayan, Ms. Amritha
Chandramouli, 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 common
judgment and order dated 22.02.2016 passed by the High Court of Delhi
at New Delhi in Income Tax Appeal Nos. 162/2002, 164/2002,
165/2002, 167/2002 & 168/2002, by which the High Court has allowed
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
OF INCOME TAX, DELHI
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the said appeals preferred by the Revenue and has quashed and set
aside the common order dated 08th January, 2002 passed by the Income
Tax Appellate Tribunal, New Delhi (for short, 'ITAT') for Assessment
Years 1987-88, 1988-89 and 1989-90 and restored the orders passed by
the Assessing Officer, upheld by the Commissioner of Income Tax
(Appeals) (for short, 'CIT(A)), the respective assessees have preferred
the present appeals.
Facts:
2. The facts leading to the present appeals in nutshell are as under:
The respective assessees, namely, Mansarovar Commercial Private
Limited, Sovereign Commercial Private Limited, Swastik Commercial
Private Limited, Trishul Commercial Private Limited and Pasupati Nath
Commercial Private Limited were incorporated under the Registration
of Companies (Sikkim) Act, 1961. Each of the assessee companies claim
to be carrying on the business of commercial agents in cardamon and
other agricultural products.
2.1 Sikkim became part of India in April, 1975. The Constitution
(Thirty Sixth Amendment) Act, 1975 inserted Article 371-F into the
Constitution of India, in terms of which not all the laws of India were
extended to the new State of Sikkim. Under Article 371-F (k) all laws in
force immediately before the appointed day, i.e., 26th April, 1975, in the
territories comprising the State of Sikkim or any part thereof were to
continue to be in force therein until amended or repealed by a competent
legislature or other competent authority. The Income Tax Act, 1961
(hereinafter referred to as the 'Act') was not made straightway applicable
to the State of Sikkim. Till such extension of the Act to Sikkim by a
notification issued under Article 371-F(n), income tax was to be charged
and collected under the Sikkim State Income-tax Manual, 1948 (for short,
'Sikkim Manual, 1948'). The recovery of tax was under the scheme of
the Sikkim (Collection of Taxes and Prevention of Evasion of Payment
of Taxes) Act, 1987.
2.2 By a notification No. S.O. 1028E dated 7th November, 1988
issued under Article 371-F(n) of the Constitution, the Act, the Wealth
Tax Act, 1957 and the Gift Tax Act, 1958 were extended to the State of
Sikkim. In terms of para 2 of the said notification, the Central Government
appointed, by Notification S.O. 148E dated 23rd February, 1989, the 1st of
April, 1989 as the date on which the Act would come into force in the
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State of Sikkim in relation to the previous year relevant to the Assessment
Year commencing on the 1st day of April, 1989. However subsequently,
by virtue of Section 26 of the Finance Act, 1989 the Act was made
applicable to the State of Sikkim from the previous year relevant to the
Assessment Year commencing from 1st April, 1990, thereby extending
the date of applicability of the Act by one year from the date specified in
the notification dated 23rd February, 1989.
2.3 The case of the assessees was that each of them was a resident
of Sikkim, carrying on business in Sikkim and not elsewhere and that till
31st March, 1990, each of them were governed by the Sikkim Manual,
1948 and not the Act. Therefore, the stand of the assessees was that the
income earned by them till that date was income earned in Sikkim from
the business conducted/done in Sikkim. On the other hand, the case of
the Revenue was that the control and management of each of the assessee
companies was wholly with their auditor, M/s Rattan Gupta & Co.,
Chartered Accountants, who had their offices in Karol Bagh, New Delhi
and therefore, were companies' resident in India in terms of Section 6(3)
of the Act.
2.4 A search was conducted on 15th March, 1990 at the premises
of M/s Rattan Gupta & Co., Chartered Accountant at Daryaganj, New
Delhi and during the course of the search, books of account, cheque
books, signed blank cheques, vouchers and other income documents of
the assessees were found. The statements of the partners, former and
current, of M/s Rattan Gupta & Co., CA were recorded.
2.5 On 10th July, 1990, following the search conducted on 15th
March, 1990 at the premises of M/s Rattan Gupta & Co., CA at
Daryaganj, New Delhi, notices were issued by the Assistant Commissioner
of Income Tax (for short, 'ACIT') (Investigation), Circle 7(1), New Delhi
to each of the assessees under Section 148 of the Act, in respect of
Assessment Years 1987-88, 1988-89 and 1989-90 (Assessment Years
under consideration). An order was passed on 12th 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 Rattan
Gupta informed the assessees about notices under section 148 of the Act
issued to each of them at the address of M/s Rattan Gupta & Co. at
Daryaganj, New Delhi and affixed at the said premises of M/s Rattan
Gupta & Co.
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
OF INCOME TAX, DELHI [M. R. SHAH, J.]
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2.6 Meanwhile, each of the assessees filed return of income in
terms of the Sikkim Manual, 1948 for the Assessment Years in question
on 27th April, 1990. A demand notice was issued to each of them in
respect thereof on 23rd July, 1990.
2.7 The respective assessees filed writ petitions in the High Court
of Sikkim, challenging the notices issued under section 148 of the Act.
The Sikkim High Court initially passed an interim order staying further
proceedings. The said interim order was modified in terms of which the
Department was permitted to continue with its enquiry and seek facts
and information from the Directors of the assessee companies. The
assessee companies were required to furnish the necessary information
and also to file returns and produce the books of accounts before the
Assessing Officer, New Delhi in compliance of the notices under section
148 of the Act. Thereafter, the Sikkim High Court dismissed the writ
petitions holding that it had no jurisdiction to entertain the said writ petitions
since no part of the cause of action had arisen in the State of Sikkim. It
was 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 had
no jurisdiction over the actions of that authority. It appears that the Sikkim
High Court also observed that "mere fact that the companies have
registered offices in Sikkim does not confer jurisdiction on this Court."
2.8 It appears that in the meanwhile, on the basis of the returns
filed by the assessees in Sikkim, the Income and Sales Tax Department
of Government of Sikkim raised a revised demand on 30th November,
1990, cancelling the earlier demand raised on 30th July, 1990.
2.9 After the dismissal of the writ petitions by the Sikkim High
Court on 20th July, 1993, the assessees filed writ petitions before the
Delhi 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 13th August, 1998, an order was passed by the
Delhi High Court directing the AO to frame the assessment subject to
outcome of the writ petitions.
2.10 That thereafter on 24th August, 1998, notices were issued to
the assessee companies under section 148 of the ACT by ACIT, Company
Circle 2, New Delhi.
2.11 That on 09th October, 1998, separate assessment orders were
passed by the ACIT, Company Circle 2(2), New Delhi for each of the
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Assessment Years in question. The Assessing Officer concluded that
each of the assessees were "intentionally trying to take advantage of the
prevailing laws at Sikkim by routing money through Sikkim and ploughing
back in India." The Assessing Officer also rejected the objections raised
by the assessees as to the jurisdiction. The Assessing Officer made
additions to the income of the assessees for the aforesaid three Assessment
Years in question under different heads of income, namely, (i) income
from commission (ii) unsecured loan from Dengzong Charitable Trust
(iii) interest accrued/paid on the unsecured loans and (iv) provision for
income tax (which was disallowed). Separate penalty proceedings were
initiated under sections 271(1)(a). 271(1)(c), 273/274 and 271-B of the
Act.
2.12 The assessees then preferred appeals before the CIT(A).
Subsequently on 08th December, 2000, the writ petitions filed by the
assessees came to be dismissed by the High Court as the respective
assessees moved the Appellate Authority prescribed under the statute.
The appeals preferred by the assessees before the CIT(A) came to be
dismissed vide order(s) dated 30th March, 2001.
2.13 Feeling aggrieved by the order(s) passed by the CIT(A)
dismissing the appeals, the respective assessees preferred appeals before
the ITAT. The ITAT observed and held that notices under Section 148 of
the 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 assessees
within the meaning of section 2(35)(a) of the Act and the AO did not
serve 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. On
the refusal of Mr. Rattan Gupta to receive notices, ITAT observed and
opined that if Mr. Rattan Gupta refused to receive such notices, he was
justified in doing so and his refusal did not authorise the AO to resort to
substituted service within the meaning of Rule 20 of Order V of CPC.
The order(s) passed by the ITAT allowing the appeals preferred by the
assessees was/were the subject matter of appeals before the High Court
at 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 ACIT
exceeded his jurisdiction in issuing notices under section 148 of
the Act and the notices were not served in accordance with law?
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
OF INCOME TAX, DELHI [M. R. SHAH, J.]
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2. Whether the order made by the ITAT is perverse based on
conjectures and surmises and ignorance of evidence and material
and 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 was
also framed as under by the same order:
4. Whether the ITAT was right in law in holding that the assessee
is not a resident of India within the meaning of Section 6(3)(ii) of
the Income Tax Act, 1961 and whether the said finding of the
ITAT is not also vitiated and perverse as it ignores relevant
admissible evidence and materials and relies upon incorrect facts
and has not given due consideration to several important materials
and evidence relevant for determination of residence of the
assessee."
2.15 By the impugned common judgment and order, the High Court
has answered all the questions in favour of the Revenue and against the
assessees and consequently has allowed the appeals preferred by the
Revenue. The High Court in the impugned judgment and order has dealt
with and considered the following main issues and both the parties were
heard on the said issues.
1. Objection to the jurisdiction by the ACIT, Circle 7(1), New Delhi
who 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;
4. 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. Interest
By the impugned common judgment and order, the High Court has
summarised the conclusion in paragraph 91 as under:
(i)
The Assessees, incorporated under the company law of
Sikkim, are resident Indian companies. If any income
accrued to them or was earned by them in India prior to
1st April 1990, then such income is taxable under the Act.
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(ii)
The Revenue is justified in contending that the Assessees
not having raised such objection at the first available
opportunity should not be permitted to urge the ground of
lack of jurisdiction of the Delhi officers to issue notices to
them under Sections 147/148 of the Act.
(iii)
Mr. Rattan Gupta was not only doing the audit work of the
five Assessee companies, but determining who should be
the directors of the said companies. This coupled with the
fact that the blank signed cheque books of all the five
companies together with rubber seals, the letter heads, the
blank signed cheques and other records were also found in
the office of Rattan Gupta & Co., the factual determination
by the AO that the management and the control of the five
companies was actually wholly situated in Delhi gets
fortified. The exhaustive evidence gathered by the Revenue,
without being countered by the Assessees despite opportunity
being afforded, serves to substantiate the case of the
Revenue that the management and the control of the five
Assessee companies was in fact located in Delhi.
(iv)
The findings of the AO that the Assessees failed to prove
that the commission payments were earned by them
exclusively in Sikkim has not been dislodged by the
Assessees by producing any tangible material.
(v)
There was an implied authority of Mr. Rattan Gupta to
receive such notices even in terms of Section 252(2) of the
Act, read with Order V Rule 20 CPC. Consequently, the
Court is unable sustain the finding of the ITAT that notice
was not properly served on the Assessees through Rattan
Gupta & Co. There was no need for the Department to
have gone in for substituted service and the refusal by Rattan
Gupta & Co. to receive the notice was sufficient to consider
it as a deemed service of notice.
(vi)
The plea of the Assessees that the proceedings under Section
148 of the Act gets vitiated in the absence of a specific
order vesting the ACIT with the powers under Section 127
of the Act to issue notice under Section 148 of the Act is
rejected.
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
OF INCOME TAX, DELHI [M. R. SHAH, J.]
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(vii)
The plea of the Assessees that the notices under Section
142(1) and 143(2) of the Act were issued for the first time
in 1998 and were time barred is rejected.
(viii) On merits there were sufficient grounds for exercising the
power under Section 148 of the Act.
(ix)
The ITAT's conclusion that the interest under Sections 234
A and 234 B of the Act could not be charged since a specific
notice in that behalf was not issued by the AO is unsustainable
in law and is overruled."
Concluding as above, the High Court has accordingly answered
the questions framed in favour of the Revenue and against the assessees.
The impugned common judgment and order passed by the High Court is
the subject matter of present appeals.
Submissions:
3. Shri Arvind P Datar and Shri G. Umapathy, learned senior
counsel have appeared on behalf of the respective assessee companies
and Shri N. Venkataraman, learned Additional Solicitor General of India
has appeared on behalf of the Revenue.
3.1 Shri Arvind P Datar, learned senior counsel appearing on behalf
of the assessee companies has submitted that the issue involved in the
present appeals is, as to whether the provisions of Income Tax Act, 1961
shall be applicable to the assessee companies which are registered under
the Sikkim Companies Act and amenable to Sikkim Tax Manual, 1948 in
respect of three Assessment Years, i.e., 1987-88, 1988-89 and 1989-90
when Income Tax Act, 1961 was not extended to the State of Sikkim. It
is submitted that the further issue is, whether jurisdiction on the authorities
in Delhi can be conferred solely based on the alleged effective place of
control and management of the assessee companies for the purpose of
applicability of Income Tax Act, 1961.
3.2 Challenging the impugned judgment and order passed by the
High Court, Shri Arvind P Datar, learned senior counsel appearing on
behalf of the assessee companies has vehemently submittedthat the
impugned judgment is based on an erroneous assumption that the effective
control of the companies vested with one Mr. Rattan Gupta, a resident of
Delhi, who was rendering accounting and auditing services.
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3.3 It is submitted that the impugned judgment has erroneously
allowed the Department to levy interest on the assessee companies
without framing the issue as a specific question of law as mandated by
Section 260A of the Act.
3.4 In support of his submission that the Income Tax Act, 1961
shall not be applicable for the period during the relevant assessment years,
it is vehemently submitted by Shri Datar, learned senior counsel appearing
on behalf of the assessee companies that the Income Tax Act, 1961
came to be extended to the State of Sikkim only on and after 1st April,
1990. That therefore, the AO exceeded his jurisdiction.
3.5 It is contended that the assessee companies having been
assessed to tax under the Sikkim Manual, 1948 and having paid and
discharged income tax under the said law cannot be subjected to tax
once over again by applying the "head and brain" rule in the absence of
an express provision under the Income Tax Act, 1961, more so in view of
the well settled law that "a taxing statute should not be interpreted in
such a manner that its effect will be to cast a burden twice over for the
payment of tax on the taxpayers unless the language of the statute is so
compelling that the Court has no alternative than to accept it." That in a
case of reasonable doubt, the construction most beneficial to the taxpayer
is to be adopted.
3.6 It is further contended that as such the present case is squarely
covered by the decision of this Court in the case of Mahaveer Kumar
Jain v. CIT, Jaipur, reported in (2018) 6 SCC 527, wherein this Court
considered a question whether the appellant, who was a resident of
Rajasthan and had won a lottery from Sikkim during the Assessment
Year 1986-87 was liable to be taxed in India where Income Tax Act,
1961 was in force, notwithstanding that the said income had accrued or
arisen 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 been
taxed in the State of Sikkim under the Sikkim Manual, 1948. Reliance is
placed on certain observations made in paragraphs 13 to 15 of the said
decision.
3.7 It is next submitted that the assessee companies filed income
tax returns before the appropriate authority as per Sikkim Manual, 1948
and a demand was raised by the said authority, which was paid. That the
fact that the appropriate Income Tax Authority under the Sikkim Manual,
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
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1948 accepted the income tax returns filed by the assessee companies
and raised demand based on such returns establish the bona fides of the
assessee companies beyond reproach. Therefore, the allegation that the
assessee companies have no real business in Sikkim is absolutely baseless,
unfounded and untenable.
3.8 Making above submissions, it is urged that the Income Tax
Act, 1961 shall not be made applicableso far as the assessee companies
are concerned for the relevant assessment years.
3.9 It is further submitted that as such the ACIT, Delhi had no
territorial jurisdiction to assess the assessee companies and therefore
clearly exceeded in his jurisdiction in issuing notices under section 148 of
the Act on the assumption that the assessee companies were carrying on
business in India, on the basis of availability of books of accounts of the
assessee companies at the premises of the Chartered Accountant of the
assessee companies, i.e., M/s Rattan Gupta & Co. It is submitted that
such an approach is wholly untenable in law, besides being perverse.
3.10 It is further submitted that as observed and held by this Court
in the cases of Ajay Kumar v. State of Uttarakhand, 2021 SCC OnLine
SC 48 and Kiran Singh v. Chaman Paswan, AIR 1954 SC 340, an
order passed by the authority without jurisdiction is a nullity.
3.11 It is contended that the exercise of territorial jurisdiction by
CIT, Delhi is also wholly untenable in law in view of section 6(3) of the
Act as it was at the relevant point of time. That Mr. Rattan Gupta was a
practising Chartered Accountant and providing accounting and auditing
services to several corporates and individuals and could have never been
the "head and brain" behind the assessee companies.
3.12 It is further contended that even otherwise the re-assessment
was impermissible in law in the absence of any original orders passed
under section 143(3) of the Act. Reliance is placed on the decision of this
Court in the case of trustees of H.E.H, the Nizam's Supplemental
Family Trust v. CIT, reported in (2000) 3 SCC 501 (paragraphs 10
& 11). It is submitted that the said decision was subsequently followed
and affirmed by this Court in the case of Standard Chartered Finance
Limited 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 counsel
appearing on behalf of the assessee companies that as such there was
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no material to substantiate that the assessee companies' control and
management was situated wholly in India. That the High Court has
proceeded on an erroneous presumption that the assessee companies
were controlled by one Rattan Gupta, who was rendering accounting
and auditing services, simply because books of accounts had been found
in his office. It is submitted that no evidence was produced to the effect
that he ever appointed any person as the Director of the assessee
companies or dictated the manner in which such Directors were to
discharge duties towards assessee companies. That the finding of the
High Court that the control over management vested with Rattan Gupta
and therefore the assessee companies were situated in India, is therefore
wholly untenable and consequently to draw such presumption is legally
unsustainable.
3.14 It is further submitted that there was no cogent material at
the time of issuance of notices under section 148 of the Act to form a
belief that income was chargeable under the Income Tax Act, 1961 and
that the burden to prove that the control and management of assessee
companies was situated wholly in India lie with the Department. That
the law is well settled that the onus was on the Revenue, which has not
been discharged. That on the contrary the High Court has erred in shifting
the onus on the assessee companies to prove that they had legitimate
business interest and income arising from the State of Sikkim.
3.15 It is contended that the impugned order is based solely on an
erroneous supposition that Mr. Rattan Gupta was in control of the
management of the assessee companies. That as such until the
Assessment Years 1988-89, the audit and accounts of the assessee
companies were being handled by one Ravinder Singh & Co. That the
High Court has committed an error in treating the said Ravinder Singh to
be 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 fact
and therefore the impugned judgment deserves to be set aside by this
Court.
3.16. Shri Datar further submitted that in the absence of framing
of any substantial question of law under Section 260A of the Act on levy
of interest, the liability of interest could not have been fastened upon the
assessee companies. That section 260A of the Income Tax Act is
analogous to Section 100 CPC which mandates framing of question of
law before exercising its jurisdiction on the said issue. It is submitted that
MANSAROVAR COMMERCIAL PVT. LTD. v. COMMISSIONER
OF INCOME TAX, DELHI [M. R. SHAH, J.]
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as such no issue of levy of interest was framed by the High Court. That
therefore the High Court has committed a jurisdictional error in recording
a finding that ITAT's conclusion that interest under section 234 A & B of
the Act could not be charged since a specific notice in that behalf was
not issued by the Assessing Officer, is unsustainable in law.
3.17 In addition, it is submitted on the aspect on territorial jurisdiction
of the authorities at Delhi that the assessee companies were having their
registered offices in Sikkim. Therefore, the issuance of notices under
Section 148 of the Act is beyond jurisdiction. That on the issue of territorial
jurisdiction, the ITAT found that since the business premises of the
assessees were in Sikkim, the territorial jurisdiction to assess vested with
the ACIT, Gangtok. Therefore, the ITAT rightly held that the ACIT Delhi
who issued notices under section 148 of the Act had no territorial
jurisdiction. That the proper course for the Department was to have the
matter entrusted to ACIT, Gangtok after complying with the mandate of
section 127 of the Act for transferring jurisdiction of ACIT, Gangtok to
New Delhi. It is submitted that though the Revenue in its appearance
before the High Court raised a question of law on the finding recorded
by the ITAT on territorial jurisdiction of the authorities at Delhi, while
framing question(s) of law, the High Court did not frame an issue with
regard to territorial jurisdiction. Thus, the finding with regard to lack of
territorial jurisdiction by ITAT had attained finality.
3.18 Insofar as the levy of interest is concerned, it is submitted
that the ITAT specifically observed that no direction was made by the
AO for levy of interest. Therefore relying upon the decision of this Court
in the case of CIT v. Ranchi Club Limited, (2001) 247 ITR 209 taking
the view that levy of interest was under Section 234A, B & C of the Act,
without a direction by the AO in the assessment order is not legally
sustainable. It is further submitted that the High Court, while upsetting
the finding recorded by the ITAT on levy of interest, has erred in relying
upon the decisions of this Court in the cases of Commissioner of Income
Tax, Mumbai v. Anjum M.H. Ghaswala, (2002) 1 SCC 633 and
Commissioner of Income Tax, Delhi v. Bhagat Construction
Company Private Limited, (2016) 15 SCC 738.
3.19 Shri Datar, learned senior counsel appearing on behalf of the
assessee companies contended that as such there was no notice served
upon the proper person and the notice served upon Rattan Gupta cannot
be said to be a valid service of notice. That under section 2(35)(b) of the
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Act, the Assessing Officer is required to serve a notice only on persons
who are connected with the management or administration of the
assessee companyto treat them as Principal Officer. That Rattan Gupta
was never connected with the management or administration of the
assessee companies so as to treat him as a Principal Officer.