Summary
Five Sikkim-registered companies claimed to earn commission on cardamom sales in Sikkim before the Income Tax Act, 1961 was extended there, and paid tax under the Sikkim State Income-tax Manual, 1948. A search at their Delhi chartered accountant's office found their books, blank signed cheques, seals and letterheads. The Tribunal held the Delhi officer lacked jurisdiction to reassess 1987-88 to 1989-90, but the Delhi High Court restored the assessments. The Supreme Court dismissed the appeals: under Section 6(3) residence turns on where de facto control and management abides, not on registration; the burden to prove income accrued in Sikkim lay on the assessees; a first assessment may be made under Section 147; and interest under Section 234A is mandatory and needs no separate direction.
Issues
- Whether companies incorporated in Sikkim whose de facto control and management was exercised by a chartered accountant from Delhi were resident in India under Section 6(3) of the Income Tax Act, 1961 and taxable on income for years before the Act was extended to Sikkim.
- Whether the Delhi Assessing Officer had jurisdiction and whether notices under Section 148 served on the chartered accountant were valid.
- Whether reassessment under Sections 147 and 148 is permissible where no original assessment was made.
- Whether interest under Section 234A can be charged without a specific direction in the assessment order and whether the High Court could decide it without framing a substantial question of law.
Provisions considered
- Section 6(3) (as it stood before 1 April 2017), Income Tax Act, 1961A company is resident in India if the control and management of its affairs is situated wholly in India; the test is where the head and seat and directing power actually abides, de facto and not merely de jure, and domicile or registration is irrelevant. On the concurrent findings the control and management of the five companies was with the chartered accountant in Delhi. (¶¶ 7, 7.1, 8, 9)
- Article 371-F(k) and (n), Constitution of IndiaLaws in force in Sikkim continued until the Income Tax Act, 1961 was extended by notification; by Section 26 of the Finance Act, 1989 the Act applied to Sikkim from the previous year relevant to assessment year 1990-91, so for the earlier years the question was whether the income accrued in India to resident companies. (¶¶ 2.1, 2.2, 2.3)
- Sections 147 and 148, Income Tax Act, 1961Escaped assessment includes non-assessment as well as under-assessment, so an assessment may be made for the first time under Section 147 as held in Sun Engineering Works; notices served on the person in control and management were valid and the Delhi officer had jurisdiction. (¶¶ 9, 11)
- Section 2(35) (principal officer), Income Tax Act, 1961Service of notice on the chartered accountant who was in de facto control of the companies was valid service on the principal officer; in any event the assessees' authorised representative appeared before the Assessing Officer and accepted that the notices had been issued. (¶¶ 6, 9)
- Section 234A, Income Tax Act, 1961Interest for default in furnishing the return is statutory, mandatory and automatic under Anjum M.H. Ghaswala; levy as per the working in form ITNS 150 forming part of the assessment order suffices, and Ranchi Club is not good law. (¶¶ 12, 12.1)
- Section 260A, Income Tax Act, 1961Absence of a separately framed substantial question of law on interest did not vitiate the High Court's decision since both sides argued it, the issue was incidental or collateral, and after Ghaswala it is not a question of law. (¶ 13)
Held
- The control and management of a company's affairs under Section 6(3) means the de facto controlling and directing power actually exercised, not theoretical or de jure power; registration or domicile of the company is not relevant and the determinative test is where the sole right to manage and control lies. On the findings that the chartered accountant determined who the directors were, that all books, blank signed cheques, seals and letterheads were in his Delhi office, and that the persons said to manage the business in Sikkim were never produced, the companies were controlled and managed from Delhi, notices served on him were valid and the Delhi Assessing Officer had jurisdiction. (¶¶ 7, 8, 9)
- Where the assessees asserted that their commission income was earned in Sikkim and summons under Section 131 to the alleged payers went unanswered, the burden to prove the assertion lay on the assessees; the Tribunal erred in shifting it to the Revenue. The claim that the income was earned in Sikkim was a mala fide attempt to evade tax under the 1961 Act. (¶ 10)
- The absence of an original assessment does not bar proceedings under Sections 147 and 148, since escaped assessment includes non-assessment. (¶ 11)
- Interest under Section 234A is statutory, mandatory and automatic; its levy as per form ITNS 150 forming part of the assessment order is sufficient even without a specific direction, and the High Court could decide the point though no separate substantial question of law was framed. (¶¶ 12, 12.1, 13)
Result
Appeals dismissed; Delhi High Court common judgment dated 22.02.2016 restoring the assessment orders for assessment years 1987-88 to 1989-90 and upholding the levy of interest affirmed; no costs.