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Commr. of Income Tax-Delhi Versus Mansarovar Commercial P. Ltd., Sovereign Commercial P. Ltd, Swastik Commercial P. Ltd, Trishul Commercial P. Ltd, Pasupati Nath Commercial P. Ltd

2016 (2) TMI 671 - DELHI HIGH COURT

Resident Indian companies - extension of laws of India to the new State of Sikkim - whether the Assessee is a resident of India within the meaning of Section 6(3) (ii) of the Act? - Held that:- 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. - Decided against assessee

Reopening of assessment - authority to receive .....

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s 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, .....

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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.

The plea of the Assessees that the proceedings under Section 148 of the Act gets vitiated in the absence of a specific orde .....

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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. - ITA 162/2002, ITA 164/2002, ITA 165/2002, ITA 167/2002, ITA 168/2002 - Dated:- 22-2-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr. Kamal Sawhney, Senior Standing Counsel, Mr. Raghvendra Singh, Junior Standing Counsel and Mr. Shikhar Garg & Mr. Sharad Agarwal, Advocates For the Respondent : Mr. C.S. Aggarwal, Senior Advocate .....

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d (SCPL) (the Respondent in ITA No. 164 of 2002), Swastik Commercial Private Limited (SWCPL) (the Respondent in ITA No. 165 of 2002), Trishul Commercial Private Limited (TCPL) (the Respondent in ITA No. 167 of 2002) and Pasupati Nath Commercial Private Limited (PNCPL) ((the Respondent ITA No. 168 of 2002) are companies incorporated under the Registration of Companies (Sikkim) Act, 1961. Each of the Assessee companies claims to be carrying on the business of commercial agents in cardamom and othe .....

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itories 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 Act was not made straightaway 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 (Sikkim Manual 1948). The recovery of tax was under the scheme of th .....

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force in the State of Sikkim in relation to the previous year relevant to the AY 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 AY 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. 5. The case of the Assessees is that each o .....

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mp; Company, Chartered Accountants (CAs), 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. Search 7. A search was conducted on 15th March 1990 at the premises of M/s Rattan Gupta & Co. Chartered Accountant ( CA ) at Daryaganj, New Delhi and during the course of the search books of account, check books, signed blank cheques, vouchers and other income documents of the Assessees, were found. The statements of M .....

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respect of the M/s Rattan Gupta & Co. under Section 132 (5) of the Act. Mr. Rattan Gupta informed the Assessees that the aforementioned notice under Section 148 of the Act had been issued to each of them at the address of M/s. Rattan Gupta & Co. at Daryaganj and had been affixed at the said premises of M/s. Rattan Gupta & Co. 9. Meanwhile, each of the Assessees filed returns of income in terms of the Sikkim Manual, 1948 for the three AYs in question on 27th April 1990. A demand notic .....

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epartment') 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 file returns and produce the books of accounts before the Assessing Officer ( AO ), New Delhi in compliance of the notices under Section 148 of the Act. 11. Ultimately, on 20th July 1993, by the decision in Mansarover Commercial Pvt. Ltd. (1994) 209 ITR 716 (Sikkim), the Sikkim Hi .....

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d that mere fact that the companies have registered offices in Sikkim does not confer jurisdiction on this Court . 12. In the meanwhile, on the basis of the returns filed by the Assessees in Sikkim, the Income & Sales Tax Department of Government of Sikkim raised a revised demand on 30th November 1990, cancelling the earlier demand raised on 30th July 1990. Writ petitions in this Court 13. Consequent upon the dismissal of their writ petitions by the Sikkim High Court on 20th July 1993, the A .....

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essment orders 14. Following this, on 24th August 1998, notices were issued to the Assessee companies under Section 143 of the Act by the ACIT, Company Circle 2 (2), requiring the Assessee to appear in the office of the ACIT on 7th September 1998. This was in respect of the AY 1987-88. Similar notices were issued in respect of each of the other two AYs i.e. 1988-89 and 1989-90. 15. On 9th October 1998, separate assessment orders were passed by the ACIT, Company Circle 2 (2), New Delhi for each o .....

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CT) (iii) interest accrued/paid on the unsecured loans and (iv) provision for income tax (which was disallowed). Separate penalty proceedings were initiated under Section 271(1)(a), 271(1)(c), 273/274 and 271-B of the Act. 16. The Assessees then filed appeals before the Commissioner of Income Tax (Appeals) [CIT (A)]. Subsequently on 8th December 2000, the writ petitions filed by the Assessee were dismissed by the High Court by the following order: "Heard counsel for the parties. Petitioner .....

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if any, before the Appellate Authority. In view of the above position we dispose of the writ petition. Interim order stand vacated. Dasti." Order of the CIT (A) 17. The conclusions of the CIT (A) in the orders dated 30th March 2001 dismissing the Assessees' appeals were as under: (a) The Assessees failed to furnish information to substantiate that the persons who claimed to have given huge amounts of commissions were genuine parties or that the basis of earning commission is genuine or .....

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mmission had not been responded to by any of them. The Assessees also did not produce any worthwhile evidence to prove the genuineness of the commission received. (e) The complete books of accounts of each of the Assessee companies was found in the office of their CA at New Delhi. It was admitted, in the statements recorded, that the head and brain of each the companies was in India. (f) The Assessees were unable to produce the present Directors or furnish the name and address of all the Directo .....

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ad no idea about the business in which the five Assessees companies were involved. He claimed that he never gone to Sikkim and yet asserted that books of the companies were present at the Gangtok registered office. His evidence did not inspire confidence. (i) It appeared that the amount alleged to be earned in Sikkim had factually surfaced in India and invested in closely held companies of Dalmia Group in India . The Assessee did not produce any evidence to substantiate its case that the commiss .....

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e sums paid by the Assessees on account of the State income tax. Impugned order of the ITAT 19. The Appeals by the Assessees against the orders of the CIT(A) were dismissed by the ITAT which came to the following conclusion in the impugned order: (i) The burden was on the Revenue to prove that the control and management of the Assessee companies was situated wholly in India in the three AYs in question. At the time the AO proposed to issue notice under Section 148 of the Act, there was no cogent .....

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he said place was the business premises of the assessee company from where it was carrying on any business. Further, apart from the statement of Mr. Ratan Gupta, the other statements and certain other documents relied on were not confronted to the Assessee for rebuttal and hence could not be considered. (iii) The CIT (A) erred in proceeding on the basis that the Assessees could not challenge the notices under Section 148 of the Act on the ground of non- existence of reasons to believe since the .....

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e without being satisfied that such person had the legal authority to accept the notice. Neither the statement of Mr. Rattan Gupta, nor the fact that the books of accounts and papers pertaining to the Assessees were found at his office established that he was a principal officer of the Assessees within the meaning of Section 2 (35) (a) of the Act. The AO did not serve an notice of his intention of treating Mr. Rattan Gupta as the principal officer for the purposes of Section 2(35)(b). The AO als .....

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t the addressee "in the present case, the appellant, was to be found at the said address." Therefore, if Mr. Rattan Gupta refused to receive such a notice, he was justified in doing so and his refusal did not authorize the AO to resort to substituted service within the meaning of Rule 20 of the Order V of CPC. (vi) On the question of whether the income could be deemed to accrue or arise in India, it was held that from the perusal of the reasons recorded and noted, there was no such mat .....

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ould transfer to Sikkim. (vii) On the existence of commission agents, in response to the Revenue s contention that none responded to the AO s letters, the ITAT observed that since no adverse material had been brought on record, the ACIT could not have proceeded to draw adverse inference, as the burden was heavy on the Revenue. (viii) Therefore, the notices under Section 148 of the Act were not validly served on the Assessees. The AO, therefore, did not acquire any jurisdiction under Section 148 .....

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ith the AO. There was thus prima facie proof of the loan and the existence and capacity of the lender and the addition was liable to be deleted. (x) On the question of the interest claimed in relation to the above mentioned loan, as a consequence of the finding that the credit of loan from the aforesaid trust was genuine, the disallowance could not be sustained and was deleted. Questions of law 20. On 21st September 2004, while admitting these appeals, the Court framed the following questions of .....

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y 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 Are the Assessees re .....

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sees was incorporated under the Registration of Companies Act, Sikkim 1961, none of them was an Indian company and therefore the applicability of Section 6 (3) (i) of the Act did not arise. It is in this context, the question arises whether their management and control was wholly situated in India. 24. In the decision in the Assessees petitions the Sikkim High Court analysed Article 371 F (k) and (n) of the Constitution of India and concluded that: The combined effect of both these clauses on th .....

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t of India to which part the Central law did not apply. But the Sikkim law being a State law cannot have extra-territorial operation so as to apply to incomes earned outside Sikkim. So, the only effect of the special provisions contained in Article 371F is that so long as the Indian Income-tax Act did not become applicable to Sikkim, the 1961 Act could not apply to incomes earned in Sikkim, but in respect of the incomes earned in other parts of India where the 1961 Act was in force, the Sikkim l .....

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7th November 1988 and 28th February 1989, and later by Section 26 of the Finance Act 1989 make it applicable with effect from AY 1990-91 may notbe relevant as far as the present case is concerned. Here, we are concerned with three AYs i.e., 1987-88, 1988-89 and 1989-90 during which period the Act did not apply to income earned and accrued in Sikkim. Therefore, as far as AYs 1987-88, 1988-89 and 1989-90 are concerned, the relevant question would be whether for the purposes of Section 6 (3) (ii) .....

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tainable in law. The case concerning Alankar Commercial Pvt. Ltd. 27. There was another company, Alankar Commercial Pvt. Ltd. ( ACPL ), in respect of which proceedings under Section 148 were initiated by the Revenue and which company was also incorporated in Sikkim. In the case of ACPL also, the notices were served at the address of Rattan Gupta & Co. and refused, on the ground that no office of ACPL was running from the said address i.e. 4556/4, Ansari Road, Daryaganj. Challenging the said .....

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PL at Gangtok. The High Court of Sikkim made a reference to a letter dated 7th April 1994 addressed on behalf of the ACPL by its Advocate Mr. T.P. Thapa to the ACIT, New Delhi in which inter alia it was stated that notice under Section 142(1) of the Act had been received by ACPL through Rattan Gupta &Co. The High Court of Sikkim declined to draw an inference from the above letter that Rattan Gupta was authorized to receive notice on behalf of the ACPL. It was factually determined that: There .....

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a company on its principal officer . Since the notice was served only in Gangtok it was held that the part of cause of action did arise within the territorial jurisdiction of the Sikkim High Court and it had jurisdiction to entertain the petition. 28. In Alankar Commercial Pvt. Ltd. v. Assistant Commissioner of Income Tax (supra) the High Court held that the jurisdiction of the ACIT, Delhi to issue notice under Section 148 of the Act was not ousted by Article 371 F of the Constitution of India .....

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had carried on its business activities or had received income outside Sikkim but within India, the same would be liable to tax under the Act. 29. The third question that was addressed by the Sikkim High Court in Alankar Commercial Pvt. Ltd. v. Assistant Commissioner of Income Tax (supra) was whether it was open to the High Court to exercise jurisdiction under Article 226 of the Constitution of India to determine whether the ACIT had rightly formed reason to believe for the purposes of Section 14 .....

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ad and brain of the company was situated in Delhi . It was also found that no office existed in fact at Sikkim. There was only a signboard at the address and the office remained mostly locked. Consequently the notice issued under Section 148 of the Act was not interfered with. 30. The above decision of the High Court of Sikkim was upheld by the Supreme Court in Alankar Commercial Pvt. Ltd. v. ACIT (2000) 244 ITR 31(SC). In a short order, the Supreme Court held as under: "It is contended tha .....

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tion of applicability of the Income-tax Act did not arise in that case, therefore, the said decision has no relevance. The Indian Income-tax Act, inter alia, taxes income which accrues or arises in India. It is immaterial whether the petitioner company has its head office in Sikkim or may be carrying on business activities there. The impugned notice under section 148 of the Income-tax Act has been issued in relation to the income which is stated to have arisen in India and this can be done even .....

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the Sikkim State Manual 1948 stood repealed on 1st April 1990. 32. To summarize the legal position as far as the applicability of the Act was concerned: (i) even though a company may have been incorporated under the Companies Act of Sikkim, in the period prior to 1st April 1989, if it earned any income outside Sikkim but within India, the Income Tax Act 1961 would apply to such income (ii) the jurisdiction of the Indian income tax authorities would not get excluded as long as what is sought to b .....

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r the purposes of Section 6 (3) (ii) of the Act arose in the light of the categorical finding of the AO in the assessment orders dated 9th October 1998 for all three AYs 1987-88, 1988-89 and 1989-90 that although the Assessees had been registered in Sikkim and had been subject to tax in Sikkim but most of factors so emanated later proved that the total management and control lies in India is liable to be taxed in India under Section 6 (3) (ii) of the Act . 35. This finding was relevant for deter .....

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ome Tax, West Bengal alone would have jurisdiction. 36. A notification was issued on 30th March 1998, by the Central Board of Direct Taxes ( CBDT ), whereby in respect of the territorial area of the State of Sikkim, it was notified that the Chief Commissioner, Calcutta having office at Calcutta would have jurisdiction with effect from 1st April 1989. By notification dated 19th May 1989, the Chief Commissioner (Administration) notified that the jurisdiction over Chief Commissioner, Circle-1, Gang .....

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ve control over the ACIT, Circle-1, Gangtok, no order could have been passed on 8th July 1993 by the CIT, Delhi-1 under Section 127 of the Act, transferring the case of the Assessees to the ACIT, ICC-4, New Delhi. For the same reason, it is contended that even the subsequent order dated 7th August 1996 under Section 127 of the Act by the CIT, Circle-1, New Delhi transferring the case from ACIT ICC-4 to the ACIT Circle 7(1) could not have been issued. A further point urged is that although the no .....

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dur Seth Teomal v. CIT 36 ITR 9 (SC) and Industrial Trust Ltd. v. CIT [1973] 91 ITR 550 (SC). It is contended that the Assessees have been challenging the jurisdiction of the ACIT, Investigation Circle 7(1), New Delhi and also of ACIT, Central Circle - 4, New Delhi. 38. An objection is raised by learned counsel for the Revenue to the Court permitting the Assessees to urge the above pleas on the ground that Section 124 (3) of the Act constituted a bar inasmuch as such objection was not raised at .....

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ility of the Act. It is stated that the Assessees also had a right of appeal under Section 246 of the Act which he failed to exercise. On this aspect it is further submitted that this was only an irregularity at the highest and the ITAT ought to have remanded the matter and not set aside the assessments. Reliance is placed on the decisions in CIT v. SS Ahluwalia [2014] 46 Taxmann.com 169 (Delhi); Kanji Mai & Sons v. CIT, [1982] 138 ITR 391 (Delhi) and Hindustan Transport Co. v. Inspecting As .....

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bjection on the grounds of jurisdiction was prior to the completion of the assessment. It was held: "As provided in Section 124(5)(a), the right is lost as soon as the assessment has been completed. Even where the right is exercised before the assessment is completed, the question is to be decided by the Commissioner or by the Board. Courts do not come into the picture." 40. The decision in Pannalal Binjraj v. Union of India (supra) holds that the principles of natural justice must be .....

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es 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. 41. Nevertheless the Court proposes to examine if the management and control of the Assessee companies could be said to be situated wholly in New Delhi. This question also becomes relevant to the issue concerning service of notice on the Assessees in terms of Section 148 read wit .....

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d in the premises, Mr. Gupta sought to explain as under: We are rendering professional services to these companies. These records were in our office premises in connection with the professional services. The professional services which we render are finalization of accounts, reconciliation of bank accounts, reconciliation with various parties accounts, company law formalities etc. . 43. Mr. Rattan Gupta stated that the professional work for the Assessees was taken up by Rattan Gupta & Co. so .....

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office and handover the papers sometime he sent by the courier/post also . However, he claimed not to know the whereabouts of Mr. Verma for the last one year. When asked how he was doing the work of reconciliation of the accounts of the five Assessee companies, Mr. Rattan Gupta stated: There is hardly any transaction in the above 5 companies namely Pashupatinath, Swastik, Trishul, Sovereign and Mansarover during the last one year or even more than one year. Mr. H.L. Verma had handed over the ent .....

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k was performed by them in their capacity as Directors, Mr. Rattan Gupta categorically stated that These persons became directors on my asking and there was no work performed by these persons except signing papers etc. When asked what kind of papers were signed by them, he mentioned papers relating to bank accounts and copies of resolution and statement of accounts . 46. Mr. Rattan Gupta did not deny that Mr Rajeev Jain resigned at his instance. Instead he stated that he discussed with Rajeev Ja .....

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wering the subsequent question, he stated that he was not involved in the appointment of Directors in World Growth Fund Ltd.(Sikkim based company) However, in other companies the persons have been become directors at my instance . 47. When asked whether he was taking these decisions independently or whether someone else directed him, Mr Rattan Gupta stated: I was taking decision in my professional capacity only. Sometime I have taken advise from Dalmia Bros. Pvt. Ltd. I am talking about National .....

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pta stated: The Directors of the company after discussing with me appointed the brokers for the sale of shares . When asked whether there was any employer or director based in Sikkim in respect of the other four Sikkim companies, i.e., Nova Investment Pvt. Ltd., Lovely Investment Pvt. Ltd., Altar Investment Pvt. Ltd and Illac Investment Pvt. Ltd. (which were also part of the Dalmia Group of Companies), Mr. Gupta stated: There is no employer/director based in Sikkim . He was again asked why Dalmi .....

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"Q5. From statement of some directors recorded u/s 131, the directors who are in these 5 companies, named in Q1, it is clear, that you appointed them and it is only at your behest that they sign any papers or documents. They are directors only for name sake. Is this correct? A5. Yes, as far as the business conducted by these companies is concerned. Q6. You have also stated in your earlier statement of 24/4/90 that you are rendering professional services comprising of finalization of accoun .....

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Sikkim as the vouchers like shows which were given to us for the finalization of accounts, the amount of commission were received and deposited in Sikkim and then transferred to Delhi for utilization and investment etc. 50. The question then turned to Mr. H.L. Verma, and he claimed that Mr. Verma used to come frequently and that he met him many times upto April/May 1989 and not thereafter. It was Mr. Verma who was looking after the company in Sikkim. According to him, the papers, documents, cheq .....

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d not have acted merely as an Auditor, giving professional advice to the five Assessees. Clearly his own employees were appointed as Directors of the companies. The four names, he subsequently mentioned are Mr. S.P. Sethi, Mr. Vijay Goswami, Mr. Rajesh Goswami and Mr. Vedant Mehta. The explanation for the signed cheque books, the rubber seals of the companies and their letter-heads being available in his office is also not convincing. He seeks to shift the entire responsibility for the handing o .....

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fact that the books of accounts, the signed blank cheques of the accounts of the five Assessees companies with banks in Gangtok and their letterheads being found in his office, the conclusion drawn by the AO as regards the precise role of Mr. Rattan Gupta as being in de facto control of the five Assessees appears to be correct. Statement of Ravinder Singh 53. Turning to the statement of Mr. Ravinder Singh, recorded on 30th April 1990, he admits to having been present during the incorporation of .....

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. Dengzong Charitable Trust ( DCT ) and the second from trading commission. According to him, till September 1986 monies were coming Gangtok to Delhi via telegraphic transfer and later on it came in the shape of drafts . As far as loan obtained from DCT, according to him, no security was furnished for procuring the loan. 54. According to Mr. Ravinder Singh, the trading business for the five companies was done by Mr. H.L. Verma, who was not an employee but the Manager of DCT. He was then confront .....

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urred. According to him Mr. Anurag Dalmia represented the principal shareholders of these companies. The other shareholders were companies which were either Sikkim Companies or which had became subsidiaries of Sikkim companies . He claimed that he did not come to in contact with anybody except Mr. Anurag Dalmia on behalf of these companies . 55. As regards the telegraphic transfer or transfer of monies through drafts, Mr. Ravinder Singh explained: Sir, the drafts were sent from Sikkim by Shri Hi .....

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Shammi . 56. In response to two other questions, Mr. Ravinder Singh stated as under: Q 22. As, I understand, all the decision in respect of investment of the money of the 5 companies registered in Sikkim when you were the Managing Director, were taken by Shri Anurag Dalmia and introduce by you. On the basis of the answers given by you, is this a facts? Ans. There was no managing director in the companies. I was only a director responsible to the shareholders. It is a fact that from May 86 onward .....

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that sometimes Shri Uma Shankar Sitani used to be present during and at the time of my meetings with Shri Anurag Dalmia. 57. Two persons he identified as having handled the business and supervised it are Mr. H. L. Verma and Mr. Uma Shankar Sitani. Significantly, neither of these persons were produced by the Assessees for their statements to be recorded. Other statements 58. In his statement, Mr. R.K. Goswami, who was Director of SCPL, inter alia, stated As per advised by Mr. Rattan Gupta I becom .....

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ept signing documents and that he did this only on asking Mr. Rattan Gupta. 60. The statement of Mr. Rajiv Jain who was another partner of Mr. Rattan Gupta & Co. became Director of SCPL, TCPL, PCPL and MCPL. He clearly stated I agreed to become a director on a request of Mr. Rattan Gupta, my senior partner and no work was performed by me in these companies except signing some papers on different occasions . 'Control and Management' 61. The earliest formulation of the 'control and .....

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onds from its mines to a syndicate of diamond merchants of London. The contracts of sale, which were annual contracts dealing with a year s output, were executed in London. The control of the company was vested in three life governors and sixteen ordinary directors, of whom four had to reside in England. The majority of the directors was always in London. The chairman and six ordinary directors resided in the Cape Colony. Meetings of the directors were held weekly in Kimberley and London with an .....

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the affairs of the Appellant Company were at the office in London from whence the chief operations of the Company, both the UK and elsewhere, were in fact, controlled, managed and directed, it was held by the House of Lords that the company was resident in the UK. The control and management test was laid down as under: The real business is carried on where the central management and control actually abides. This is a pure question of fact to be determined, not according to the construction of t .....

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olly independent of any other directors and board of the company and of general meetings of the company (not being general meetings held in Egypt), and in no way under the control thereof. Holding that the business was carried on in the U.K., it was observed: "A trade or business cannot be said to be wholly carried on abroad if it be under the control and management of persons resident in the United Kingdom, although such persons act wholly through agents and messengers resident abroad. Whe .....

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t. The Appellant was a karta of an HUF and permanently lived in Colombo, with the family domiciled in Ceylon. In the relevant PY he visited India for 101 days to participate in a litigation and certain income tax proceedings in relation to certain properties he owned in India. The question was whether the HUF could be taxed as a resident of India? It was noted that no material evidence was produced to prove the existence of more than one centre of control for the affairs of the family It was hel .....

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house and do business in more than one place, and, if so, it may have more than one residence. (4) In case of dual residence, it is necessary to show that the company performs some of the vital organic functions incidental to its existence as such in both the places, so that in fact there are two centres of management. 64. To the same effect is the decision in Narottam and Pereira Ltd. v. CIT [1953] 23 ITR 454 (Bom) where the Assessee was carrying on the business of stevedoring in Ceylon. It was .....

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India and yet its control and management may be wholly within India. It was further clarified that the control and management contemplated by this sub-section was not the carrying on of day to day business by servants, employees or agents. It was held that: "A company or for the matter of that a firm or an undivided Hindu family has got to work through servants and agents, but it is not the servants and agents that constitute the seat of power or the controlling and directing power. It is .....

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ible to contend that because there are authorised agents doing the business of the company at six different places outside India, therefore the company is resident not only in Bombay but at all these six different places...In order to determine the head and brain of the company we are not to concern ourselves with any other work that the company does except its business which yields profits, and in this particular case we have got to consider where the head and brain of the company is with regar .....

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ourse of the conduct and management of the affairs of the firm. In the context of Section 4A(b) of the Indian Income-tax Act, 1922, it was observed that what would constitute 'control and management' was a mixed question of fact and law. It was observed: The control and management must no doubt be shown to have been actually exercised; and the exercise of the control and management should not be illusory or merely notional. Once it is shown that control and management in the affairs of t .....

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f directors are held within India, it may be said that the central control and management is situated here. The direction, management and control the head and seat and directing power of a company's affairs is, therefore, situate at the place where the directors' meetings are held and, consequently, a non-Indian company, would be a resident in this country if the meetings of the directors who manage and control the business are held here. The word affairs means affairs which are relevant .....

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rk 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. 69. An attempt w .....

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nd control of the five Assessee companies wholly located in Delhi. It is extremely unusual that the seals and the signed blank cheque books of the companies would be lying with their CA who was entrusted with the professional work of auditing of the accounts. 70. The above facts have also to be appreciated in the context of the Assessees filing their returns for AYs 1987 to 1990 only in 1990. Despite detailed information being sought under Sections 142(1) and 143(2), no information was provided .....

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inding of the AO, which was confirmed by the CIT(A). The above 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. The finding by the ITAT in this regard is plainly perverse and unsustainable in law. Jurisdiction of the ACIT 72. Once it is held that the management and control of the As .....

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stion arises for determination is the jurisdiction of the income tax authority under Section 127 of the Act to transfer the cases from one jurisdiction to the other. In the first place, it is required to be noticed that in the light of the findings of this Court that the management and control of the five Assessee companies was wholly in the office of Ratan Gupta & Co. at his office in Ansari Road, New Delhi, the conclusion is that all the five Assessee companies answered the description of .....

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ucing any tangible material. 75. In support of their plea that they had proved that they earned their income exclusively in Sikkim, the Assessees seek to rely on the fact that they produced the relevant copies of bills and vouchers from the commission agents and the receipt of money from its agents at Sikkim in its bank accounts. It is further submitted that all the agents were identified. The assessments had been made under Sikkim Income Tax Manual whereby the demand originally raised was cance .....

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as they were on preponderance of probabilities, were not able to be explained away by the ITAT. The Revenue's contention that the rate of commission claimed to have been paid was unrealistic and beyond human probabilities. Further no employees existed in Sikkim. The P&L account of the Assessees showed no expenditure corresponding to the carrying on of the business of trading in cardamom. The Assessees indeed failed to provide details and justification regarding the accrual of income exc .....

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e Assessees or earned by them in India, cannot be accepted in the absence of any tangible material produced before the AO by the Assessees to substantiate such plea. The finding by the ITAT in this regard is contrary to the record and is based on surmises and unsustainable in law. Service of notice 78. This then brings up a question whether the notices were rightly served on the Assessees by tendering them at the address of Ratan Gupta & Co. at Ansari Road, Daryaganj. A reference has been ma .....

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who deals not only with things, as does a servant, but with persons, using his own discretion as to means, and frequently establishing contractual relations between his principal and third persons . This is inconsistent with the definition of agent under the Contract Act, 1872 as well. 79. In the instant case, that the facts that Rattan Gupta & Co. did not merely render professional services but had a vital say in the control and management of the five Assessee companies. This has been more .....

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ble High Court of Delhi, Notices u/s 143(2) , u/s 142(1) along with questionnaire were issued at the following addresses: (i) Dorjee Building, Nam Nang Road, Gangtok 737101 (Sikkim). (ii) Sh. U.P. Kama - H No 24, Tyagi Vihar, Nangloi, New Delhi-l 10041 (present Director) Notices u/s 143 (2) and 142(1) along with questionnaire were received unserved by the postal department with the remarks "left without information" for Dorjee Building and "No such person exists" from Shri U .....

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om raising this issue. However, the ITAT proceeded on the basis that Rattan Gupta could not have been served notices, because he was not authorized to receive notices. 82. The submission of the Revenue is that there was valid service of notice in terms of Section 282 since Mr. Rattan Gupta was the principal officer of the Assessees in terms of Section 282 (2) (c) read with Section 2 (35). The evidence brought on record bear out the submission of the Revenue that As long as Rattan Gupta is the pr .....

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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. The finding by the ITAT in this regard is contrary to the evidence on record and is unsustainable in law. Juris .....

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these companies could not have been ordered by the CIT, New Delhi, requires to be rejected. 86. The only further question that arises is whether CIT, New Delhi was required to pass specific order, placing the ACIT, Circle 7(10) with jurisdiction to issue notice under Section 282 of the Act, considering that jurisdiction in respect of the Daryaganj area was with the ACIT, Circle 13. The further question was whether the ACIT, who issued the notice i.e.ACIT-7 (10) had to himself pass the assessmen .....

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the assessment. Limitation for issuance of notice under Section 147 87. It was urged on behalf 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. It is submitted that the notice under Section 143(2) of the Act had to be issued within a period of twelve months from the end of the month in which return was filed. In this case return was filed on 17th February 1992 whereas the notice under Section 143 (2) was is .....

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ught not to have been permitted by it. This objection finds support in the decisions in CIT v Indovax (2014) 220 Taxman 164 (Delhi) and CIT v Sushil Modi (2003) 130 Taxman 286 (Delhi). Even otherwise, it is seen that the Assessees engaged in protracted litigation first before the High Court of Sikkim and thereafter this Court. There was an interim order staying the assessment proceedings from 10th July 1990 to 13th August 1998. Having benefited by that interim protection, the Assessees cannot be .....

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h and seizure operation that took place in March 1990 revealed for the first time that the actual management and control of the five Assessees was in New Delhi and that none of these companies had in fact filed any returns under the Indian Income Tax Act despite earning income in India. There are sufficient grounds for exercising the power under Section 148 of the Act. Admittedly, returns were filed only pursuant to the orders passed by this Court. In any event, even the returns under the Sikkim .....

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the AO, was based on the decision in Ranchi Club v. CIT (1996) 222 ITR 66 (Patna). That view has since been overruled by the decisions in CIT v. Bhagat Constructions [2012] 279 CTR 185 (SC) and CIT v Anjum [2001] 252 ITR 1 (SC). The decision of the ITAT in this regard is therefore overruled. Summary of conclusions 91. To summarize the conclusions of the Court: (i) The Assessees, incorporated under the company law of Sikkim, are resident Indian companies. If any income accrued to them or was earn .....

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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 desp .....

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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 absenc .....

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